Welcome and thank you for joining Rayonier's Second Quarter 2023 Teleconference Call. Today's conference is being recorded. If you have any objections, you may disconnect at that time. Now I will turn the meeting over to Mr. Collin Mings, Vice President, Capital Markets and Strategic Planning.

Thank you, and good morning. Welcome to Rayonier's investor teleconference covering second 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 Forms 10-K and 10-Q 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 are 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 measures in our earnings release and supplemental materials. With that, let's start our teleconference with opening comments from Dave Nunes, our CEO. Dave?

Thanks, Collin, and good morning, everyone. First, I'll make some high-level comments before turning it over to Mark McHugh, President and Chief Financial Officer, to review our consolidated financial results. Then we'll ask Doug Long, Executive Vice President and Chief Resource Officer, to comment on our U.S. and New Zealand Timber results. Following the review of our Timber segments, Mark will discuss our real estate results as well as our outlook for the remainder of 2023. In the second quarter, we generated adjusted EBITDA of $69 million and pro forma net income of $8 million or $0.05 per share. Adjusted EBITDA generated from our Timber segments collectively declined 13% to the prior year quarter. Favorable results in our Southern Timber segment were more than offset by lower adjusted EBITDA in our Pacific Northwest Timber and New Zealand Timber segments. In our Real Estate segment, we achieved adjusted EBITDA of $20 million, down from $25 million in the prior year quarter. Going down further on our operating segment results. Our Southern Timber segment generated second quarter adjusted EBITDA of $44 million, up $5 million from the prior year period. The improvement versus the prior year period reflected a 32% increase in harvest volumes primarily due to the acquisitions completed in late 2022, which more than offset a 14% reduction in net stumpage realizations due to weaker demand and dryer weather conditions. In our Pacific Northwest Timber segment, second quarter adjusted EBITDA of $7 million was down $7 million from the prior year quarter driven by an 11% decrease in harvest volumes and a 19% decline in domestic sawtimber prices. During the quarter, both domestic and export market demand remained relatively soft, which led us to defer some planned harvest volumes until mill inventories normalize and end market demand improves. Turning to the New Zealand Timber segment. Second quarter adjusted EBITDA of $8 million declined $7 million versus the prior year quarter. The weaker results were primarily driven by lower carbon credit revenues as we chose to defer the sale of carbon units amid significant market volatility. Lower net stumpage realizations reflected weaker export and domestic markets compared to the prior year period and unfavorable foreign exchange impacts. In our Real Estate segment, we generated adjusted EBITDA of $20 million in the second quarter, down $5 million from the prior year, as higher weighted average per acre pricing was more than offset by 20% fewer acres sold. Despite the increase in interest rates as compared to a year ago, demand for rural land continues to be strong, and we remain encouraged by the favorable momentum in both our Wildlight and Heartwood development projects. Overall, I'm pleased with how our team navigated the operating environment during the quarter in light of ongoing macroeconomic challenges. As Mark will detail later in the call, we are updating our full-year total adjusted EBITDA guidance to a range of $275 million to $300 million, which represents a 4% reduction at the midpoint versus our original guidance and is largely consistent with the directional guidance update that we provided last quarter. Our revised guidance maintains a similar midpoint expectation as the original guidance for our Southern Timber segment but reflects a lower contribution from our Pacific Northwest and New Zealand Timber segments due to softer market conditions in both regions as well as a lower contribution from carbon credit sales in New Zealand. However, we expect these reductions will be partially offset by a higher contribution from our Real Estate segment than we contemplated in our original guidance due to a much stronger-than-anticipated land sales market. With that, let me turn it over to Mark for more details on our second quarter financial results.

Thanks, Dave. Let's start on Page 5 with our financial highlights. Sales for the second quarter totaled $209 million, while operating income was $20 million and net income attributable to Rayonier was $19 million or $0.13 per share. On a pro forma basis, net income was $8 million or $0.05 per share after adjusting for an $11 million net recovery associated with the legal settlement. Adjusted EBITDA was $69 million in the second quarter, down from $83 million in the prior year period. On the bottom of Page 5, we provide an overview of our capital resources and liquidity. Our cash available for distribution, or CAD, for the first half of the year was $63 million versus $120 million in the prior year period. The decrease was driven by lower adjusted EBITDA, higher capital expenditures and higher cash interest paid, partially offset by lower cash taxes. 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 second quarter with $88 million of cash and $1.5 billion of debt. At quarter-end, our weighted average cost of debt was approximately 3.1%, and the weighted average maturity on our debt portfolio was approximately five years with no significant debt maturities until 2026. Our net debt of approximately $1.4 billion represented 23% of our enterprise value based on our closing stock price at the end of the quarter. I'll now turn the call over to Doug to provide a more detailed review of our timber results.

Thanks, Mark. Let's start on Page 9 with our Southern Timber segment. Adjusted EBITDA in the second quarter of $44 million was $5 million or 13% above the prior year quarter, driven by higher volumes and non-timber income, partially offset by lower net stumpage pricing and higher costs. Total harvest volume rose 32% versus the prior year quarter, primarily driven by an increase in pine sawtimber volumes from the successful integration of acquisitions we completed in late 2022. Average sawlog stumpage pricing was $29 per tonne or a 15% decrease compared to the prior year period. The moderation in pricing reflected reduced market tension across our operating areas due to drier weather conditions, softer demand from sawmills, and less competition from pulp mills for chip and saw volume. Meanwhile, pulpwood net stumpage pricing fell 26% versus the prior year quarter to roughly $16 per ton as weaker end-market demand, dry weather conditions and extended maintenance outages at pulp mills all contributed to softer market conditions. Overall, weighted average stumpage prices in the second quarter fell 14% versus the prior year quarter to roughly $22 per tonne. The market tension that drove exceptionally strong pricing levels a year ago has eased as a result of weaker end market demand for pulp products and softer residential construction activity. However, we believe the pricing deterioration we experienced during the first half of the year has largely played out and expect that the relative strength and diversity of our U.S. South footprint will be a key competitive advantage for us moving forward as end market demand improves. Moving to our Pacific Northwest Timber segment on Page 10. Adjusted EBITDA of $7 million was $7 million lower than the prior year quarter. The year-over-year decrease was primarily driven by lower net stumpage realizations, lower harvest volumes and higher costs, partially offset by higher non-timber income. Volume decreased 11% in the second quarter as compared to the prior year period as some planned harvests were deferred in response to soft market conditions. At $97 per tonne, average delivered domestic sawlog pricing in the second quarter fell 19% from the prior year period, primarily due to weaker demand from domestic lumber mills, coupled with reduced tension from export markets. Meanwhile, at $36 per tonne, pulpwood pricing decreased 20% versus the prior year quarter, as end market demand deteriorated relative to favorable working dynamics seen last year. During the second quarter, Pacific Northwest sawmills had ample log supplies, which constrained our pricing power even as lumber prices started to improve. However, we are optimistic that a further recovery in the end market lumber demand and the normalization of inventory levels will translate to positive momentum and solid prices in the latter part of this year. Moving to New Zealand. Page 11 shows results and key operating metrics for our New Zealand Timber segment. Adjusted EBITDA in the second quarter of $8 million was $7 million below the prior year quarter. The decrease in adjusted EBITDA compared to the prior year period was driven by fewer carbon credit sales, lower net stumpage realizations, unfavorable foreign exchange impacts and slightly lower harvest volumes. Average delivered export sawtimber prices of $104 per tonne declined 26% compared to the prior year quarter, primarily due to ongoing challenges in the Chinese property sector. However, net stumpage realizations remained relatively flat as port and freight costs fell significantly from the record high levels experienced in the prior year period. The recovery in the Chinese economy following the relaxation of COVID-19 containment measures in late 2022 has been slower than we had anticipated. Pent-up demand provided a lift to property sales and new construction starts early in the year, but activity slowed through the second quarter. That being said, port log inventories declined roughly 15% over the month of July to 3.7 million cubic meters, which has translated to some rebound in log pricing. Shifting to the New Zealand domestic market, second quarter average delivered sawlog prices fell 10% in the prior year period to $69 per tonne, largely reflecting the change in the New Zealand dollar to U.S. dollar exchange rate. Excluding foreign exchange impacts, domestic sawtimber prices declined 3% from the prior year period. Domestic pulpwood prices in New Zealand increased 10% on a U.S. dollar basis, reflecting supply disruptions following Cyclone Gabrielle. Excluding foreign exchange impacts, pricing improved by 19% in the prior year period. Non-timber income in New Zealand declined during the second quarter relative to the prior year period as we opted to defer the sale of carbon credits amid market volatility resulting from regulatory uncertainty. However, we are encouraged by the recent uptick in carbon credit pricing following steps taken by the New Zealand government to stabilize the market. Given the recovery in both pricing and market liquidity, we expect to be more active in the New Zealand carbon market in the second half of the year. Lastly, in our Trading segment, we posted a slight operating profit in the second quarter. As a reminder, our trading activities typically have low margins and are primarily designed to provide additional economies of scale to our feed timber export business. I'll now turn it back over to Mark to cover Real Estate results.

Thanks, Doug. As detailed on Page 12, our Real Estate segment delivered strong second quarter results. Real Estate sales totaled $32 million on roughly 3,800 acres sold at an average price of $7,500 per acre. Real Estate segment adjusted EBITDA in the second quarter was $20 million. Drilling down, sales in the improved development category totaled $12 million. In our Heartwood development project, South of Savannah, Georgia, sales included a $3 million sale of a 101-acre site to a national homebuilder for the first phase of an active adult community, two residential pod sales totaling 62 acres for $1.8 million and 47 finished residential lots for $2.1 million reflecting an average base price of roughly $44,000 per lot. In our Wildlight development project north of Jacksonville, Florida, sales consisted of a $5.3 million sale of a 97-acre site to a national homebuilder for the second phase of an active adult community. We're very excited about the market reception to our two active adult sites in Wildlight and Heartwood as they are important components of our mixed-use development strategy. Overall, we continue to believe that both our Wildlight and Heartwood development projects are well positioned and will benefit from favorable migration and demographic trends, relatively affordable price points and a diverse mix of residential, commercial, and industrial end-users that each help to catalyze demand for one another. Turning to the rural category. Second quarter sales totaled nearly $16 million, consisting of approximately 3,400 acres at an average price of roughly $4,600 per acre. Key transactions included two sales in Walker County, Texas, totaling roughly 1,100 acres for $5 million, reflecting an average price of roughly $4,500 per acre. Overall, we are encouraged by the continued strong demand for rural land despite the higher interest rate environment. Lastly, during the second quarter, we also closed on the sale of 76 acres of nonstrategic holdings in Bradford County, Florida for $250,000 or roughly $3,300 per acre. Now moving on to our updated outlook for the full year. Based on our first half results and our expectations for the balance of the year, we now anticipate full year net income attributable to Rayonier of $63 million to $78 million, full year pro forma EPS of $0.30 to $0.40 per share, and full year total adjusted EBITDA of $275 million to $300 million. With respect to our individual segments, we now expect that our Southern Timber segment will achieve full year harvest volumes of 7.2 million to 7.4 million tonnes, which is at the higher end of our prior guidance and reflective of stronger-than-expected production in the first half of the year due to dry weather conditions. However, we anticipate lower quarterly harvest volumes for the remainder of 2023 as compared to the first half of the year. Further, we anticipate a modest decline in net stumpage pricing versus second quarter pricing levels, primarily due to a seasonal increase in the proportion of thinning volume as well as geographic mix. Overall, we expect to achieve full-year adjusted EBITDA in our Southern Timber segment of $150 million to $155 million. In our Pacific Northwest Timber segment, we now expect full year harvest volumes of 1.4 million to 1.5 million tonnes as we deferred some planned harvest in response to soft market conditions. However, we expect that weighted average delivered log prices in the second half of the year will increase modestly from first half 2023 pricing levels based on improved end market lumber demand and pricing. Further, we believe net stumpage realizations will also benefit from modestly lower cut and haul costs over the balance of the year. Overall, we now expect to achieve full-year adjusted EBITDA in our Pacific Northwest Timber segment of $30 million to $34 million. In our New Zealand Timber segment, we now expect full year harvest volumes of 2.3 million to 2.5 million tonnes as we have deferred some planned harvest volume in response to unfavorable market conditions. We expect that export sawtimber pricing will be modestly lower as compared to the first half of the year. However, we expect this decline will be partially offset by lower port and freight costs. As Doug discussed earlier, we are cautiously optimistic that export log pricing has turned a corner given the recent drop in Chinese port inventories. In the domestic market, we expect that sawlog pricing will decline modestly from second quarter levels as elevated interest rates continue to constrain the residential construction market. Turning to the carbon market. We have tempered our full year expectations for carbon credit sales based on significant market volatility and limited transaction activity in the first half of the year. However, we expect to be more active in the carbon market in the second half of the year following the recent uptick in carbon pricing in response to governmental action to stabilize the market. Overall, we now expect the New Zealand Timber segment will generate full year adjusted EBITDA of $39 million to $46 million. In our Real Estate segment, we now expect full year adjusted EBITDA of $90 million to $100 million as demand for Timberland and rural HBU properties has held up better than expected despite the higher interest rate environment. Based on the anticipated timing of closings, we expect the second half transaction activity will be heavily weighted to the fourth quarter. Lastly, we expect corporate segment expense of $34 million to $35 million, which is roughly in line with prior guidance. More details regarding our updated guidance, including a reconciliation of adjusted EBITDA to net income and EPS can be found on Page 14 of the financial supplement and Schedule G of our earnings release. I'll now turn the call back to Dave for closing comments.

Thanks, Mark. As I reflect on the first half of the year, I'm pleased with how our team has remained focused on both preserving and enhancing the long-term value of our assets despite a difficult near-term operating environment. Following a challenging start to 2023, we're beginning to see encouraging signs of stabilization and improvement across many of the end markets served by our timber operations. In the U.S., prospective homebuyers have increasingly turned to new construction to meet their housing needs amid a housing shortage that has been further exacerbated by the rapid rise in mortgage rates. Specifically, the significant increase in rates over the past 18 months has discouraged many prospective sellers from listing their current residences and thereby translated to a dearth of supply in the resale market. As a result, we're seeing favorable momentum in several residential construction indicators such as home builder sentiment, new single-family building permits and orders for building materials. Further, there are early signs that the destocking of inventory for products derived from our pulpwood such as containerboard is nearing completion. Meanwhile, as discussed earlier, the New Zealand government has recently taken action to provide more stability in the country's emissions trading scheme, which better positions us to participate in the carbon credit market over the balance of the year after we opted to remain on the sidelines over the past several months to preserve value in uncertain market conditions. Turning to real estate. While market fundamentals have generally remained strong in 2023, our year-to-date financial results have not fully reflected this dynamic as much of our transaction pipeline entering the year was weighted toward the second half of the year and the fourth quarter in particular. Overall, we remain very encouraged by the positioning of both our improved development projects and rural properties. All things considered, I believe the operating environment for our business will generally be more favorable over the second half of the year versus the first half. In addition to managing ongoing operational priorities and evolving market conditions, our team has also been advancing initiatives associated with the growing demand for nature-based solutions to support the transition to a low carbon economy. Interest from prospective counterparties and the corresponding list of potential opportunities continues to grow, and we are in the process of converting some of these opportunities into financial results. We now have in place wind, solar and carbon capture and storage leases and expect that these nature-based solutions as well as others offered by our timberlands will become increasingly important to our long-term value proposition moving forward. In sum, I'm proud of how our dedicated team is navigating evolving market conditions and positioning Rayonier to create shareholder value over time. We collectively remain very optimistic about the future prospects of our business and all of the opportunities that our land base provides. That concludes our prepared remarks, and I'll now turn the call back to the operator for questions.

Mike Roxland with Truist Securities. You may go ahead, sir.

Thank you, David and Mark, for joining the call and answering my questions. I wanted to start by asking about the situation in the U.S. South and your expectations for lower quarterly harvest volumes, particularly in the second half of the year. Is this primarily related to pulpwood, considering the recent trends in housing? Given the growth we've seen in single-family housing, I would have expected sawtimber to improve. I would like to know your thoughts on Southern volumes for the latter half of the year.

Yes, sure, this is Doug. I'll answer that one. We have a reasonable mix of both stumpage and delivered business and what we've seen is that there has been pretty active harvesting on our stumpage sales. So a lot of the harvesting that we had in the first half of the year, sales, we sold a 12-month contract. A lot of wood has been pulled forward in the first half of the year by the harvesting. So what we're seeing out there in the market is that while the folks who do buy stumpage, they have very low inventories and so they've moved on and harvested on those tracks. And so we have a lower mix of stumpage going into our second half the year. So just so just a slight slowdown in the volumes that we harvested.

Got it. How does this relate to the mix of pulpwood or saw timber? Have you noticed anything? Have you seen any improvement in saw timber demand, especially with the increase in single-family housing construction over the past couple of months?

Yes, absolutely. We've been encouraged by some of the recent price negotiations we've had both on our delivered sales programs as well as some of our recent stumpage sales. And as we discussed in our prepared remarks, while there will be some fluctuations in reported pricing based on geography, harvest type of mix, we think on an apples-to-apples basis, pricing appears to have bottomed out, and we're actually starting to see some improvement in pricing in our recent negotiations. This is really compared to earlier in the year. But it's historically been the case, about 5% of our volume shifts in harvesting from the stronger coastal markets to the Gulf markets kind of during Q3 and into Q4. And that’s accompanied by a 20%, 25% increase in fitting volume. That's almost all pulpwood. So while we've seen per pricing stabilize and even improve, the shift in location harvest type is still there in our composite pricing going in the second half, which is what's built into our guidance.

Yes, Mike, and just reiterate the lower expectation for volumes in the second half of the year is really driven by, like Doug said, that acceleration of volume on the stumpage sales and not any statement about market conditions. We actually expect market conditions to be more favorable in the back half of the year.

I appreciate the information you've shared. I have one more question about New Zealand. Have you noticed any effects from the renewed friendly relationship between Australia and China, particularly concerning China's re-opening of wood imports from Australia? How has this influenced your operations in New Zealand? Also, how do you anticipate your New Zealand margins will shift as China begins to import more wood from Australia?

Yes, this is Doug, and I'll take that one. We have not seen any impact on additional fiber or logs flowing into China from Australia. We operate a large exporting joint venture that previously moved a significant amount of wood from Australia. Throughout the trade war between Australia and China, the flow of wood has shifted back to being used domestically. Additionally, there have been further restrictions on harvesting in Australia during this period. Therefore, we do not expect a significant increase in volume going from Australia to China. Some marginal wood may come from ports, but I do not anticipate this being a major event for us moving forward.

Yes. And Mike, I would like to add that before this trade dispute, they held about 10% of the market in China, and we don’t anticipate them returning to that level due to changes they have made to focus more on domestic processing.

Thank you very much. Good luck in the second half.

Thank you. Our next question comes from Mark Weintraub with Seaport Research Partners. Mark, you may go ahead.

Thank you. There has been a significant increase in the real estate sector compared to our original guidance. I'm curious about how much of this is due to improved market conditions versus being driven by timing issues. Additionally, I would like to know your current perspective on your HBU holdings compared to a couple of years ago. Have you seen a positive change in that regard, and any insights you can share would be appreciated.

Yes, that's a great question, Mark. There's a lot to consider here. When we analyze our real estate, a significant portion consists of rural recreation and residential properties. We've noticed that a good segment of that market is relatively unaffected by interest rates, particularly cash buyers, which has contributed to stability. While there's been some impact, this market doesn't generally involve highly leveraged transactions, providing a solid support base. Additionally, following COVID, we've observed a fundamental shift with more people interested in living in rural areas due to remote work opportunities. This trend has positively affected our rural properties, where we've made modest investments in subdividing parcels and allocating some capital, leading to sales that have far exceeded our expectations since COVID. Another important aspect is the success of our development projects, especially those north of Jacksonville, like Wildlight, and south of Savannah, such as Heartwood. We're experiencing significantly better absorption rates than we anticipated when initially assessing these projects, and that momentum is encouraging. As we mentioned in our prepared remarks, our strategy includes diversifying end uses, such as shifting from finished lot sales to plot sales, where we sell a group of entitled plots that homebuilders can develop into finished lots before selling homes. This approach improves our capital management while giving builders more control. We've also been advancing our active adult communities in both Heartwood and Wildlight, with two closings at Wildlight and one at Heartwood, progressing well alongside our single-family lots. Lastly, the announcement of the new Hyundai plant, which is close to our Heartwood project, has positively influenced absorption rates. Homebuilders linked to this project have already made several sales. Overall, with Heartwood and Wildlight being substantial projects with many years of supply ahead, we're significantly ahead of expectations, reflected in our results. We're very optimistic about the progress of these projects, and it's also important to note that our initial motivation for these projects was not only the land but also the adjacent areas, which we believe are gaining value as development continues.

Thank you for the detailed explanation. Based on your insights, do you have a clearer perspective on what the run rate might look like over the next five to seven years? Given the increased pace, I would assume the outlook is positive, but I wanted to confirm.

Yes. I'd say that where we sit now, we certainly have seen a higher run rate than we expected and sort of faster absorption. Some of the same dynamics that I talked about on the rural residential also apply to these projects. And they both benefited from some of the regional migration patterns that we've seen in particularly in the U.S. South. Both of these areas have strong school districts and strong in-migration. And so yes, we've been very encouraged by what we've seen, and we expect more of this to come. And another thing that we’re continuing to kind of work on the pipeline. We have a number of other projects that we are working on within the real estate sector that are at earlier stages. And so we expect as these two projects progress, some of our other projects that we're working on are going to start to translate as well to P&L impacts.

Mark, this is Mark. I'd just balance that a little bit, though, in terms of the longer-term expectation around just the rise that we've seen in underlying timberland values as well as optionality around nature-based solutions. Recognize that, that rural HBU business is all about premium. And the clearing price to hit our premium expectations continues to move up, again, given some of those alternative land uses. And so while our development business we feel certainly hit its stride, and we expect that, that will continue to perform at a higher level relative to what we've seen for the last, call it, five years ago. Again, I think that rural HBU business will be somewhat balanced in terms of our willingness to sell land given some of the other optionality and the increase in values that we've seen there.

Interesting. And so just shifting gears quickly, Pacific Northwest, and I understand the comments you were making on the timber business. But I guess I'm sort of surprised given lumber pricing has been pretty strong domestically that there wasn't kind of a more robust carry through to sawtimber pricing. I mean how much of that the export market or any other kind of additional nuance that you would bring to the process of analyzing what's been going on there?

Yes, this is Doug. I'm happy to address that. Earlier in the year, the higher interest rates significantly decreased demand for building products, especially in the West. This led the mills to reduce production and lower their inventories in response to the diminished demand. Additionally, there was a decline in market interest for exports to Asia, which left the mills with a surplus of log inventory. Moving into Q3, as Dave noted, homebuilders are regaining confidence, leading to an uptick in demand. We've also observed a pause in lumber pricing. Mills are now increasing their operating capacity after previously reducing it, which has contributed to the stabilization of log pricing and even some positive trends in certain markets recently. It took some time for the supply to flow back in, but we are beginning to feel the pressure in the market. In July, there was a 25% drop in North American volume at China ports, indicating a steady decrease in demand from China, but we are encouraged by rising customer demand from that region. We are reentering the market in Q3 with exports from our Port Angeles Export yard. The mills are now operating at capacity, supply from British Columbia has decreased, and with increased confidence, we expect to see some price increases, which we are already witnessing as we approach the second half of the year.

Okay. I'll get back in queue. I do have another question if it doesn't get hit, otherwise, good luck in the next quarter.

Thanks, Mark.

Thank you. Our next caller is Anthony Pettinari with Citi Research. You may go ahead, sir.

Good morning. I was wondering if you could talk a little bit more about kind of free cash flow or CAD implied by the updated full-year guidance. And in case the kind of second half improvement doesn't materialize, and maybe we're in a weaker economic environment in 2024. Can you just talk about sort of free cash flow profile versus the dividend if we really stress test macro assumptions, say there's a recession, obviously, that's not the base case, but just wondering if you could kind of talk about that and levers that you can pull?

I'm sorry. Yes. No, our expectation is for higher free cash flow in the back half of the year. That's largely driven by higher adjusted EBITDA in the back half of the year. And so despite that, we do expect that the dividend will be modestly underfunded this year, and that's just a function of macroeconomic headwinds that we've seen really through the first half in particular. Obviously, we set the dividend on the basis of long-term cash flow expectations also with the desire to grow the dividend over time. As cash flow has grown. We saw very strong growth in cash flow in 2021 and 2022. And obviously, that's backed up some here in 2023. But we still feel as though long-term, we're poised for growth in cash flows as we see a market recovery. But that's something that we have to continuously assess. And certainly, if we saw a more pronounced pullback in market conditions, we have to assess the dividend against that backdrop. But right now, we certainly feel confident that long-term, the business is pretty well situated. And obviously, our balance sheet is still in very good shape, and we have a lot of levers at our disposal to manage both cash flow as well as leverage.

Okay. That's very helpful. And then maybe just shifting gears on credits. You mentioned the plan to increase New Zealand credit sales after, I think, government actions to stabilize the market. I was just wondering if you could provide any more context on those actions? And then in the U.S., we've started to see some of these credit projects piloted in different geographies, maybe now including the U.S. South. I was just wondering if you could talk generally about sort of the attractiveness of those projects and maybe Rayonier participating in the credit markets in U.S. as well as New Zealand in the long term?

Sure. This is Doug again. The New Zealand government announced in March plans to review its emissions trading scheme to explore whether changes might need to encourage businesses to focus more on reducing emissions as opposed to offsets. This created a fair degree of market uncertainty and limited liquidity in the market and causing prices for NZUS to really decline considerably compared to where they were a year ago. While we expect in terms of view that New Zealand ETS will take some time to complete, the government has recently taken measures to adjust both price controls and settings, which has helped support higher pricing liquidity than we saw earlier. And notably, we've already seen a see uptick in the NZU carbon card prices and liquidity fall in this news. So there was some uncertainty put in the market and then it probably market overreacted beyond what they expected and the government has come back in to try to help assure everyone and stabilize things.

Yes. As it relates to nature-based solutions more broadly, we do still see tremendous opportunity long term around nature-based solutions. Carbon credit markets are really just one piece of that. We tend to think of nature-based solutions as broadly falling into three categories, first of which would be carbon markets, both voluntary markets, which is what we have in the U.S., as well as regulated markets like the New Zealand Emissions Trading Scheme. That second bucket would be alternative land uses, and that might include solar wind leases, carbon capture and storage leases. We're seeing tremendous activity there right now. Lastly would be wood fiber for bioenergy and biofuels, for example, sustainable aviation fuel. So that's kind of how we broadly think about the major categories of nature-based solutions. That said, all of these different opportunities are in various stages of development. To date, the regulated market in New Zealand has been the largest driver of revenue for us in that nature-based solutions arena. We haven't yet participated in the voluntary carbon market in the U.S. given just broader concerns around the quality and consistency of voluntary market offsets. That's so we're certainly evaluating a number of opportunities in the voluntary market currently. But suffice it to say, we're proceeding very cautiously on that front. But like I said, the area that we're seeing the most opportunity right now just in terms of capital investment as well as tangible medium-term revenue opportunities for Rayonier is really around that alternative land use. Doug is overseeing our nature-based solutions business. So maybe I'll turn it back to him to provide an overview of some of the kind of activity that we're seeing in that space currently.

Thank you, Mark. I would like to expand on Mark's remarks regarding carbon credits in the voluntary market. We are currently working on this and expect some of our initial projects to launch in 2024. We have also been forging relationships with partners focusing on high-quality credits. As Mark noted, concerns about the credibility of some early carbon credits have made us cautious. We are hoping to see improved standards and best practices develop before we issue our own credits. We have noted the efforts of the Integrity Council for voluntary carbon markets to establish a framework for credit integrity, which we consider a positive step. Given our extensive experience in New Zealand's carbon markets and the anticipated demand for carbon credits both in the U.S. and worldwide, we think it is wise to concentrate on long-term value by setting ourselves apart through quality. Overall, we view the increased focus on quality and integrity in the voluntary market as a promising trend that should eventually lead to higher prices as low-quality credits are removed and replaced with more effective ones. We were patient in New Zealand when credits initially sold for low prices, and we have seen their trading range rise to between $35 and $50 in recent years. We plan to adopt a similar strategy in the voluntary market to build a sustainable business rather than seeking quick profits. Regarding alternative land use, we have engaged in carbon capture and storage (CCS), solar, and wind initiatives. On the CCS front, we are prioritizing the Houston carbon capture hub due to its existing infrastructure, location, and the presence of significant emitters and favorable geology. We have identified around 400,000 acres in Texas and Louisiana with geological potential for carbon storage, and we are working with various counterparts. Earlier this year, we signed our first carbon capture lease for 26,000 acres. Generally, these leases involve a payment for the land with additional benefits if and when injection begins, which may take several years due to the lengthy permitting process. We are optimistic about the potential of carbon-capture leases to generate substantial value for our shareholders. On solar, we are witnessing strong interest from leading solar developers across our southern regions. The utility-scale projects are projected to triple the solar industry in the next five years, with solar representing over 50% of all new electric capacity added to the grid in the first quarter of 2023. Florida, Texas, and Alabama are among the top states benefiting from this trend. Recently, we sold approximately 3,000 acres to solar developers at an average price exceeding $10,000 per acre. However, leasing has become more attractive as a long-term revenue source and offers the potential for additional nature-based solutions like carbon capture storage. Currently, we have around 26,000 acres under lease or in negotiations with developers interested in leasing more land in Florida, Georgia, Alabama, and Texas, based on factors including grid capacity, proximity to transmission lines, and availability of suitable land. In terms of wind, we launched our first wind farm in Oklahoma in 2020, comprising 16 turbines on our property under a long-term lease that includes a base rental and revenue sharing based on the turbines' energy production. There is ongoing interest in this area, and we are exploring three additional wind farms in New Zealand that could include over 60 turbines. Shifting to fiber demand, the interest in using our fiber for low-carbon products, such as biofuels and sustainable aviation fuels, has grown significantly. We are in various stages of discussion about fiber supply for numerous innovative projects, some of which may require a small pulp mill. While immediate demand is not present, we anticipate growth in the future, recognizing that it may involve delays due to permitting and construction. We are encouraged about the long-term prospects for our land base, as these new customers fall outside our traditional markets, revealing different opportunities and dynamics. This is a high-level overview of our current activities and future direction, and we are also eager to explore more nascent areas in nature-based solutions, particularly concerning biodiversity.

And Anthony, I would like to provide some additional perspective on that. We truly engaged in this work back in 2021. A significant part of our efforts involved identifying potential opportunities while assessing the timing expectations, which helped us enhance our understanding of these opportunities. We have since made considerable progress, and this was a key factor in the reorganization we announced earlier this year under Doug's leadership. We've added numerous dedicated positions to pursue these opportunities, which has enabled us to adapt as these opportunities have grown in significance. We are very enthusiastic about the way our portfolio is positioned and how our team is structured to chase these opportunities. It’s still early, but we appreciate the approach we've taken and believe it aligns well with our portfolio.

Great. Great, thank you. That details are very helpful. I'll turn it over.

Thank you. Our next caller is Ketan Mamtora with BMO Capital Markets. You may go ahead, sir.

Thank you. Good morning, Dave, Mark, and Doug. I would like to start with Doug; you mentioned that port inventories in China have decreased significantly. Do you have an idea of how they compare to historical averages? Are they back to normal levels or do you think they will reach that point soon?

Sure. Yes, this is Doug. I'll answer that one. So yes, as we mentioned, we saw a 15% decrease in port inventories during the month of July, which is resulting in about 3.7 million cubic meters at the month-end. And we're seeing average daily sales in July of approximately 72,500 cubic meters, and that's up 5% year-over-year. And we typically like to think about kind of what's the demand to the inventory ratio. And if you think about that right now, this equates to an inventory demand ratio of about 1.7 months. And historically, when we've seen this ratio below two months that equates to tensioning in the market with price appreciation, which is what we're seeing currently. So we're getting back, to your point, we're at a point now where we're getting below that two months inventory demand ratio, and that's where we typically have seen things. So the inventories have come back down quite a bit from where they were. And to your point, getting into more normalized, when we get to that two-month ratio. So I think that's a good thing. Additionally, we've seen lumber inventories have also fallen through July, which has yielded some price improvements in lumber too. So the Chinese softwood market is showing signs of recovery with a reduction in both inventory and increased prices during a seasonally low period of demand because we're in the monsoon season, it's very hot temperatures. So I think we're seeing a point where we're starting to see price appreciation attention in that market. So it's feeling like a good time right this minute to be in that market.

All right. No, that's helpful context. And then Doug, any update on kind of where we are with the European spruce bark current situation and the exports that we are seeing from there into Asia, whether it's kind of logs or lumber?

Sure. Yes. I think what we've seen is that the European spruce beetle salvage has mainly wound itself down. They're still harvesting some of that. But from what I've read and seen the excess of harvest where they were harvesting beyond their average annual cuts in certain countries, that has come back down now, it's where they're pretty much cutting within their kind of more normalized annual harvest. So we've seen the amount of volume from Europe, particularly being exported for those salvaged reduced significantly over the years. And I don't expect to see that ramp back up. What we can see though is that kind of with the weaker demand in macro across the country that still could see European volume moving around and trying to find a home if it's not being processed at sawlogs. But I don't see that really increased ramp-up that we saw before. So not expecting to see European logs look anything way they did in kind of 2020.

Got it. That's helpful. And then final question from my side. Can you talk a little bit about how your M&A pipeline is looking and just deal activity in timberland?

Sure. I'll take that, Ketan. This year has generally been slower, partly due to the various options presented by nature-based solutions, which has led many landowners to pause and wait to see how markets evolve. This has contributed to the slowdown in activity. However, on the demand side, we've observed consistent strong demand, particularly in the context of capital flows, which significantly influence pricing and volumes. We're noticing capital being directed towards this asset class for those same reasons. Ultimately, we need to see how this situation unfolds. We are actively seeking smaller transactions that fit our strategy across all our regions, but we are adopting a wait-and-see approach regarding larger transactions until the landscape becomes clearer.

Got it. That's very helpful. I'll jump back in the queue. Good luck in the back half.

Thank you. Our next caller comes from Buck Horne with Raymond James. You may go ahead, sir.

Hi, good morning, and thank you for your time. I was curious about the pulpwood market and wanted to know what you're hearing from your end market customers regarding the pulp mills and their log inventories as we move into the latter half of the year. Are there any indications that demand for containerboard or other pulp products is starting to pick up? What insights do you have from the pulpwood market at this time?

Sure. Much of the inventory reduction across the supply chain resulted from the shift in economic consumption from goods to services after COVID. Recently, we've noticed an improvement in inventory levels, with inventories at mills and box plants dropping to 2.6 million tonnes in June, down from a peak of 3.1 million tonnes in July last year. For context, in the two years preceding the pandemic, inventory levels averaged around 2.6 million tonnes, putting us back in that range. This is why we indicated in our prepared remarks that the destocking process for products made from our pulpwood is mostly finished, as mill and retail inventories are reaching more normalized levels. The last segment of the supply chain still focused on clearing inventory is the wholesale channel between the mill and retail. Once that clears up, we anticipate a more significant recovery in containerboard demand. Overall, we feel the inventory situation has greatly improved from where we were, and we're starting to see matching demand on the ground. We've had mills that were under quota previously now stating they can accept more volumes. It's similar to the situation in the lumber market in the Northwest, where we need to see capacity improvements and wood movement before we can expect price increases. In several areas, mills have begun to lift quotas and allow us to bring in more logs, and we expect this trend to lead to pricing improvements as demand increases on their side, which we've already observed in individual mills.

Awesome. That's very helpful color. I appreciate that. And then switching just to the timberland M&A markets, as you guys have highlighted, I mean, demand has remained pretty strong, not only for rural real estate, but just timber in general as an asset class. Sounds like there's not a lot of sellers putting packages together in the market right now. Would you guys think about stepping into that and looking at maybe putting some parcels that are noncore, nonstrategic to you guys and maybe step-up disposition activity in the back half of the year?

I mean, I think that's, Buck, that's something that we always look at. And I think that's one of the areas of advantage that we have as a pure play timber REIT is that we have greater flexibility to kind of actively manage our portfolio. And so that's something that we're always considering. We have kind of rank ordering of our own properties from a quality standpoint, and it gets back to some of the flexibility that Mark touched on as it relates to balance sheet that we have in our toolkit. And we take that active portfolio management role very seriously as a pure play.

Okay, all right, thanks guys. Appreciate the time.

Thank you. And our last question comes from Mark Weintraub with Seaport Research Partners. Sir, you may go ahead.

Thank you for the detailed overview on the nature-based solutions. I appreciate the insights provided. I have one question regarding the carbon capture solutions. You mentioned the identification of a 26,000-acre opportunity and the potential for 400,000 acres in the future. Could you provide an estimate of the earnings or revenue that might be linked to the 26,000 acres, just to help us gauge the potential of this opportunity?

Yes, Mark, we're not in a position to provide that level of detail just yet. I recognize there's a lot of activity that's ongoing in this arena. A number of the discussions that we're having currently are under confidentiality agreements as well as agreements that have been entered into and prospective agreements that we might enter into around CCS leases. And so we're working on appropriate disclosures on a go-forward basis, and we do hope to be in a position to provide some more color on that here in the next short while. We're not quite at a point where we can provide economics on the transactions that we're evaluating.

Okay, fair enough.

Keep in mind that there are two components involved. One is the land lease aspect, which has already begun, and the other is the injection aspect, which is heavily dependent on the permitting process and the speed of activity. This latter part will be more challenging to assess early on.

Understood. And not to hold you to it because I realize things are dynamic, but I think you suggested you might be in a place to go is a bit of a sense more on the economic side soon, what maybe when we might soon represent?

I can refer you to a Wall Street Journal article from about a month ago that discussed land owner economics, although the details provided were quite broad. We are trying to determine when and how much information we can share in the future. We view this as a significant long-term opportunity, but it's still in the early stages, and the revenues we anticipate are still a few years away. I don't want to set a specific timeline, but there has been considerable activity in the past six to twelve months. Over the next six to twelve months, we plan to offer more details on how we expect this to affect the business in the long term.

And getting back to my team comments, Mark, we're devoting a lot of resources to furthering these efforts.

Great. Great, thank you. That details are very helpful. I'll turn it over.

Thank you. And our last question comes from Paul Quinn with RBC Capital Markets. You may go ahead, sir.

Yes. Thanks so much. Morning, guys. Just following up on Mark's question. If you looked out 10 years, how big is this carbon opportunity to you between the wind solar, carbon capture, storage, everything all in a bucket? Is that I think this is 10% of your business, you think it's 20%, What's a ballpark number that without giving any financials, which it sounds like you're still a ways from. How do we how should we think about it?

Paul, we're not ready to publicly share those kinds of figures just yet. We're actively working to clarify our long-term perspective on this, keeping in mind the significant activity that has taken place over the last six to twelve months. We are still assessing both the overall market potential and the specific opportunity for Rayonier. We believe it is substantial, but we are not prepared to define its contribution to cash flow, revenue, or EBITDA at this time.

And to remind you, there is significant overlap between various potential land uses and products, and we are managing that complexity as well.

Okay. And then I don't know, maybe I take another look at it on a current capture sequestration basis. Do you think that as some of these projects get up and the credits gets sold, the areas get deferred from harvest. Is that going to be a material increase in terms of log pricing to you, the way you think of it down the road?

It certainly could be. If there were a significant deferral concerning carbon projects or the sale of forestry credits in the voluntary carbon market, it might also be substantial when considering the potential demand for that fiber in bioenergy or biofuels. However, it's important to remember that all of these emerging industries are still in relatively early stages. While there's been considerable discussion about bioenergy and biofuel facilities, such as those for sustainable aviation fuel, we have not yet observed a substantial demand for fiber from those facilities. What excites us is the prospect of each of these opportunities, whether it's carbon capture and storage, solar, or fiber for bioenergy and sustainable aviation fuels. Individually, we believe they could significantly impact our business. When considering the collective effect of all these factors, it creates a compounded demand for wood fiber and overall land use. This situation is clearly influencing our industry, affecting perceptions of land values, and intensifying competition in the timberland mergers and acquisitions market. We are optimistic about the long-term potential, but we are still in the process of trying to evaluate these opportunities for the future.

Thank you. There are no further questions. I will now turn the call back over to Collin Mings.

Thank you. I'd like to thank everybody for joining us. Please contact us with any follow-up questions.

Thank you. This concludes today's conference. You may go ahead and disconnect at this time.