Earnings Call Transcript - RYN Q4 2020

Operator, Operator

Welcome and thank you for joining Rayonier’s Fourth Quarter 2020 Teleconference Call. At this time, all participants are in a listen-only mode. Today’s conference is being recorded. If you have any objections, you may disconnect at this time. Now, I would like to turn the meeting over to Mr. Collin Mings, Vice President, Capital Markets and Strategic Planning. Sir, you may begin.

Collin Mings, Vice President, Capital Markets and Strategic Planning

Thank you, and good morning. Welcome to Rayonier 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 are also referenced on page two 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?

Dave Nunes, President and CEO

Thanks, Collin, and good morning, everyone. First, I will make some high-level comments before turning it over to Mark McHugh, our Senior Vice President and Chief Financial Officer to review our consolidated financial results. And then we will ask Doug Long, Senior Vice President of Forest Resources to comment on our U.S. and New Zealand Timber results. And following the review of our Timber segments, Mark will discuss our real estate results, as well as our outlook for 2021. We finished 2020 with encouraging momentum across all businesses, generating adjusted EBITDA of $75 million and pro forma EPS of $0.08 per share in the fourth quarter. Adjusted EBITDA exceeded the prior year quarter by 15% with favorable results in the Pacific Northwest Timber, New Zealand Timber and Real Estate segments, more than offset a decline in adjusted EBITDA from the Southern Timber segment. As we reflect on 2020 in its entirety, we are pleased with our performance across all our business lines, especially given the significant disruption and uncertainty created by the COVID-19 pandemic. The diversity of our timber markets, the positioning of our real estate portfolio, and the resiliency of our people during challenging operating conditions all contributed to our solid performance. Moreover, despite the logistical challenges created by the pandemic, we successfully closed and integrated the Pope Resources acquisition. We continue to believe the assets acquired, as well as the expertise and dedication of the Pope team that has now joined Rayonier, will play a critical role in our pursuit of long-term value creation for shareholders. For the full year, we generated GAAP EPS of $0.27 per share and pro forma EPS of $0.25 per share. Full year adjusted EBITDA of $267 million increased 8% versus the prior year. In our Southern Timber segment, we achieved full year adjusted EBITDA of $109 million, which represents a decrease of 9% versus the prior year. Core timber results were stable year-over-year, with slightly higher volumes more than offsetting a slight decline in weighted average stumpage pricing. However, non-timber income declined significantly due to lower pipeline easement income following a record year in 2019. In our Pacific Northwest Timber segment, we generated full year adjusted EBITDA of $37 million. This result represents a more than doubling of the prior year result, which is attributable to a partial year contribution of our Pope Resources acquisition, as well as sharp increases in log pricing, given strong domestic demand and robust lumber markets. In our New Zealand Timber segment, full year adjusted EBITDA declined 27% to $55 million. The year-over-year decline in adjusted EBITDA was primarily driven by lower volumes due to the government mandated lockdown in the first half of the year, as well as lower log pricing amid COVID-related export headwinds. Lastly, in our Real Estate segment, we generated full year adjusted EBITDA of $91 million, an increase of over 50% from the prior year result. This year-over-year improvement was driven by an increase in acres sold amid growing buyer demand for rural land, as well as residential lots and commercial properties within our real estate development project areas. While the bulk of our real estate sales activity garnered significant premiums to timberland hold values, the successful completion of some low-value non-strategic sales in 2020 brought down our weighted average sales price. These non-strategic sales reflect our ongoing focus on improving the quality of our portfolio through both addition and subtraction. With that, let me turn it over to Mark for more details on our fourth-quarter financial results.

Mark McHugh, CFO

Thanks, Dave. Let’s start on page five with our financial highlights. Sales for the quarter totaled $206 million, while pro forma sales totaled $196 million. Operating income was $22 million, including $700,000 of costs related to the Pope merger. Net income attributable to Rayonier was $10 million or $0.07 per share. Excluding these costs and adjusting for the operating income attributable to the non-controlling interest in our Timber Fund segment, pro forma operating income was also $22 million. Pro forma net income was $11 million or $0.08 per share. Fourth quarter adjusted EBITDA of $75 million was above the prior year quarter, primarily due to significantly higher results in our Real Estate and Pacific Northwest Timber segments, partially offset by a lower contribution from our Southern Timber segment. On the bottom of page five, 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 $162 million, compared to $149 million in the prior year, primarily due to higher adjusted EBITDA and lower cash taxes, partially offset by higher capital expenditures and higher cash interest. A reconciliation of CAD, the cash provided by operating activities and other GAAP measures is provided on page eight of the financial supplement. Consistent with our nimble approach to capital allocation, we raised over $30 million to our aftermarket or ATM equity offering program during the fourth quarter at an average price of $3.26 per share. As discussed on our last earnings call, we view the ATM program as a cost-effective tool to opportunistically raise capital, strengthen our balance sheet, and match fund bolt-on acquisitions. In sum, we closed the year with $81 million of cash and $1.3 billion of debt, both of which exclude cash and debt attributable to the Timber Fund segment, which is non-recourse to Rayonier. Our net debt of $1.2 billion represented 23% of our enterprise value based on our closing stock price at year-end. I will now turn the call over to Doug to provide a more detailed review of our fourth-quarter timber results.

Doug Long, Senior Vice President of Forest Resources

Thanks, Mark. Good morning. Let’s start on page nine with our Southern Timber segment. Adjusted EBITDA in the fourth quarter of $23 million was $5 million below the prior year quarter. The declines in adjusted EBITDA relative to the prior year quarter were largely attributable to lower volumes due to the timing of harvest activity in 2020, as well as lower non-timber sales. For the full year, harvest volumes totaled 6.2 million tons, an increase of 2% from 2019 and consistent with the high end of the revised guidance range we provided in August. However, following notable year-over-year increases during both the second quarter and third quarter, fourth quarter harvest volumes of 1.3 million tons were 15% below the prior year quarter. The decline in volumes in the fourth quarter was partially offset by stronger pricing. Specifically, average sawlog stumpage pricing was roughly $25 a ton, a 10% increase compared to the prior year quarter. We are encouraged to see evidence of increased pricing tension in multiple U.S. South markets during the quarter amid robust lumber markets, growing competition among buyers for logs, and improved demand for export-grade logs in our Coastal markets. Geographic mix also contributed to stronger average pricing, as contributions from our higher-priced Coastal Atlantic markets increased substantially year-over-year. Pulpwood pricing climbed 6% from the prior year quarter, also reflecting a favorable mix shift towards our Atlantic Coastal markets. Fourth quarter non-timber income of $5 million was $2 million below the prior year quarter. Recall that 2019 marked the record high year for our non-timber income business. Moving to our Pacific Northwest Timber segment on page 10, adjusted EBITDA of $40 million was $6 million above the prior year quarter. The year-over-year improvement was driven by substantially higher sawlog pricing as market dynamics improved and a historic surge in lumber prices. Fourth quarter harvest volume was 5% below the prior year quarter. The drop in volume was partially attributable to our decision to defer some stumpage sales in this region. Sawmills in the region continued to run at full capacity during the quarter, but export market demand remained sluggish. We attribute the continued softness in the export market to the availability of European salvage logs for construction applications in China, as well as the increased price of logs from the Pacific Northwest. For the full year, harvest volumes in the Pacific Northwest totaled 1.6 million tons, a 32% increase from 2019 and was largely driven by the partial year contribution from the Pope Resources acquisition and was in line with the revised guidance range we provided in August. At $96 per ton, our average delivered sawlog price during the fourth quarter was at its highest level since 2018 and up 23% from the prior year quarter. Meanwhile, pulpwood pricing fell 14% in the fourth quarter relative to the prior year quarter as some residuals remained plentiful amid increased lumber production and soft chip export demand. I’d also like to offer some comments on the impact of last year’s wildfires in the Pacific Northwest. Importantly, none of our fee timber properties were directly impacted by the fires, although roughly 10,000 acres of Timber Fund properties sustained some fire damage. Overall, our operations in the region have not been materially impacted by the salvage efforts conducted by others thus far. Although we are seeing some localized impact on market conditions in Oregon, primarily related to lumber producers harvesting burnt wood on their own timberland to feed their mills, the impacts on overall market conditions have not been as widespread as we initially thought. We continue to closely monitor the situation, but note that the quality of burnt logs deteriorates over time, likely limiting any incremental impact in the first half of 2021. Given the location of our timberland, the solid demand for green logs from many of our customers, and the steady business we have been able to provide to our logging crews in the region, we are optimistic that the impact on operations from fire salvage efforts in the region will remain minimal. In sum, we believe we are well-positioned to capitalize on the solid demand trends and favorable pricing conditions we currently see in the Pacific Northwest, especially given our increased presence and operational flexibility in the region following the successful integration of Pope Resources. Page 11 shows results in key offering metrics for our New Zealand Timber segment. Adjusted EBITDA in the fourth quarter of $17 million was slightly above the $16 million that was reported a year ago. Fourth quarter harvest volume of 702,000 tons was up 2% compared to the prior year quarter. As discussed on previous earnings calls, following the expiration of the government mandated lockdown, our team did an excellent job of ramping up production. For the full year, we were pleased to see harvest volumes in New Zealand totaled approximately 2.5 million tons, consistent with the high end of the revised guidance range we provided in August. Turning to pricing, average delivery prices for export sawtimber increased 2% from the prior quarter to $105 per ton, largely reflecting improved demand from China. In addition, escalating tensions between China and Australia resulted in China implementing a ban on Australian log imports during the fourth quarter, further increasing the demand for New Zealand logs. For context, prior to the ban, Australia was exporting approximately 400,000 tons of softwood logs per month to China, or roughly 10% of the total volume imported by China. Shifting to the domestic market in New Zealand, average delivered prices for domestic sawtimber increased 6% from the prior year period to $74 per ton. The increase in U.S. dollar pricing was driven primarily by foreign exchange rates as New Zealand dollar domestic pricing was relatively flat in the fourth quarter versus the prior quarter. Average domestic pulpwood pricing slipped 2% as compared to the prior year quarter. As we enter 2021, we are pleasantly surprised to see a more moderate seasonal slowdown in demand from China ahead of the Chinese New Year. We have always seen a slight increase in inventories as we enter the Chinese New Year, but we don’t believe the build will be nearly as significant as last year when China was battling COVID. We are currently seeing stronger demand with some of those even running through the holiday to employees returning to their home cities and risking exposure to COVID. As demand improves seasonally past the holidays, we believe we are well-positioned to capitalize on further strengthening of the Chinese economy, as well as any prolonged reduction in log imports from Australia. I will now briefly discuss the results of our Timber Funds segment. Highlight on page 12, the Timber Funds segment generated consolidated EBITDA of $5 million in the fourth quarter on harvest volumes of 115,000 tons. Adjusted EBITDA, which reflects the look-through contribution from Timber Funds, was $900,000. Lastly, in our Trading segment, we reported a break-even adjusted EBITDA in the fourth quarter. As a reminder, our Trading activities typically generate low margins and are primarily designed to provide additional scale to our key timber export business. I will now turn it back over to Mark to cover Real Estate results.

Mark McHugh, CFO

Thanks, Doug. As detailed on page 13, our Real Estate team capitalized on growing demand for rural land, as well as finished lots and commercial parcels within our development projects. After a very slow start to 2020, given the uncertainty created by the pandemic, we saw a sharp rebound in activity and finished the year with encouraging momentum across our Real Estate categories. In the fourth quarter, sales totaled $32 million or roughly 12,500 acres sold at an average price of over $2,400 per acre. Real Estate adjusted EBITDA was $26 million in the fourth quarter, marking our second strongest quarter since 2018. Sales in the improved development category totaled $6.7 million. Specifically, we sold a parcel in the Belfast Commerce Park Development Project, south of Savannah, Georgia, for $4.6 million and in our Wildlight Development Project, north of Jacksonville, Florida, we sold 25 residential lots for $1.6 million or $64,000 per lot. In addition, we sold a small development property in Washington State from the Pope Real Estate portfolio for roughly $500,000. In the rural category, fourth quarter sales totaled $14 million or roughly 3,600 acres sold at an average price of $3,900 per acre. Interest in rural recreation and residential lots in the 5-acre to 40-acre size range continues to build as households are planning for more permanent work-from-home arrangements and desire to leave crowded urban and suburban areas. The space, privacy, and recreational opportunities offered by these properties are attracting buyers and we believe this momentum will continue into 2021. Timberland and non-strategic sales of $9.6 million comprised just over 8,700 acres in total. These properties were non-strategic to our core timber operations, as they consisted of numerous scattered parcels with a relatively high percentage of non-plantable lands. Overall, we believe favorable tailwinds for our Real Estate business are growing and remain optimistic that a combination of demographic trends, historically low mortgage rates, and an increased need for space will benefit our various Real Estate sales categories. On the development front, we have been encouraged by homebuilders' demand for finished lots and entitled infrastructure surge land. We believe we are well-positioned to meet this demand with a building pipeline of opportunities in Wildlight, Florida, Richmond Hill, Georgia, and the West Puget Sound area of Washington. With 2020 marking our fourth year of development in Wildlight, this project is looking increasingly like an established community with a growing list of amenities, helping to drive additional interest from builders. Meanwhile, in Richmond Hill, the new I-95 interchange embedded within our landholdings recently opened. We view the interchange as an important catalyst for Real Estate holdings in the area and have been encouraged by recent interest in land entitled for industrial uses at the Belfast Commerce Park, as well as land entitled for commercial and residential uses adjacent to the interchange. Now, moving on to our guidance for the year, page 15 shows our financial guidance by segment for 2021, and Schedule G of our earnings release provides a reconciliation of our adjusted EBITDA guidance to net income attributable to Rayonier and EPS. For the full year 2021, we expect total adjusted EBITDA of $285 million to $315 million, net income attributable to Rayonier of $44 million to $56 million, and EPS of $0.32 to $0.41. The projected year-over-year increase in adjusted EBITDA is driven by our expectation that the contribution from each of our key timber segments will increase in 2021. However, we believe this will be partially offset by a lower contribution from the Real Estate segment, following an exceptionally strong 2020. Overall, we are encouraged by the positive momentum across our business segments to start the year. In our Southern Timber segment, we expect to achieve full year harvest volumes of 6.2 million tons to 6.4 million tons. As we start 2021, we are seeing some upward momentum in grade timber pricing, driven by increased mill capacity, strong lumber prices, and improved log export markets. In addition, we are seeing strong demand for pulpwood in our core markets driven by continued positive trends in containerboard and tissue markets. Overall, we expect a modest improvement in our weighted average pricing relative to full year 2020, driven by these demand trends as well as a higher mix of sawtimber, partially offset by an increased proportion of planned harvest volume from relatively lower-priced markets. In sum, we expect that Southern Timber will contribute 2021 adjusted EBITDA of $114 million to $120 million. In our Pacific Northwest Timber segment, we expect to achieve full year harvest volumes of 1.7 million tons to 1.8 million tons, as we realize a full year contribution from the Pope Resources acquisition. We further anticipate higher average sawtimber prices in 2021 versus 2020, as we expect continued strong domestic demand trends, given the favorable outlook for lumber prices. That said, we expect that this increased log pricing coupled with continued competition from European spruce salvage will limit China export demand growth. Overall, we expect 2021 adjusted EBITDA in the Pacific Northwest Timber segment of $50 million to $55 million. In our New Zealand Timber segment, we expect to achieve harvest volumes of 2.6 million tons to 2.8 million tons, up modestly year-over-year following the operational disruptions imposed by the pandemic in 2020. We believe strong demand from both China and local markets, coupled with reduced supply from Australia, will lead to improved export and domestic prices. That said, we anticipate some increase in shipping costs due to reduced ship availability. Overall, we expect 2021 adjusted EBITDA in the New Zealand Timber segment of $71 million to $75 million. In our Real Estate segment, we continue to focus on unlocking the long-term value of our HBU development and rural property portfolio. Following the exceptionally strong Real Estate results in 2020, we currently anticipate more normalized transaction activity in 2021. As such, we expect that our Real Estate segment will contribute adjusted EBITDA of $70 million to $85 million in 2021. We anticipate a relatively light first quarter this year with a heavy proportion of our Real Estate activity concentrated in the second half of the year. Details on other elements of our financial guidance, including CapEx, DD&A, non-cash basis of land sold, interest expense, taxes, and minority interest are provided on page 15 of the financial supplement and Schedule G of the earnings release. I will now turn the call back over to Dave for closing comments.

Dave Nunes, President and CEO

Thanks, Mark. Reflecting back on our earnings call a year ago, we certainly couldn’t have imagined the events that would unfold in 2020. I am very proud of how our team responded to all the unforeseen and unprecedented challenges associated with the COVID-19 pandemic. We figured out new ways to work together in a safe yet distant manner and rose to the many challenges posed by the pandemic, while at the same time remaining intensely focused on our strategic priorities. As such, I want to take a moment to recap some of the key milestones we achieved in 2020, despite the extraordinary circumstances we faced. Underscoring our focus on always looking to improve our portfolio through active portfolio management, we executed several transactions that we believe better position us to create value for our shareholders. First and foremost, in May, we successfully completed the acquisition of Pope Resources announced last January. The addition of these high-quality Pacific Northwest Timberlands, as well as an attractive real estate portfolio, improved our species mix, smoothed out our age-class distribution, and increased our operational flexibility and market reach within the region. As we welcomed Pope’s outstanding team to the Rayonier family, we are encouraged by the benefits that are already starting to accrue from this transaction. Moreover, we believe the operating structure we employed as part of the transaction has great potential to be used in other Timberland transactions in the future. While dedicating significant resources to ensure Pope’s successful integration, we also executed on some smaller acquisitions throughout the year totaling roughly $25 million. In addition, we executed a large disposition of 67,000 acres in Mississippi for $116 million. These transactions reflect our unwavering commitment to nimble capital allocation and active portfolio management, as well as our focus on maintaining balance sheet flexibility. As it relates to capital allocation, we also took advantage of opportunities to both issue and repurchase shares in 2020. We repurchased a modest amount of stock early in the year amidst the turmoil in the financial markets, but also established and utilized an at-the-market equity offering program in late 2020. We believe that the symmetry afforded by maintaining both buyback and issuance optionality will allow us to deploy these tools opportunistically to build NAV per share over the long term. We have also continued to reinvest in our business, particularly in technology and systems designed to optimize our long-term performance. Despite the social distancing necessitated by the pandemic, our investments in technology allowed us to push forward and achieve goals related to improving efficiencies, reducing costs, and enhancing our market intelligence and proprietary analytical tools. Furthermore, selective and measured real estate investments continued throughout 2020, leaving us increasingly well-positioned to optimize returns of our portfolio in the years to come. As we look back over a very challenging year, I’d like to highlight the importance and durability of our culture, which is the cornerstone of Rayonier’s financial and strategic success. I’d also like to thank our employees for embracing the values that serve as the foundation of our culture, our commitment to safety, collaboration, accountability, and excellence throughout the organization. Collectively, we remain focused on our mission to provide industry-leading returns while being a responsible steward of our lands. I am proud of the dedication and accomplishments of our people and their unwavering commitment to building long-term value for our shareholders. This concludes the prepared remarks. I’d now like to turn it back over to the Operator for questions.

Operator, Operator

Thank you. Our first question comes from Anthony Pettinari with Citi. Your line is open.

Randy Toth, Analyst

Good morning, guys. This is actually Randy Toth sitting in for Anthony. I just want to touch on the price improvement in the U.S. South Pacific region sawtimber. I think pricing was up 10% year-over-year and you commented on increased pricing tension in multiple U.S. pulp markets in the prepared comments. I just wanted to maybe get a little bit more color on which regions and what’s driving that? Thank you.

Doug Long, Senior Vice President of Forest Resources

Sure. This is Doug. I will be happy to answer that. So, as we mentioned, we did have some geographic shift across from Alabama to our Coastal markets. That was roughly about 15% year-over-year difference. So it wasn’t a major contributor, but it was a contributor in there. Where we have seen strength in particular is our Coastal Atlantic markets in Florida and Georgia, attributable to a lot of capital investment in that area, but we also have exposures to the export markets in that area. So we have seen pricing tension from demand from China primarily and some to India, and also just the investments we have seen in those markets in sawmills.

Randy Toth, Analyst

Understood. And then maybe moving to guidance, just looking at the EBITDA and harvest guidance, it looks like you are expecting something like 20% to 40% EBITDA per ton improvement in the Northwest and 15% to 30% in New Zealand. So the Northwest improvement makes sense given the Pope Resources acquisitions, but I was just wondering if you could comment on what is really driving the improvement in New Zealand? Thank you.

Doug Long, Senior Vice President of Forest Resources

It is Doug and I will take a start at that. So if you recall, we had China facing COVID as they went in December and January of last year, and so we saw significant slowdowns in the China economy, which impacted the export markets. That caused a lot of price decreases early in the year in New Zealand and then the domestic market followed behind that. As China got control of COVID and New Zealand had their lockdown, things started to improve significantly as we moved back through the rest of the year, and so we have seen significant increases in movement in both pricing and domestic exports. China’s economy is really roaring back and we have seen increased demand. Some of the highest demand we have seen in the fourth quarter. So we are feeling strong about that and seeing pricing responding to that also.

Mark McHugh, CFO

Yeah. This is Mark. Recognize as well that we finished the year with lower volume than we anticipated going into the year largely due to the COVID-related shutdowns in the kind of the April timeframe. And so just given that we are kind of expecting a return to more normalized volume levels in 2021, you are getting incremental operational leverage off of those additional tons.

Randy Toth, Analyst

Got it. Understood. Thank you. I will turn it over.

Operator, Operator

Thank you. Our next question comes from Mark Wilde with BMO Capital Markets. Your line is open.

Jesse Barone, Analyst

Hi. This is Jesse Barone sitting on for Mark. First question, can you guys give us kind of an update on the Timber Fund Management business, kind of what your options still are there?

Dave Nunes, President and CEO

Well, I’d say right now we are still in the process of reviewing the Fund business and all options are on the table, everything from retaining the business to fully exiting the business to partially exiting the business. And so that’s about all we can really speak to at this juncture. But as we have said in earlier calls, everything is on the table.

Jesse Barone, Analyst

Okay. And then just one follow-up, can you just kind of give us more color on what you are seeing in the export log market in the U.S. South?

Doug Long, Senior Vice President of Forest Resources

Sure. This is Doug, again. Yeah. As I mentioned, we are starting to see some real strength in that market, particularly the recent ban with Australia and China has improved demand coming out of the South. But even before that, we really saw a lot of growth, so we are impressed with what we are seeing. We are on target to basically double roughly what we did in 2020 in about the second yard in that Savannah market. So we are really seeing a lot of growth in that market right now.

Jesse Barone, Analyst

Great. I will turn it over. Thanks.

Operator, Operator

Thank you. Our next question comes from Mark Weintraub with Seaport Global. Your line is open.

Salvator Tiano, Analyst

Yeah. Hi. This is Salvator Tiano filling in for Mark. So, firstly, following up a little bit on the export markets in the South, you mentioned contracts have doubled your exports. But firstly, how does this compare essentially to where you were before China imposed the tariffs on the U.S., when things were growing at a very high rate as well? Are you getting back to those levels? And can you elaborate a little bit also on India, because it seems like more and more companies focused on the export market have been mentioning that as a big source of growth?

Dave Nunes, President and CEO

Yeah. I’d say, you are correct. We have just gotten started in the export markets before the tariffs went in June of 2018. So we were growing fast at that point in time. Obviously, we have taken a pause. But really since Q2 of this year, we have seen a significant ramp up in that and I think we are well above the pace we were at before. So we have seen demand stronger than we saw in 2018. Overall, China demand continues to grow year-over-year just for logs in general. What we see in Europe has put some tailwinds in the market, particularly for the Northwest on that construction side. What we are seeing is that the Southern Yellow Pine is being used in peeling for plywood and also being used for treating and other things. So it’s got a niche market there. So the demand continues to increase. So it’s been a strong market for us and we continue to expect it to rise.

Salvator Tiano, Analyst

Okay. Perfect. And a couple of additional questions, a little bit on the harvest in the Pacific Northwest. You did mention it was a little bit lower year-on-year; you had very strong harvest a year ago. But you also did have Pope Resources, which I think on a normalized basis should be 100,000 tons a quarter. So can you provide a little bit more color on why the combined business was still lower?

Dave Nunes, President and CEO

We experienced record lumber pricing in the third quarter, and it remained strong in November. However, in December, there was a slowdown as concerns emerged about sustainability, the economy, and the upcoming elections. Although the mills continued their operations, they were hesitant to take risks. With uncertainties about the first quarter, we opted to pause and limit some volume in our stumpage markets to reassess the situation, believing the fundamentals were sound. It seemed more related to social factors than actual market conditions. Since January, however, there has been a resurgence, with markets returning to high pricing and strong demand, making the pause seem like a prudent decision.

Mark McHugh, CFO

And Salvator, this is Mark. Specifically on the quarter-over-quarter decline relative to Q4 of last year. Recognize that we had a much heavier proportion of our harvest volume in Q4 last year relative to this year. And so last year, I mean 2019 relative to 2020, in 2019 Q1 through Q3, we averaged about 260,000 tons of volume in the Pacific Northwest and then we did 417,000 tons in Q4. This year 2020, we had a kind of more even spread over the quarters and not that sort of very heavy concentration in Q4.

Salvator Tiano, Analyst

Okay. Perfect. And then last question will be on Real Estate. Clearly, it’s going to be another good year with EBITDA around $80 million. With the improvement in housing, do you believe you can sustain that EBITDA level beyond 2021 and can you break down a little bit the profitability between legacy Rayonier and the benefits from the Pope Real Estate operations?

Doug Long, Senior Vice President of Forest Resources

We are not going to get into the specifics around the breakdown between legacy Rayonier and Pope at this juncture, certainly, not within any particular timeframe. Look, as you know, real estate results can be very lumpy period-to-period. We have seen periods of very strong volume and pricing, and we have seen periods where it has come off. Now if you look over a very long time period, I think that there is some measure of consistency to that business. In general, I mean, first of all, it’s primarily a Southern business, at least on the rural land front, development is much more specific to where you are putting capital investment dollars. But on the rural land front, we have generally sold in the vicinity of 1.5% of our Southern land acreage annually and over time, the premiums on those sales relative to the underlying timberland value have probably been as tight as 20% in a less opportune market to as high as 100% in a really strong market. And so over time that’s our expectation. I think we are going to sell 25,000 acres annually, give or take, call it, 50% to 75% premium to timberland value in a kind of normalized market. The last couple of years have been stronger than that, and obviously, we are looking at a pretty attractive market right now. That’s also going to be skewed by the proportion that’s in improved development properties as well, recognizing that when you are putting real dollars into the ground your per acre value realizations are substantially higher than on unimproved land. So, again, hopefully, that gives you a flavor for kind of what our long-term expectation is and happy to kind of walk you through the math around that offline.

Dave Nunes, President and CEO

The other thing I’d add is keep in mind that the improved development projects have a fairly long entitlement process, as well as construction. And so we are further along that process in both our Wildlight and Richmond Hill projects relative to where the Pope projects are on their additions to improved development portfolio?

Salvator Tiano, Analyst

Okay. Thank you very much.

Doug Long, Senior Vice President of Forest Resources

One other point, I think, 2021 is reflective of a more normalized level of transaction activity.

Salvator Tiano, Analyst

Great. Thank you.

Operator, Operator

Thank you. Our next question comes from Paul Quinn with RBC Capital Markets. Your line is open.

Paul Quinn, Analyst

Thanks very much. Solid results and a great outlook here. It seems that the guidance for the Pacific Northwest and New Zealand has significantly increased compared to 2020. I am trying to determine what portion of this increase is due to higher volume and what portion is due to a higher realized price.

Mark McHugh, CFO

It's certainly a combination of both. We can discuss the contribution to EBITDA per ton later, but we expect prices in both the Pacific Northwest and New Zealand timber to increase. Price hikes generally lead directly to improved bottom-line results, while volume increases provide additional marginal contributions from the extra tons. Overall, it's a blend of the two factors, with a greater emphasis on pricing.

Paul Quinn, Analyst

All right. That’s all I had. Best of luck, guys. Thanks.

Operator, Operator

Thank you. Our last question comes from John Babcock with Bank of America. Your line is open.

John Babcock, Analyst

Yeah. Thanks for taking my questions. Just right now, you talked a little bit about the wildfires in the Pacific Northwest. So I was wondering if you could gauge how much land that’s harvestable was ultimately damaged by that; it doesn’t sound like it was all that significant, but I was wondering if you could quantify that to some extent.

Dave Nunes, President and CEO

Yeah. For Rayonier, as I mentioned, none of our fee ground but approximately 10,000 acres of the Timber Fund business. So that’s for Rayonier. But across the board, there were hundreds and thousands of acres that were burned in Oregon, across the industry and the National Forest in the Netherlands, but we are a very small percentage of that overall.

John Babcock, Analyst

Got you. And now that you have had Pope Resources now for two quarters or so, I was wondering if you could talk about whether or not there are any adjustments that you are making to the harvest plans that they had, any sort of changes on that front that are worth noting?

Doug Long, Senior Vice President of Forest Resources

This is Doug, and I would say that nothing significant is happening. We are integrating that property into our operations, revising the harvest schedule, and exploring various opportunities. There may be instances where we can let things mature or find different ways to achieve various grades, so it’s really about making the most of what we have. This will influence our harvesting approach, but not the overall volumes we are targeting.

John Babcock, Analyst

Got you. With regards to Australia, you talked about the log ban there. Do you have any color on how long that ban might be in place or is it not that specific and then also where are those logs going at this point with that log ban?

Dave Nunes, President and CEO

I don’t have specific information on the duration of the ban, and it's hard to predict, similar to the situation with the U.S. ban. However, it seems likely that the ban will be in effect for some time. This isn't just a temporary issue; it's expected to persist. A significant portion of the logs has been redirected to Korea and India, indicating a market shift from China to those two regions.

John Babcock, Analyst

How has the volume pushed into those markets been? Is it significant enough to affect pricing in those regions?

Doug Long, Senior Vice President of Forest Resources

I would say it has some impact, but what we've seen is that demand in China has really increased. When we look at the inventory demand ratio in China, we see that 1.5 months to 2 months is a good ratio, and China essentially sets the export prices. Currently, we're observing that the low-end is around 1.5 months. Overall, we notice strong export prices across Asia. While there is some dampening effect in India and Korea, those markets are still growing as they follow the overall trend in China. So, while it has had some impact, we are seeing price increases in all markets.

John Babcock, Analyst

Okay. And then just my last question before I turn it over. I was just wondering if you can talk a little bit more about what’s driving the demand in China and also how sustainable you see it? I guess, I was also wondering if there’s how much of this is temporary, and we have seen in other commodities that their purchasing is up quite a bit. So I want to kind of get your thoughts there.

Doug Long, Senior Vice President of Forest Resources

Sure. Yeah. So broadly speaking, we have seen the demand in Q4, as I mentioned before, was strong with weekly consumption around 800,000 cubic meters, and that is historically strong. It’s really being fueled. They have had a really strong second-half economic recovery. Right now, the investments that the government is making, a lot of it is in infrastructure and so we do believe that’s going to last for a long time. It doesn’t appear like it’s just a short-term rebuild of commodities from the prior shutdown when they had it earlier in the year. So all indications we have right now is we are in for a good sustained boom. They are looking at improving economic input. So we are thinking this has some legs to it.

John Babcock, Analyst

Okay. What was their weekly consumption on average in the last year or so? Like what’s more normal consumption there?

Doug Long, Senior Vice President of Forest Resources

More normal might be around 600,000 cubic meters to 700,000 cubic meters. It’s looking more like 800,000 cubic meters in the fourth quarter, indicating a strong increase. Earlier this year, we had inventories nearly at 7 million cubic meters in China, primarily due to the COVID lockdowns. That number has since dropped to about half, showing a significant decrease. There was a slight increase in January, as expected with the Chinese New Year in February, but it's still well below our typical expectations. This drawdown has had a considerable impact.

Operator, Operator

Thank you. And we do have another question from Mark Weintraub with Seaport Global. Your line is open.

Salvator Tiano, Analyst

Hi. Salvator Tiano, again. Thanks for taking the follow-up. Just wanted to understand a little bit in the South, you obviously have the year-on-year benefits you mentioned, the export market and mix. However, I am trying to understand in the same regions kind of like-for-like, are you seeing measurable changes in prices? And are there any specific new lumber mill projects that are coming online that you see benefiting your holdings in the South?

Doug Long, Senior Vice President of Forest Resources

We are noticing improvements in various areas, particularly in Florida and Georgia, where significant investments were made in 2018 and 2019. Since 2017, about 8.3 billion board feet of capacity has been added to the South, with roughly half completed and another 4 billion board feet expected to come online. The Georgia markets have experienced notable growth, and we are pleased to see Klaussner reopening in Florida. This is partly due to Binderholz acquiring the mill in Live Oak, which benefits both our Florida and Georgia markets. Additionally, the GP Albany facility in the area is contributing to overall strength. We are also seeing growth in Alabama as new mills have been established there. In summary, there is broad strength in these areas, although we are experiencing less price tension where exports and new capacity are concerned.

Dave Nunes, President and CEO

These coastal markets exhibit a balanced relationship between growth and decline. Consequently, they tend to show greater price sensitivity in response to market changes, such as the introduction of a new mill or improvements in the export market. This is one of the reasons for the positive price movement observed in the South.

Operator, Operator

Thank you. And at this time, we have no further questions on the audio line.

Collin Mings, Vice President, Capital Markets and Strategic Planning

All right. Thank you. This is Collin Mings. I’d like to thank everyone for joining us. Please contact us with any follow-up questions.

Operator, Operator

That concludes today’s conference. Thank you for participating. You may disconnect at this time.