Welcome and thank you for joining the Rayonier's fourth-quarter 2019 teleconference call. [Operator instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I will turn the call over to your conference host, Mr. Mark McHugh, Senior Vice President and CFO. Sir, you may begin.

Thank you, and good morning. Welcome to Rayonier's investor teleconference covering fourth-quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at rayonier.com. I would like to remind you that in these presentations, we include forward-looking statements made pursuant to the safe harbor provisions of federal securities laws. Our earnings release and Form 10-K filed with the SEC list some of the factors that may cause actual results to differ materially from the forward-looking statements we may make. They're also referenced on Page 2 of our financial supplement. Throughout these presentations, we will also discuss non-GAAP financial measures, which are defined and reconciled to the nearest GAAP measure in our earnings release and supplemental materials. With that, let's start our teleconference with opening comments from Dave Nunes, president and CEO. Dave?

Thanks, Mark, and good morning, everyone. First, I'll make some high-level comments before turning it back over to Mark to review our consolidated financial results. Then we'll ask Doug Long, our senior vice president of Forest Resources, to comment on our U.S. and New Zealand timber results and following the review of our timber results, Mark will discuss our Real Estate results as well as our outlook for 2020. In the fourth quarter, we generated adjusted EBITDA of $65 million and earnings per share of $0.12. Our fourth-quarter results were generally in line with our expectations and consistent with the guidance provided on our third quarter earnings call as modestly stronger than expected results in our timber segments offset weaker-than-expected results in our Real Estate segment, which was driven by the timing of closings. Overall, our team did a great job of navigating very difficult market conditions to deliver a relatively strong fourth quarter with adjusted EBITDA, exceeding the prior year quarter by approximately 30%. For the full year, we generated adjusted EBITDA of $248 million and earnings per share of $0.46. Full-year adjusted EBITDA declined 27% versus the prior year driven primarily by a much lower contribution from our Real Estate segment following an extraordinarily strong 2018. In our Southern Timber segment, we achieved full-year adjusted EBITDA of $120 million, which represents an increase of 16% over the prior year. Notably, this result represents a record level of EBITDA for our Southern Timber segment driven primarily by increased volume due to productivity enhancements and acquisitions as well as an all-time high contribution from our non-timber income business. Thus, while our total consolidated adjusted EBITDA decline relative to 2018, it was certainly encouraging to see significant year-over-year EBITDA growth in our Southern Timber segment, which represents the largest component of…

Thanks, Dave. Let's start on Page 5 with our financial highlights. Sales for the quarter totaled $179 million, while operating income was $26 million and net income attributable to Rayonier was $16 million or $0.12 per share. Fourth-quarter adjusted EBITDA of $65 million was above the prior year quarter, primarily due to higher results in our Southern Timber, Pacific Northwest Timber and Real Estate segments, partially offset by a lower contribution from our New Zealand Timber segment. On the bottom of Page 5, we provide an overview of our capital resources and liquidity at year end as well as a comparison to the prior year. Our cash available for distribution or CAD for the year was $149 million compared to $240 million in the prior year period primarily due to lower adjusted EBITDA and higher capital expenditures. A reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on Page 8 of the financial supplement. We closed the year with $69 million of cash and roughly $1.1 billion of debt. Debt increased modestly in the fourth quarter as we closed on acquisitions totaling $60 million during the period. Our net debt of $988 million represented 19% of our enterprise value based on our closing stock price at year end. I'll now turn the call over to Doug to provide a more detailed review of our timber results.

Thanks, Mark. Good morning. Let's start on Page 9 with our Southern Timber segment. Adjusted EBITDA in the fourth quarter of $28 million was $6 million and $7 million favorable compared to the prior quarter and the prior year quarter, respectively. Fourth-quarter harvest volume of approximately 1.6 million tons was 23% and 19% higher compared to the prior quarter and the prior year quarter, respectively. Although full-year harvest volumes ended up modestly below our initial guidance for the year, overall production was 350,000 tons higher than the prior year. We expect to recapture some of the volume deferred in 2019 and 2020, which is reflected in our segment guidance. The average pine pulpwood stumpage price of $14.82 per ton was 5% unfavorable compared to the prior quarter and flat compared to the prior year quarter. The reduction in price compared to the prior quarter was due to an increase in sales volume in our weakest pulpwood market, where we tend to see increased selectivity in the fourth quarter. The average pine sawtimber stumpage price of $23.25 per ton was flat compared to the prior quarter and 3% unfavorable compared to the prior year quarter. The decline in price compared to the prior year quarter was driven primarily by geographic mix. Our non-timber income team ended the year with another strong quarter, delivering revenue of $8 million, which was flat compared to the prior quarter and 51% higher than the prior year quarter. Full-year non-timber revenue of $35 million was 34% higher than the prior year and reflects a record contribution from our non-timber income business. Overall, our Southern Timber segment delivered full-year adjusted EBITDA of $120 million, which was 16% higher than the prior year on the back of a 6% increase in volume, a slight increase in our weighted…

Thanks, Doug. As highlighted on Page 12, fourth quarter Real Estate segment sales totaled $22 million on roughly 6,900 acres sold at an average price of $3,200 per acre. Adjusted EBITDA for the fourth quarter was $18 million. Sales in the improved development category consisted of a 21-acre parcel in our Belfast Commerce Park for roughly $900,000 or $42,000 per acre. As a reminder, the Belfast Commerce Park is part of our Richmond Hill mixed-use development project, south of Savannah, Georgia, A. new interchange on Interstate 95 within the project footprint is under construction and scheduled for completion by year end, which has generated an increased level of interest and activity in this area. Momentum at Wildlight, our other mixed-use development project north of Jacksonville, Florida, also continues to be strong. Most of the major infrastructure is now in place and our next phase of 122 residential lots is scheduled to be substantially completed by the end of Q1. In the unimproved development category, we closed on a roughly 400 acreage, 400-acre transaction in Nassau County, Florida for $4 million or $10,000 per acre. This caps off a year in which our unimproved development category had a stronger ever results with sales of $20 million and roughly 1,200 acres sold for $16,000 per acre. In the rural category, sales totaled $7 million on roughly 1,500 acres sold at an average price of $4,400 per acre. Rural sales consisted of 19 transactions across our Southern footprint. Lastly, sales in the nonstrategic and timberlands category totaled $11 million consisting of 5,000 acres at an average price of $2,100 per acre. Now moving on to our guidance for the year. Page 14 shows our financial guidance by segment for 2020 and Schedule G of our earnings release provides a reconciliation of our adjusted…

Thanks, Mark. As I look back on 2019, I'm proud of the accomplishments of our people in working together to deliver solid operational performance for the year, and as importantly, remaining focused on executing against our strategic priorities and achieving our mission of generating industry-leading returns and building long-term value per share. When times are good and timber prices are trending upward it's much easier to generate strong financial results. But when market conditions are challenging as they were in 2019, it takes much more dedication, coordination and operational flexibility to manage near term performance while also maximizing long-term value. This past year, our team worked harder, smarter and in a more coordinated fashion to generate the results that we achieved for the year, while at the same time, deferring nearly 300,000 tons of planned harvest volume to help build long-term value. We enjoyed record adjusted EBITDA in our Southern Timber segment, bolstered by our strongest performance to date in non-timber income. While we faced considerable market headwinds in our New Zealand and Pacific Northwest Timber segments, our teams were nimble in capturing opportunities and laying the groundwork for improved performance in the future. Further, while our Real Estate segment results were considerably lower than the record results we achieved in 2018, we remain focused on selling properties where we can achieve meaningful premiums to timberland hold values and continue to enjoy the strongest HBU values relative to our peers. At Rayonier, we live by the adage of never being satisfied with our portfolio. And bring a relentless focus on improving our portfolio, either through addition or subtraction. We have a bias toward acquiring high-quality timberlands, which we believe provides for greater long-term optionality in both good and challenging market conditions. To this end, we were excited to announce on…

[Operator instructions]. The first question is coming from Collin Mings, Raymond James. Your line is open.

Thank you. Good morning Dave, Mark, and Doug. I want to start on the export markets. First, on the coronavirus. You called out a couple of times in the press release and obviously, recognizing the situation is very fluid. Can you just maybe expand on your comments there? Have you seen any slowdown yet attributable to that? How do you anticipate that outbreak impacting demand as well as the flow of logs into China?

Sure, Collin. This is Doug. I'll take that to begin with. Yes, as you mentioned, the situation is very fluid. So personally have had changed plane flights yesterday regarding the situation. So it's something that we're keeping abreast of as best we can on a daily basis. And what I will say is that we've built in our best estimate in the guidance and to what we've thought about how it's going to impact us for the year. And as you're probably aware, we see extension of the Chinese lunar year by to two weeks, depending on the region. So that's obviously going to decrease the demand for logs in those areas. And probably something that's just as important is that during that lunar year, the labor tends to go back home to other regions of China. And so they're now, in some cases, under travel restrictions and can't make it back to the mills and the ports. So we're definitely seeing something shaping up that could last one to two months, we're not sure, but something that's out there that can shape up where. We're going to have decreased demand because people can't get back to the mills to work and also slowdowns at the ports because there's not opportunities to get those labors into the ports to unloading trucks. So we've been thinking about this a lot. And as we think about it, it's going to have an impact on how we think about our harvesting going forward and what we do and our sales process is at New Zealand. So some of the immediate risks we see is that log buying sales are going to be slower this year, obviously, with people not being able to get to the ports. And due to that, we're looking at…

That's helpful color. And I just want to continue on the export markets here or maybe talking more specifically as far as the impact of the salvage wood from Europe. Both again for, I guess, Doug and Mark, and I, again, acknowledge this is likely a work-in-progress, but can you maybe just update us on some of the initiatives you've previously highlighted that were under way to maybe understand the impact of the spruce beetle epidemic? And maybe how long that could impact the market? Just kind of what's your latest thoughts on the overhang that's created.

Sure, Collin. I'll take that one again. Yes, so as you mentioned, we talked about, we have a strategic objective for this year to put some boots on the ground in Europe to try to understand better what's going on. To date, obviously, early in the year, we haven't done that yet, but we have done some research, looking at different information we get from the different departments of forestry, industries of agriculture. And what I would say is what we know now is that 2017 the damage was roughly 27 million cubic meters. And by 2018, it had grown to 80 million cubic meters, so a pretty significant increase. Of that, about 35 million was windthrow. By 2019, it stepped up to 118 million cubic meters across the area impact in Europe. But the good news is of that only eight million was windthrow. So why is that good news? It appears that the windthrow helps fuel the beetle spread and so we've seen an estimated 77% reduction between '18 and '19 in windthrow damage from 35 million meters to eight million cubic meters. So based on some of the information we've gotten from the Czech Republic and Austria, they believe that the epidemic could be peaking in 2020, 2021. And we've seen very aggressive harvesting by the Germans who are most impacted to the point where, in 2018, they were cutting about 50% of damaged wood. By 2019, 85% of harvest was damaged wood. So they've really stepped up in 2019 and then moved on to that logging and getting that moved out. So it's definitely something that's out there we're monitoring. Again, we don't have the boots on the ground yet. That's to come in the next couple of months as we look forward into this. But…

Collin, this is Dave. One thing to add to that, to keep in mind is this is very different from the Mountain pine beetle epidemic in BC in the context that this spruce volume has a much, much shorter shelf life. We've heard estimates anywhere from six months to three years. And so this really speaks to the higher proportion of damaged wood that they're cutting. They're trying to cut it as fast as they can, while it still has value. Another nuance that is important to understand is that this wood has limited substitution capabilities. So for example, it does not peel real well. And so that's an area where our New Zealand market is somewhat protected and that a fairly large chunk of the radiata pine goes into plywood markets. And so that's a market that is generally unaffected by the spruce volume, but the spruce volume absolutely affects the general construction lumber that we compete against, both in the Pacific Northwest as well as the U.S. South.

Yes. That's right. I'd say New Zealand benefits from the plywood furniture, finger-jointed board's molding-type markets that the European spruce doesn't play well in. In the U.S. South, we've seen single pine going well in the treated market for landscape and underground uses type of thing. And European spruce doesn't do well for that. So there's some potential opportunities there, but obviously, there's just a lot of volume there on the construction lumber side.

Good. OK. And if I were to try and again, maybe tie up all of the commentary there together as it relates to the Pacific Northwest, New Zealand and just overall, the export markets, can we maybe switch that to the harvest plan for the year, particularly, again, in the Pacific Northwest, pretty substantial jump there expected. And actually, the upper end of the range would actually appear to be above your sustainable yield in the regions. Maybe can you just elaborate on your decision to increase harvest specifically in the Pacific Northwest, given some of these headwinds. And along those lines, maybe just expand. I know it was referenced in the prepared remarks about some of the stumpage opportunities in the Pacific Northwest. I know it looks like this is the first quarter in about a year that you done anything other than delivered log sales in the regions. Maybe just talk a little bit more on the harvest plan in the Pacific Northwest given some of these headwinds.

Sure. Well, as you can see, delivered sawtimber pricing was remarkably flat for the year as the market adjusted to the reduced exports. And based on the British Columbia channel announcements and some other announcements in the United States, we are anticipating some improvements, but our market Intel suggested that it would take upto six months to draw on the warehouse stocks at these mills and start to tighten the lumber supply chain. Therefore, these reasons, we chose the deferred volume from Q4 of last year and run in a really measured pace through most of this year. As we moved into Q4, we began to see single-digit price improvements across all the grades, but export logs. And we believed this was a signal that the impact of the BC curtailments was being realized in Pacific markets. So we chose to test that stumpage market again and really had quite pleasing success. So on a quarter-over-quarter basis, we realized a 15% increase between Q3 and Q4 and our net stumpage per ton attributable better prices as well as lower logging costs. So we believe that the market has, with that stable pricing for the four quarters of last year has reached kind of a stable point with respect to the lack of exports, and we believe that we start to see some improvements in lumber demand in that area, particularly related to the BC curtailments.

Collin, if I could add just a couple of points to that. I think it's important to note that it was a very intentional move on our part to tap on the brakes during the year, generally. you have limited levers that you can pull, but certainly timing within a year is one of them. And so we saw that inventory taking a long time to kind of go through the system for the BC mills that were curtailed. And that's why you saw in the first three quarters, or excuse me, in the Q2 and Q3, we harvested about 21%, 22% of our annual volume and really pushed that into Q4, where we captured 34% of the annual volume. And that was very intentional. And I think it gets back to one of the things I was discussing earlier on the importance of being nimble. And trying to time the markets based on the market intelligence that we have. The other thing I would note to your question regarding 2020 is recognize that we have deferred some volume. And so some of that higher volume that you're seeing is a representation of that deferred volume being captured in 2020.

Okay. And one last one, and I'll turn it over. But just sticking with this theme, Dave, maybe can you expand on the optimism that you kind of highlighted in the press release related to Phase 1 of the trail? And then again, recognizing it's an evolving situation. Any early read on if logs in the Pacific Northwest could benefit from this decision by China to cut some tariffs next week?

Collin, it's Mark. I'll take that, and then I'll let Doug add some color. I mean, look, as we're going into the year, coming off a year in which we experienced some really significant export market headwinds. Our expectation is that they can only get better with the Phase I trade agreement. It's unclear exactly what's in that agreement still. I think everybody is still trying to sort through what it really means for their respective industries. We're still trying to sort through what it means for logs, but it's certainly better than what we had last year. And I think we even had an announcement today about some China tariffs being rolled off, again, unclear if that impacts our industry. But our expectation, again, like we said, we're cautiously optimistic that as we move forward, we will see some benefits of the Phase I trade agreement. And I guess, our general expectation is that it can only get better from this point kind of relative to where we were coming from.

Yes. I would just add to that a little bit. I agree completely with Mark. One of the things we saw in this Phase I deal was that there was acceptance in the rules for food and our culture trade that provides set of standards by China. They accept US quality controls for a number of agricultural products. And we really see that as a positive sign. One of the reasons we chose to curtail our operations from export that we mentioned a couple of calls ago, was we're really seeing a lot of significant non-tariff trade barriers, opportunities where we're having to fumigate containers of logs up to three times. And so those costs, that cost is exceeding the value of the logs are being transferred. So that was the primary driver. It wasn't that we could operate with the tariff. We understood what that meant. But what we couldn't do is just in the blank check every time we send a lot of logs to China. With this acceptance in the Phase I trade deal that quality controls that China is going to accept US quality controls around agriculture, that's a big win to us, we believe. So we're hoping that will reduce the non-tarrif barriers that just really caused us to pull back and just it was something you just couldn't control. So we're hopeful to see that. Obviously, with the Chinese lunar New Year and the coronavirus, it's going to be a little while to understand if how that plays out and what happens there, but that's something we're hopeful for, to Mark's point. Another important point is in the deal. China has agreed to buy additional $200 billion in business services in 2020 and 2021. And within the category of manufactured goods, which is actually where wood has been included, they'll call us for an additional $33 billion in pursuit '20 and $45 billion in 2021. So we see that as potentially good upside, too. The delta between the 2017 and 2019, pulp is down about 30%. Purchases from China were about $1 billion, and wooden logs is down about 49% or $1.6 billion. So there's definitely some opportunity to pull back and be part of that increase in those agreed purchases. Again, to Mark's point, we know how that's going to work. We just know these are the upsides we have to work with, and the reduction in non-tariff barriers are things that give us some hope.

Very helpful. Thank you.

The next question is coming from Paul Quinn, RBC Capital Markets. Your line is open.

Thanks very much. Morning, guys. Just a question, you mentioned sustainable harvest levels and just following up Collin's question on the increase in the Pacific Northwest. If you could just review what those sustainable harvest levels are for the South, Pacific Northwest and New Zealand right now.

Yes. Sure, Paul. We disclosed them in our 10-K. So I believe the U.S. South is 5.9 to 6.3 per our last disclosure, the Pacific Northwest is 1.3 million tons, and New Zealand is 2.4 to 2.6. I recognize that's last year's disclosure. We have had some portfolio activity during the course of the year. New Zealand, in particular, we've been evaluating our sustainable yield there with respect to some of the acquisitions that we've made, but that's currently our latest disclosure, we'll of course be updating that when we release our 10-K in a couple of weeks.

That's helpful. And then just on log pricing, what you're seeing in the U.S. South. I mean, this seems to be flat for almost ever. I'm just wondering if you're seeing any kind of regional pickup, barring some kind of improvement in the Phase I trade deal.

And I'm sorry, Paul, before I answer that, I think I said 1.3 million tons in the Northwest, I should have said, it's 1.4 million tons is our sustainable yield there.

Sure. I'll take the question on the pricing in the South. So as we've been discussing for the past few years, due to age classes for harvest has been a process of shifting more to Gulf states. And that's a temporary period, but will happen for a few years. On a Q4 year-over-year basis, this geographic shift represents a 21% volume reduction from our Atlantic coastal region with the highest net stumpage prices and a corresponding 46% volume increase in our Alabama and Mississippi region with lower net stumpages. And if you just look at Terramark South prices, you can see that there's a several dollars spread between sawtimber and timsaw prices between these two regions. So this volume trend continues into 2020, which is the reason for our slightly down pricing outlook. So it really is a lot to do at geographic mix when you think about why pricing was flat. We've seen opportunities that have trended up in certain areas and held flat in other areas, but we really have a significant shift in volume between the two. A lot of hard shifts has shifted to that region with lower net stumpage, the actual acres are more productive in that region. So on a total volume basis, when you look at kind of Q4 year over year, the adjusted EBITDA per acre is actually up even when you net out the non-timber income, stronger non-timber income performance. I'm kind of got to refrain from speaking to submarket trends, as many of our competitors and customers listen to these calls and we've had some operational backlash that level specificity, tough word for me to say. So needless to say, as we've talked about some more specific markets, there's other folks who are listening to these calls and made it tougher in some opportunities for us. So we're going to shy away from that.

So that shift to the Gulf region, when is that expected to ease back to more of the balance that we saw a number of years ago? Is that in the next two to five years?

Yes. Yes, it is. It's in the next two to five years, that's in that time range. I don't have the exact year but that's the time range just works for them.

Great. And then last question I had was just on noncash costs and why that doubled in the guidance going forward here?

We recognized as we're getting into more of the improved development sales, those have a much higher basis component attached to them. And so as we're looking at 2020, in particular, we do have a higher level of improved development sales baked into our estimates for the year.

Thanks.

The next question is coming from Anthony Pettinari of Citi. Your line is open.

Good morning, guys. This is actually Randy Toth sitting in for Anthony. Can you just talk about your expectations for New Zealand and Southern pricing in 2020? It looks like just using your guidance that you expect EBITDA per ton to fall 5% in the South and closer to 25% New Zealand. What is baked into those assumptions? Thank you.

Yes, I mean, without getting into specifics on pricing, and I think we've given our general expectation is that the prices are going to be down on a year-over-year basis, and that's partly a function of New Zealand, our second half in New Zealand was considerably worse than the first half, recognize there was a meaningful price decline midyear. And so to a large extent, I'd say we're rolling forward kind of our current expectation of pricing relative to kind of where we sit today or where we've been for the last few months, but on a year-over-year basis, because the last half of the year represents weaker pricing than the first half of the year, on a year-over-year basis, we're anticipating the prices are going to be down modestly.

That's helpful. And then just maybe switch gears. As we approach the spring selling season, can you just comment broadly to the extent that you can on inventories through the supply chain? Log decks and lumber at the dealers? Any color there would be helpful.

Yes. It's very very variable. I guess due to wet weather across different parts of the country. I don't really have a specific location, I can say, is up or down. We have seen restricted supply in the areas where it has been wet. So parts of coastal for Coastal Georgia and even parts of over in the Southwest Texas, things like that, but it has been very wet in the Northwest also Washington had a wet year in that area. So we have seen some contraction, but no specific market intel that things are outside of normal.

The next question is coming from Mark Wilde, BMO Capital Markets. Your line is open.

Hi, Dave. I wanted to just kind of come back and kind of close the circle on these harvest volumes in 2020 because I think there is some concern out there this morning that you're pushing up above kind of sustained yield. It sounds like in the Northwest, what you're really doing is kind of offsetting kind of below sustained yield last year. Maybe you could confirm that and then put a little color on what you're doing in the South because you're also above the field there.

Yes, Mark. This is Mark. I'll take that. Yes. I mean, look, I think, across our segments, the South and the Pacific Northwest, the pickup in 2020 is largely a function of deferral that we've taken in both 2018 and 2019. And again, I think you can't run the risk of kind of deferring indefinitely and then finding yourself with a lot of mature timber. And with a market that can't really sustain that supply. And so I think, look, we're trying to be measured in terms of how we go to market, how we time sales, when we pull back, when we ramp up. Recognize that after two years of harvesting kind of below expectations in both of those regions, we are anticipating getting some of that back next year.

And then I just wanted to pivot to New Zealand for a minute. Can you, first of all, give us a sense of where kind of export log prices are out of New Zealand right now versus what you put up in the fourth quarter?

Yes. Again, I'd rather not comment on kind of the intraperiod pricing, again, like Doug said, I mean, we tend to have customers and competitors listening on this call, and so kind of getting granular about kind of where we see export pricing today or where we see it being next month is something that we generally don't like to do.

And another question about New Zealand. It's always been a more volatile market with bigger swings in cash flows and valuation. I'm just curious, would you be inclined to invest more in New Zealand if we see a significant downturn there over the next year or two?

Mark, I think we're always looking for opportunities to buy through the cycle. And I think look, this is a very long-term asset class. And you have to take a long-term view on trend line pricing because if you're always buying when markets are up, you can find yourself overpaying. And if conversely, if you're never willing to buy when markets are down, you can find yourself missing those opportunities. And so I think in New Zealand, in particular, I think we've timed some of our moves there quite well. If you recall back in 2015, when we increased our stake there. We bought it in an implied value of 15.40 per acre we increased our stake there and implied value of 15.40 per acre and our last appraisal in New Zealand was over $3,000 per acre. And so you're right, it has historically been a much more volatile market from a price standpoint. And also from a cost standpoint. You recognize that when you have a lot higher cost to market, particularly with that export business, that top line volatility, that 10% swing in pricing has a much more pronounced effect on your bottom line than it does in say the South, where if you're kind of measuring price moves off of stumpage revenue, that stumpage revenue is 80-plus percent EBITDA margin in terms of the pass-through. And so it is a more volatile market. And invariably, we're having to take a longer-term view of pricing. The other point I'd make with New Zealand, in particular, I mean, we've obviously kind of experienced a rocket ship in terms of the earnings growth there over the course of the prior three years. And if you look at the result that we achieved in 2018, Dave made a comment, it is the third highest, I'm sorry, 2019, it is the third highest result that we've achieved since we started consolidating the business in 2013. And so we're coming off some extraordinarily strong markets in New Zealand. I certainly don't think that the entire sector segment has been revalued commensurate with $90-plus million of EBITDA, for example, that we did in 2018. It's a lower multiple business. It's a business where people are underwriting it through the cycle, and so this type of price volatility, while it's not helpful so we're kind of trying to manage earnings targets and whatnot. It's something that you obviously have to live with in that region of the world.

Mark, this is Dave. What I'd add to that, just like we've talked about the importance of utilizing bolt-on transactions in the US, we've done the same in New Zealand. We bought two small properties this year, billing just under 7,000 acres. We spent $36 million on those. We're very happy with them. We tend to be pretty deliberate in looking at the bolt-ons in New Zealand that can help us in sort of a regional age class fit and so that's typically is something that we are keen to. And there are a number of opportunities down there. But I'd also say that we approach it in a pretty disciplined manner. And as we saw the run-up in prices on the log side over the last few years, we've frankly been a little less competitive on some of the transactions down there. But we're in it for the long term, and we're going to continue to look for things that make sense. And we'll just have to see whether we get any of that type of pullback that you're referring to from a valuation standpoint and the impact it has on transaction markets.

And then the last one for me, Dave, just on pulp, as best you can comment on this. I mean, just I'm curious, in general terms about how much HBU potential you think there is kind of with those land holdings around future sound? You probably don't want to be too specific, till you close the deal, but it does strike me. I mean, you bought a lot of land with proximity to a pretty large and pretty fast-growing metro market.

Yes. I think the thing I would comment on that with Mark, is that recognize that Washington state has a very strict growth management act that precludes you from doing a lot of land conversion. Pope has a benefit of having a lot of land that is in smaller say, 20-acre zoning areas. I also give them a lot of credit for monetizing some of that through the creative use of conservation easements, where they have sold underlying development rights on a lot of their land holdings, which does two things. It brings in cash flow from the sale of those development rights, but then it also constricts supply of remaining lands that can be used for those purposes. So it certainly is an attractive portfolio in that perspective. But keep in mind, the geography that you're dealing with and the restrictions on those underlying limits. I think where we're probably more excited is just in the sense that with the Fast-Ferry legislation that passed a few years ago, you now have much more access to the Seattle job market with passenger-only ferries, in particular, going from Kingston into Downtown Seattle. And so that has improved the absorption rate on a lot of their HBU portfolio in the North Kitsap part of the market. And we think it will benefit the projects that Pope has in both Kingston and Port Campbell. And so we see that more akin to our Wildlight and Richmond Hill, South of Savannah, those types of projects. And so we're excited to have those come into the fold. We think that we have the right skill set to both understand them and fold them into the business we do here in the South.

Yes. I've been up to both of those. Both very interesting situations. I'll turn it over. Thanks, Dave.

[Operator instructions]. The next question is coming from John Babcock, Bank of America. Your line is open.

Good morning. First question, I guess, just as it kind of pertains to this spruce beetle. I was wondering if you could comment on recognizing that exports from the South to China are pretty minimal at this point. But how does the Southern Yellow Pine compared to some of the other products that are making their way into China? So like where would its niche be relative to Radiata? Where would its niche be relative to spruce? And this all assumes, of course, that you ultimately would even see some Southern Yellow Pine return back to the Chinese market over time.

Yes. I'll take that one. So one of the primary uses that we've seen, the niche market even in these kind of tariff markets is for pressure trading. So for your, like I mentioned for kind of your decking or for things that are going in the ground, say post, things like that. So it’s definitely a niche Southern Yellow Pine. It's well known globally as being really, really good material for absorbing the treatment chemicals. And so that's one of the markets we've seen strong, obviously, like river tides, things like that, where it is accepting treating. So the salvage kill spruce and just spruce in general is not near as well regarded. So that's an area that Southern Yellow Pine has advantage over many of the other species in the world.

And so is there much room for demand for that in China, assuming this whole salvage timber issue lasts for an extended period?

Prior to the tariffs, we were growing that market significantly, so I would say, yes, and it was well received. But once the tariffs went in place, it got much harder. We're still doing a minimum amount of volume, kind of keeping the supply chain open off our Atlantic Coast and a lot of that we're doing now goes into that market. So yes, I think there's opportunity for growth if we can move past tariffs and other things.

John, another thing to keep in mind is the Southern volume flowing into China goes by container versus the break bulk that you see out of the Northwest and in New Zealand. And so it really boils down to the efficiencies of the port. And in effect, the cost of that container shipping. And so as we saw the tariffs be put into place, it constricted the number of ports that could still compete in terms of having competitive cost structure. And so that's a big impact. So to the extent that the Phase I deal opens that up and loosens that a little bit. It will likely open up, reopen up the number of ports that can competitively compete in that market.

Thank you. And then second question, I guess, just quickly, back to New Zealand. How much did you pay for the 7,000 acres that you acquired there?

$36 million. So just a little over $5,000 an acre.

John, recognize that the per acre values in New Zealand can be all over the map. It's all exclusively plantation timberland. So it's heavily influenced by the age class of a specific property.

And yes, one of those properties, in particular, John, had a lot of merchantable timber on it. So that's why you see that average for the two so high.

That's helpful. And then just last question. Just how are you assessing further opportunities to kind of grow non-timber income from here, recognizing it? It sounds like non-timber income will be down a little bit in 2020.

Yes. That's a great question. So we have a team and they're constantly looking at those opportunities, what we can do with respect to other forest products, how we can capitalize on helping people kind of be carbon neutral. So we've got a lot of initiatives going on out there. A lot of them are kind of in their infancy, but any point in time, the team is always tasked with identifying new opportunities and finding ones that are scalable so that they can go out across a lot of acres. Not going to get too specific about those once again because kind of until they've been achieved, you don't want to talk about and also don't want to give ideas to my competitors.

Next question is coming from Mark Weintraub, Seaport. Your line is open.

Thank you. So it looks like 2020 is going to be a relatively decent year for U.S. housing by most forecasts, in the direction of what would historically have been considered normalized. Yet, we're still struggling on the pricing side, recognizing there's differences by submarkets. But still pricing for sawtimber is pretty depressed. Any thoughts on what it's going to take to get that step change that we've been waiting and hoping for a while?

I mean, Mark, keep in mind, and we spent some time in our teach-in in September, and you can look at the materials on our web page about that. But recognize that you had a fairly large build in inventory between now and the prior cycle. But also that, that's very differential. And I think that has acted as a governor of at least step change pricing that you're referencing, and that we continue to believe that you're going to have differential price elasticity across the South based on relative growth drain ratios that, in some cases, are under one and in some cases are well above two times. And so it really is going to be a function of what part of the South you're in, and that's something that we spend a lot of time looking at our own portfolio on and thinking about from a price recovery standpoint.

Thank you. And how important or not so is the Asia component to this equation?

I think I would attribute it to similar to the Northwest and that all else being equal, optionality is your friend. And if you've got additional markets, you're going to benefit. And we have a fairly high proportion of our U.S. South portfolio that is proximate to ports. And so to the extent you have strong Asian markets, you're going to have more optionality to ship that product. But recognize today, at least in the short term, we're dealing with the coronavirus and elevated inventories in China from the European spruce and, to a lesser extent, the Australian fire salvage wood. And so short term, we don't see nearly the opportunities that we would think are going to be there longer term. But we think the U.S. South, as we discussed earlier, from a port competitiveness standpoint, the U.S. South or portions of it stack up very nicely and can bring in wood at a very competitive price relative to other global suppliers into that market.

And Mark, recognize that in the South at least, I mean, that market was essentially nonexistent a few years back. And so the fact that it pulled back significantly last year. I think we're kind of looking more as a lost opportunity as opposed to something that's going to necessarily have a depressant effect on the market. And likewise, if and when it comes back, we think that that's a real opportunity to put some upward pressure on prices there. And I think that export market is also helpful in the sense that to the extent you're getting that log out of the U.S. or out of that local region, it's not being processed by local sawmill. It's not also contributing to the chip supply in the region. And so taking that fiber out of the market, I think, is positive for both sawtimber and pulpwood prices.

Yes. I would just add to that, kind of on scalability type thing. Q2 of 2018, which was the tariffs were announced in Southern Yellow Pine in June of 2018, but that second quarter, South was doing about 677,000 cubic meters of exports to China. And without those tariffs, it was going to increase significantly. On top of that, our own company, we're moving from one ports to two ports to three ports to four port type things. And we saw a lot of competitors doing the same thing. So I think there was a lot of opportunity to scale up, but obviously, the tariffs came in. In Q4, kind of our estimate was about 230,000 cubic meters. So we saw a significant 65% decrease. So the fact that people can still operate is good, but that $677 million was by no means the peak. That was a ramping up period. And like I said, I know myself as well as many other brokers and other folks, we're in the process of building up scale at that point in time. And unfortunately, those tariffs came in right when the market was starting to take off for Southern Yellow Pine.

And then very quickly, on the Pacific North, I guess I'm a little surprised that given the improving domestic housing situation and the perspective that Asia probably didn't get worse that and that is a more tensioned market than the U.S. South that you weren't anticipating that there might be some more price improvement in those markets than what you seem to be forecasting for 2020. Any color there?

Well, I think part of it is that we're trying to take a pretty measured view. Recognize that we kind of got burned last year by taking what we said was a middle of the fairway approach, where we had seen a big decline in prices in Q3 and Q4 of 2018 and within anticipating that there will be some near-term resolution of the U.S.-China trade situation, that we would see a bounce back in prices. That didn't materialize. And so we ended up having to cut our guidance pretty significantly midyear for the Pacific Northwest. And so we're now kind of sitting at four quarters or so of relatively stable pricing. I think the fact that we're able to place volume now at prices that we think are reasonable is much an advantage in terms of how we're thinking about the market relative to where we were last year, where we thought, okay, if we try to push this volume out to the market, it's actually going to have a depressant effect on price. And so we do feel as though the market is improving, but look, I generally hold the view that the best indicator of tomorrow's price is probably today's price. And so taking a really bullish view on kind of how things are going to develop during the course of the year, I think, could just be setting us to have to kind of revise that expectation going forward. And so look, we clearly think that if we do see some real momentum from the Phase I trade agreement that there's upside to these numbers. But to kind of bake that in as we sit here today, following four quarters of relatively flattish pricing, I think, is something we opted not to do.

Yes. And Mark, you have to also just recognize that while that European spruce volume is present in that market, it's going to make it much harder to meaningfully bring Pacific Northwest volume into that market. And that therein lies a lot of that historic tensioning that the Northwest is enjoyed by virtue of that market. So that's just another reason for some of our caution.

Thank you for the color.

Our last question is coming from Collin Mings, Raymond James. Your line is open.

Thanks. Just a few follow-ups from me. As far as Real Estate development investments, Mark, recognizing this will likely change once the Pope transaction closes. But just how should we think about your spending in 2020 as compared to last year's $7 million?

Yes. I generally think it would have been relatively flat on a year-over-year basis, but recognize that we had guided initially to $8 million to $11 million in 2019. And we only ended up doing $7 million and so next year is clearly going to be higher than that, probably more in the range of $12 million to $15 million, I'd say, because there's some carryover from 2019 that didn't occur. And that's going to be both in the Belfast Commerce area, Richmond Hill and Wildlight.

Yes. But Collin, the biggest jump in that year over year is really that growth in that Richmond Hill project, which really had a fairly small component of capital this year. You may recall, there's a new interstate exchange being constructed as we speak. And that's opening up a lot more interest in that project. And so we're moving forward with some of the investments to help position ourselves for sales once that is completed later this year.

We'll, of course, have specific guidance on that in the 10-K. But generally, just for planning purposes, I think it's going to be in that range that I talked about.

Okay. And then I want to go quickly back to John's question, just on non-timber income, in particular, it looks like New Zealand. There was a sizable increase in non-timber sales during 4Q and again, recognize that you don't want to be too specific, but can you maybe just talk about the sustainability of that, specifically in New Zealand? Or was that just an unusual uptick there? Or should we think about that as kind of a go-forward run rate?

No. I definitely think 2019 was probably modestly elevated level in New Zealand. You recognize that our non-timber income business across our three key regions is quite a bit different. And then even quite a bit different within a region, for example, the South, we had a record year in 2019. A lot of that was driven by pipeline easement income, which those tend to be kind of more one-off opportunities, but then you also have your core kind of recreational leases that tend to be sustainable. That's recurring year-over-year income, in the Pacific Northwest, it tends to be cedar salvage revenue, which is somewhat recurring, but again, you can only get on and do that at certain times. In New Zealand is primarily carbon credit sales. And there is a legacy bank, so to speak, of carbon credits that we have there. But it's not infinite. And the bank that we have, I would say, is not generally growing. And so that will ultimately taper off over time. Sorry, Collin. I was just going to mention one thing on the carbon market in New Zealand is late December, the government announced some key changes to their carbon trading and actually raise the kind of the fixed price option, $35 for 2020 emissions. And so ultimately, we saw prices jump from, say, $24 range to $29.50 on that announcement. And so back down around $27.50. So we have seen a pretty increase in carbon trading basically in just the last month and expect that, that will kind of go up as time goes on, as people approach kind of surrenders typing. So there's some upside and the per unit pricing with respect to carbon as things move forward for us.

And just, Collin, for clarification in New Zealand with this carbon scheme, you basically are granted credits during a rotation. And then you have to give back some credits when you harvest and you end up keeping a small net that you can trade. And that's outside of the volume that Mark talked about, which were more legacy credits that we can sell. That's an ongoing source, potential source of non-timber income.

Got it. Very helpful there. And then just one last one for me. Recognizing in the prepared remarks, David, you did touch on kind of aggregate acquisition activity for 2019. And then obviously, the Pope transaction kind of on tap here for 2020. But can you maybe just expand a little bit more on the acquisitions, specifically completed during the fourth quarter, it does look like a fairly sizable level of investment activity in the U.S. South.

Sure, Collin, for the full year, we had 18 transactions. 14 of those were negotiated and four were bid. In Q4, we had three transactions. One, which was just under 24,000 acres was in Northeast Florida. We had another transaction that was in East Texas for just under 7,000 acres. And then we had a small transaction of about 600 acres in Washington state. And so we're happy with all three of those. Overall, we spent $60 million across those, covering approximately 31,000 acres across the three.

I will now turn it back to Mr. McHugh for closing comments.

Well, thanks, everybody, for joining today, and please feel free to follow-up with me with any additional questions. Thank you.

This will conclude today's conference, all parties may disconnect at this time.