Q1 2024 Potlatchdeltic Corp Earnings Call

Participants

Wayne Wasechek; Vice President, Chief Financial Officer; Potlatchdeltic Corp

Eric Cremers; President, Chief Executive Officer, Director; Potlatchdeltic Corp

Anthony Pettinari; Analyst; Citi

Ketan Mamtora; Analyst; BMO Capital Markets

Mark Weintraub; Analyst; Seaport Global Securities LLC

Matthew McKellar; Analyst; RBC Capital Markets

Nico Piccini; Analyst; Truist Securities

George Staphos; Analyst; BofA Global Research

Presentation

Operator

Good morning. My name is Jackie, and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic First Quarter 2020 par conference call, (Operator Instructions) Thank you. I would now like to turn the call over to Mr. Wayne racetrack, Vice President and Chief Financial Officer, for opening remarks.

Wayne Wasechek

Sir, you mean Good morning, and welcome to PotlatchDeltic First Quarter 2024 earnings conference call. Joining me on the call is Eric Cremers, Potlatch Deltic's President and Chief Executive Officer. This call will contain forward looking statements. Please review the warning statements in our press release on the presentation slides in our filings with the SEC regarding the risks associated with these forward statements.
Well, please note that a reconciliation of non-GAAP measures can be found in the appendix to the presentation slides and on our website at www.potlatchdeltic.com. I'll turn the call over to Eric for some comments and then I will review our first quarter results and our outlook.
Well, thank you, Wayne, and good morning, everyone. Looking at our first quarter results, we reported total adjusted EBITDA of 30 million after the market close yesterday, I'm pleased with the solid operational performance delivered by our team despite market and weather-related challenges during the quarter, our Timberlands segment generated adjusted EBITDA of 35 million.

Eric Cremers

In the first quarter, we harvested 1.9 million tons, achieving the upper range of our Q1 harvest plan. Our Wood Products segment's adjusted EBITDA was breakeven in the first quarter compared to a loss of $6 million in the fourth quarter. The year kicked off to a challenging start for lumber markets as severe weather across the country, restricted construction activity in January. Despite this difficult start to the typical inventory building season, lumber prices modestly trended upward throughout the first quarter, driving the improvement in our Wood Products results as for our elevated 2024 capital plan. We are approaching the final phases of our $131 million Waldo, Arkansas sawmill modernization and expansion project vertical construction and equipment installation is well underway, with project completion continuing to remain on track and within budget for startup early in the third quarter. Following completion of the project, we anticipate a ramp up in production through Q4 and into next year based on other brownfield additions in the industry, we have seen we expect it will take six to 12 months to reach the mill's new capacity of 275 million board feet per year. As a reminder, the project will increase the mill's annual capacity by 85 million board feet it will improve recovery by 6% and reduce cash processing costs by about 30%. Once the ramp phase is completed, we expect the mill to generate approximately 25 million of incremental EBITDA annually.
Our Real Estate segment generated 6 million of adjusted EBITDA in the first quarter. On the development side of the business, we sold 24 residential lots at an average price of about $120,000 per lot in our small Valley master-planned community in Little Rock, Arkansas on the rural side of our real estate business, we completed the sale of 800 acres at nearly $3,100. An acre is important to note that the volume of transactions in rural real estate can fluctuate significantly from quarter to quarter. Although we experienced a subdued level of rural real estate transactions in this period, we expect the sales pace to accelerate as we move through the second quarter, the interest in our rural land remains quite high. A highlight of our anticipated rural real estate activity in the upcoming second quarter includes the previously announced deal to sell 34,000 acres of Southern plantation timberlands, which have now have an average age of just under four years for a total of 58 million or $700 per acre Now let me transition to our emerging natural climate solutions business. Our collaboration with solar developers continues to grow as evidenced by the optioning of an additional solar deal in the first quarter. Currently, our option contracts for solar land sales and leases are valued at nearly $200 million on a net present value basis, representing roughly 1% of our total timberland ownership. Additionally, we are in the process of finalizing negotiations on several more lease options. At the end of 2024, we expect to have approximately 30,000 acres of solar land sale and lease options under contract valued at over 300 million on a net present value basis.
Our southern timberland carbon credit initiative continues to move forward. We're anticipating generating in excess of 500,000 carbon credits in the 1st year with an estimated 100,000 credits each year for at least a decade thereafter. The extensive scope and high-quality nature of these credits necessitates a thorough verification process, which is lengthy and complex. We have initiated preliminary marketing activities and are targeting placement and sale of credits in the market towards the end of the year, unless the completion of this project time line is heavily dependent on various third parties involved in the accreditation process. We've also identified potentially valuable prospects in carbon capture and storage as well as bioenergy. These opportunities, along with other natural climate solutions, are currently under discussion with various other parties. Although they are not imminent, we are optimistic as to their potential value. Furthermore, we continue to believe that all of these natural climate solutions opportunities will boost the demand for our rural land, likely driving timberland values higher moving to capital allocation. We continue to be committed to our disciplined and opportunistic approach, and we constantly evaluate all our capital allocation opportunities to grow shareholder value over time.
Timberland M&A was our main priority during the quarter. As we previously announced in Q1, we acquired 16,000 acres of high-quality mature timberlands in Arkansas through a privately negotiated one-on-one transaction for 31 million or about $900 per acre. Also, the acquired Timberland has strong local real estate potential, including solar opportunities. We employ stringent criteria when evaluating timberland M&A and for this particular transaction, we expect to achieve an approximate 8% real IRR, which is well above our cost of capital. We did not purchase any shares in the first quarter. However, share repurchases remain an important component of our capital allocation strategy, especially when we are trading well below our estimated NAV, we consistently assess and prioritize our capital allocation options, taking into consideration the economic backdrop, we have $125 million remaining on our 200 million share repurchase authorization.
Turning our attention to the US housing market, existing home inventories for sale continue to persistently hover at historically low levels. The scarcity in this segment of the market poses challenges in meeting housing demand. However, new housing has emerged with an affordability advantage over existing housing. Large homebuilders are enticing buyers with rate buy-down incentives, making new home construction more financially attractive, especially given today's mortgage rate environment. Consequently, new single-family residential construction demonstrated resilience by maintaining over 1 million starts for the fifth consecutive month, providing some level of stability to the market. In addition, homebuilder confidence has been steady and in positive territory in spite of the recent uptick in mortgage rates. Nonetheless, new residential construction continues to underperform as challenges in the economy persist, driven by the uncertainty of inflation and the direction of interest rates. In particular, the multi-family segment of new residential housing has been under pressure in large part due to excessive financing costs, the timing and pace of potential rate cuts by the Federal Reserve add to the level of uncertainty. However, we anticipate that once rate cuts begin to decline once rates begin to decline possibly later this year, it will likely spur pent-up housing demand ultimately benefiting lumber markets. Longer term, we retain a positive outlook on housing fundamentals and underlying shortage of housing stock stock, which some pundits estimate of 4 million units and favorable demographic trends will provide tailwinds to the housing market. We continue to expect that U.S. housing starts will return to levels above the long-term average of 1.5 million units per year once mortgage rates decline in homes become more affordable.
Turning to the repair and remodel segment, demand in this market appears to have moderated somewhat with some weakness in the DIY segment. That said, our home center business remains solid. The overall resilience in the repair and remodel market is underpinned by several factors, including strong consumer balance sheets, record home equity levels across the U.S., steady labor markets and existing homeowners staying in their homes due to the prevailing higher interest rate environment.
Looking ahead, long-term trends indicate that the fundamentals of the repair and remodel market will be favorable. This optimism is bolstered by an aging housing stock leading to increased repair activity as well as elevated home equity levels and the ongoing prevalence towards remote work.
In closing, we remain committed to enhancing operational and financial performance across all of our business segments. As part of this commitment, we are diligently focused on completing our strategic modernization expansion project at the Waldo sawmill on schedule and within budget.
Also returning capital to our shareholders remains a core tenet of this strategy with our investment grade balance sheet and ample liquidity, we possess the flexibility and the solid foundation to continue creating long-term shareholder value.
I will now turn it over to Wayne to discuss our first quarter results and our outlook.

Wayne Wasechek

Thank you, Eric. Starting with Page 4 of the slides, adjusted EBITDA was 30 million in the first quarter compared to 41 million in the fourth quarter. A sequential quarter over quarter. Decline in EBITDA resulted from fewer rural real estate sales, partially offset by improved wood products segment results stemming from higher average lumber prices.
I will now review each of our operating segments and provide more color on our first quarter results. Information for our Timberlands segment is displayed on Slides 5 through seven. The segment's adjusted EBITDA increased from $33 million in the fourth quarter to $35 million in the first quarter's EBITDA benefited from improved per unit log and haul costs and seasonally lower forest management costs, which more than offset a decline in Idaho sawlog prices.
Our sawlog harvest volume in Idaho was 327,000 tons in the first quarter, which is consistent with our fourth quarter harvest volume. Harvest volumes in the first quarter were adversely impacted by mild winter weather limiting available holidays. Our Idaho sawlog prices were 5% lower on a per ton basis in the first quarter compared to the fourth quarter, price decline is primarily a result of the effect of seasonally heavier logs.
Turning to the south, we harvested 1.6 million tons in the first quarter. This level of activity slightly exceeded our Q1 planned harvest volumes as we benefited from favorable logging conditions. Additionally, demand for sawlogs and pulpwood in the south generally remained stable throughout the quarter. Our Southern sawlog prices were 3% lower in the first quarter compared to the fourth quarter. The decline was primarily driven by a seasonally lower mix of hardwood sawlogs and higher mix of smaller diameter softwood sawlog.
Moving to wood products on slides 8 and 9, adjusted EBITDA increased from a loss of 6 million in the fourth quarter to breakeven in the first quarter. Higher average lumber prices and lower per unit cash processing costs drove the improvement. Our average lumber price realizations increased $15 per thousand board feet or approximately 4% in the quarter. This price increase is comparable to the Random Lengths framer framing lumber composite. On a percentage basis, our lumber prices increased each month during the quarter. Specifically, our average lumber price realizations per thousand board feet were four and $5 in January 14th, 27 in February and four and $43 in March. Lumber shipments in Q1 totaled 271 million board feet compared to 285 million board feet in Q4 of last year. Sequentially. Lower shipment volume in Q1 was influenced by seasonal factors, but nonetheless marks the Company's second highest Q1 shipment volume on record.
Shifting to real estate on slides 10 and 11 The segment's adjusted EBITDA was $6 million in the first quarter compared to 22 million in the fourth quarter. Ebitda generated by our rural real estate business decreased due to the sale of fewer acres. Ebitda generated by our Sonoma Valley master-planned community declined primarily due to the lack of commercial land sales this quarter. Commercial sales tend to be lumpy, but our pipeline of potential future land sale opportunities continues to remain attractive. We closed on the sale of 24 residential lots in the first quarter at a 12% higher average price than in the fourth quarter due to a different mix of what price points.
Turning to capital structure, which is summarized on slide 12, our total liquidity was $479 million. This amount includes 180 million of cash on our balance sheet as well as availability on our undrawn revolver. This level of liquidity is after utilizing cash on hand to acquire 16,000 acres of bolt-on timberlands in Arkansas for 31 million. As Eric previously discussed, we have $176 million of debt that is scheduled to mature in October and November this year. Our decision to pay off a portion or refinance all this debt will occur later this year. We still have 200 million of notional forward swaps valued at 36 million on our balance sheet, which we can deploy to issued debt at below market rates.
Capital expenditures were 14 million in the first quarter. That amount includes real estate development expenditures, which are included in cash from operations in our cash flow statements. For the full year, we continue to expect CapEx spend of 100 to 110 million, excluding potential timberland acquisitions. That estimate includes approximately $44 million for the final installments on the Waldo, Arkansas sawmill modernization expansion project.
I will now provide some high-level outlook comments details are presented on Slide 13. Harvest volumes in the north are planned to be seasonally lower in the second quarter compared to the first quarter due to spring breakup. We expect Northern sawlog prices to increase approximately 6% in the second quarter due to resetting the prices index volume to reflect improved Q1 lumber prices and seasonally lighter logs in the South, we plan to harvest approximately 1.4 million tons in the second quarter. We expect our Southern sawlog prices to decrease modestly primarily due to seasonally smaller sawlogs in the mix. We plan to ship 275 to 285 million board feet of lumber in the second quarter. Our average lumber price thus far in the second quarter is flat compared to our first quarter average lumber price. This is based on approximately 115 million board feet of lumber. As a reminder, a $10 per thousand board foot change in lumber price equals approximately 12 million of consolidated EBITDA for us on an annual basis.
Shifting to real estate, we expect to sell approximately 43,000 acres of rural land, which includes the sale of 34,000 Southern acres for 58 million as proved As Eric previously mentioned. Additionally, we expect to sell approximately 24 additional value residential lots in the second quarter. Additional real estate details are provided on the slide. Overall, we expect our total adjusted EBITDA will be higher in the second quarter, primarily attributable to more rural land sales driven by the Southern land sale to FIA.
That concludes our prepared remarks. The. I would now like to open the call to Q&A.

Question and Answer Session

Operator

(Operator Instructions) Anthony Pettinari, Citi

Anthony Pettinari

Good morning from them.
Hey, obviously, lumber prices are pretty dynamic and it's early in the year. But I'm just wondering as you think about the kind of cash flow that you could generate this year and with just spending on Waldo. Can you just talk a little bit more around kind of capital allocation and supporting the dividend potential opportunities to delever?
You know, at a time when the stock does seem like it's trading at, but maybe near record discount to NAB. Just wondering if you talk a little bit more about that, given it seems like there's a few options here?

Eric Cremers

Yes.
Thanks for the question, Anthony. So regarding capital allocation, I mean, I think first and foremost, we're going to we're going to protect our balance sheet. We're going to we're going to maintain investment grade grade status. But moving moving beyond that from a rate, we view our dividend is sacrosanct or nearly sacrosanct. So that's that's always going to be the highest priority for us. And I will say that as our stock drops lower in a tough lumber market environment, some share repurchases look more attractive to us than than otherwise. But I would also say that we're constantly thinking about M&A. And in the first quarter, we completed what we call Project Ritch Wood, our $31 million acquisition in Arkansas and I think that kind of pushed share repurchases to the back burner a little bit. We also like investing in our mills quite a bit.
We like wood products CapEx.
Obviously, it might might might not feel good doing it right now and worse in such a tough lumber price environment. But lumber prices are historically very volatile. And this too, shall pass the industry cannot continue to run at breakeven or for a lot of mills below below breakeven levels. So continuing to keep our fleet of Mills from First or second quartile mills is always going to be our objective, assuming we can find private projects to generate the needed returns. So I think that's CapEx is always a given strong consideration amongst our capital allocation levers regarding the debt paydown, um, you know, I think it all comes down to what our refinance costs are going to be and how do those refinance cost compared to other options that we have. And we're just now really getting into those discussions with our banking partners. And so it's a little premature to speak to de-levering at this point. And we also have those. As Wayne mentioned, we still have 200 million of swaps sitting on our balance sheet that we can deploy to bring down our borrowing costs. And so it's a little bit premature to talk about de-levering at this point, but certainly that'll be that will be in the mix of our capital allocation decisions.

Anthony Pettinari

Got it.
Got it.
That's very helpful.
And then just picking up on one thing. You mentioned, I mean, if you're running EBITDA breakeven in lumber, presumably there's a lot of other producers who are burning cash here and yes, I'm not asking you to speak for other competitors here, but I'm just wondering if you are you surprised that we haven't seen more capacity curtailments in lumber year to date? Or are you starting to see them just any kind of industry dynamics that would keep some of this capacity on maybe for longer? Is there an import dynamic?
I'm just wondering if you could talk generally about the supply side, supply demand in lumber?

Eric Cremers

Yes, that's a great question, Anthony. You know, so so capacity utilization across the industry, Tom, I think it's running in the high 70% kind of range, which is frankly, quite low. It hasn't been this low since I don't know, 2012, 2013, something like that relative to demand. There is a lot of excess supply in the industry, particularly in southern yellow pine, where we've seen a lot of new capacity come online. And so far this year we have seen nine mills close up and several were in BC, which had some in the Pacific Northwest. And then you had some in the South. But given where we sit today with pricing where it's at today and I've seen cost curves for the industry. There's no doubt that there are a lot of mills that are hemorrhaging cash right now. And so I would not be surprised if we see more curtailments in the coming months, especially when you take into consideration the fact that duties are going up on Canadian lumber from 8% to 14% here in just a couple of months. So there's still still more more pain yet to be felt. So yes, to answer your question there, I'm almost certain there will be more curtailments. Everybody's got to make their own decision, but nobody likes hemorrhaging cash. That's for sure.

Anthony Pettinari

Got it.
Got it. That's very helpful.

Operator

Ketan Mamtora, BMO Capital Markets

Ketan Mamtora

Thank you, and good morning, everyone.
I'm wondering if maybe you could pick picking up.
Can you talk a little bit about sort of your operating rate in lumber in the first quarter and perhaps talk about sort of we know how your order books are trending thus far, given that we are in all pretty close, if not already in the busiest time of the year?

Eric Cremers

Yes.
So so given we've been running our mills as hard as we possibly can producing as much volume as we can. And it's because we've got good efficient mills now you might look at it and say, well, you had breakeven EBITDA or why would you why would you bother running so hard, but you have to take it one step further because our administration costs to running your mills. If you look at each mill individually, each mill individually can make money, but then you add up the earnings from those individual mills and that offset administration costs. And after you offset those administration costs we ran at a breakeven level in the first quarter. So the point is that the mills themselves or individually are doing just fine, barely doing just fine.
But in this environment, it still makes sense for us to run as hard as we can.
Now, I will say our mills are better than a lot of mills. And I generally know where they sit on the on the on the cost curve as it relates to know, industry-wide competition, and I know that there are a lot of mills that are not covering their cash variable costs and those are the mills. I'm sure the owners are having tough discussions about about what to do.
So Bill, for us, we're continuing to run as hard as we can, but I'm sure it's a different discussion at other mills.
Got it.

Ketan Mamtora

That's helpful.
And how are your order books for this time of the year, Eric and lumber and you know, I would say our order books are there adequate.

Eric Cremers

They're not. What will generally happen is when we have a point of view that markets are going to get better, we'll keep our order book short and basically saving lumber that we can sell what we think is going to be at a high at a higher price when prices are really strong will tend to extend our order books and sell lumber out as much as I don't know, four weeks out into the future. Today, our order books are relatively short and the reason it's short is not necessarily because of lack of demand. It's because our sense is that things are bottoming and we want to save lumber to sell at a future higher price.

Ketan Mamtora

That makes sense, and that's not.
That's helpful.
And then just one last one from me. I want to come back to capital allocation. Again. You've talked about sort of during Q. one and you were going through the asset purchase and to that to some degree that sort of push the share repurchases to the back burner as we think about now as you move past that and how do you approach that? And I'm just curious how does that of the net leverage, which is, of course, driven by depressed lumber prices, which is sitting at enough buybacks buybacks right now. How does that sort of influence and sort of your decision as you think about share repurchases in particular?

Eric Cremers

Yes.
So Keith, we started out the year, Tom, we were we were pretty optimistic on where markets were headed. You think back, I think the market was expecting six rate cuts by the Federal Reserve by the end of the year and suddenly that went to three interest rate cuts. Last I heard we were down to maybe one rate cut perhaps in December, and I don't know after some employment cost index data this morning, we may be at zero cuts for the year.
So what kind of an economic environment are we in is this. We have a hard landing and have a soft landing.
Is there going to be no landing. It's really murky what the outlook for the economy is right now. And so it's it's hard to have a lot of conviction about where markets are headed with this kind of a kind of a backdrop some. So I think that's one of the factors that weighed into the discussion. The Board meets every quarter to talk about share repurchases into. And certainly that will that will be a topic of conversation at an upcoming Board meeting.
Now I would I would also tell you that what we look at, we don't we think about our 5-year plan or 5-year model for what our dividend ought to be and what leverage ought to be they're going to be periods of time where markets are blowing and going like they were during COVID and they're going to be periods of time where the industry gets stressed and we get stressed like we are right now and this too, shall pass. I do think markets are going to get better. I do think lumber markets are going to get better. I do think supply is going to come down. I do think demand is going to come back. Capacity utilization in the industry will come back and earnings are going to come back to our wood products business.
And I would also add that, you know, as I think about our interest coverage and leverage and all that in all our current forecast has our cash balances running are running higher than where they are today by the end of the year. So I feel pretty good about where we're at in the environment. The only question I have is where is the economy headed? It's very, very unclear at this stage.

Ketan Mamtora

And that's fair. And do you still have a 10b5-1 program in place?

Eric Cremers

Yes, we still have one in place.

Ketan Mamtora

Okay, perfect.
I'll turn it over. Thanks for all the clarifications, Jeff.

Eric Cremers

Thanks.
Yes.

Operator

Mark Weintraub, Seaport Research Partners.

Mark Weintraub

Thank you.
And first question.
So in the slides it indicates you're expecting higher lumber prices, 2Q V, 1Q. You mentioned that they're up to date flat and presumably the spot is lower than where it was on average. So that seems to convey some optimism that there's going to be some improvement. And can you kind of just clarify that that'd be pretty soon. I totally understand the conversation about why we're at lows or toward lows over the cycle of what gives the confidence that we're going to get some improvement, hopefully sooner rather than later?

Eric Cremers

Yes, we do expect prices to improve and we do think we're feeling some weakness right now, particularly multifamily using project finance costs move up also our in our treated markets, in particular in the south is under under bit of pressure. I think the one thing that gives me hope or optimism, Mark, is that we are moving into the spring demand build time of the year markets haven't completely fallen out of bed. Demand is not phone completely out a bit. Single-family starts are hanging in there at over $1 million. As we said for several months in a row now, I think Home Depot said their comp store sales are going to be down 1% for the year, I think Lowe's was maybe minus two to minus 3% for the year.
And so things haven't completely fallen out of bed.
And as we get into the summertime and people start taking on more and more repair and remodel projects. And I think demand will come back and there's an opportunity for prices to move higher. It's just it's hard for me to see prices not getting better given that. So many mills across North America are below breakeven right now.

Mark Weintraub

Totally understood. But it just there's nothing though that you're seeing right in this moment, I'm over reading it. If I if I conclude that you're seeing something that's going to lead to like a near term improvement, necessarily reasons you gave all very valid, although the timing, I guess unclear on most of them? Or am I missing something?

Eric Cremers

Yes.
I mean, our forecast as things dip in May and then they come back in June, we'll see.

Mark Weintraub

And then second kind of on the almost a flip side of that is I see sawlog prices expected to be up 6%. I guess the strength that we've seen in the West, I would have thought there would have been a bigger increase given though, in other words, the way it lags through. Maybe if there's just a word on the dynamics or if there's something that's going on there, that wouldn't be obviously apparent.

Eric Cremers

Yes.
I mean, looking at the north on the sawlog prices, I think it did actually trend pretty close to where we see the when you lag during random lengths to where to where we came out. I think it parallels fairly close actually. So that really the story was for the quarter, just the dynamics around heavier logs. It was really the density issue more than the indexing pricing itself.

Mark Weintraub

Yes.
I mean, I apologize. I meant the second quarter outlook, the 6% improvement when I would have thought you would have been and positioned for a bigger increase, given what happened in like inland Hemlock and et cetera, over the lag. I apologize if I can take this offline and go through.

Wayne Wasechek

Yes, Tom.
Well, I yes, I mean, as it looks for the outlook where we head into Q2, Q2 I think there is again, you get the seasonal lighter log mix. There is an improvement.
But I think the other consideration is there is the lag there.
But you also have to think about where spring breakup is and there's no calling in that period as well. And so the timing lag is a bit extended. So I think that factors in.

Mark Weintraub

Okay, and then lastly on So when is the SI sale expected to be completed second quarter yet, Dayton, can you give us kind of more specifically within the quarter? Is that a very soon or might it be towards the end of the quarter?

Wayne Wasechek

I mean mid to later in the quarter's expectation.

Mark Weintraub

Okay, great. And then on presumably that does that then is that likely to put share repurchase more to the front burner given I guess you'd given the explanation in the first quarter that you had the the acquisition and now the share price is lower and you'd have the monies coming in? Or I mean, is the consideration of how things work with the refi need to be kept in a part of the equation as well. What how would you have us kind of understand your sentiment on priorities as that 58 million comes in?

Eric Cremers

I think that that clearly, Tom is the moves are likely to share repurchases a little bit more forward. But you've got to remember there's a couple of other big factors that are in the back of our minds. One is the Waldo start-up, how does how does that go? Because we've seen some mills in the South have disasters, startups and others have gone well. We expect ours to go well, but that remains a little bit of an unknown. I'd also like to see lumber markets improve, and we'll see how we'll see how that goes. And then part of it is going to be what happens with the with the refinance equation and what happens to our view on our expected borrowing costs. And so there's a couple of moving a couple of moving pieces there. But certainly some all things equal, completing the FIA. sale. We'll derisk things for us.
Okay.

Mark Weintraub

Appreciate that.

Wayne Wasechek

Thank you.

Operator

Matthew McKellar, RBC Capital Markets.

Matthew McKellar

Hi, good morning. Thanks for taking my questions. And for warning, I think last quarter you talked about modest signs of slowing and take-up of lots and Chanel Valley, your guidance for 24 lots in Q2 and one 30 lots for 2024 seems to imply a significant pickup in sales in the second half of the year. Can you just talk about the visibility you might have to a stronger sales in Q3 and Q4?

Wayne Wasechek

Yes, Matt, it's Wayne.
But we the timing of our outlook on real estate lots is really driven off of inventory availability. So we expect to bring more lots to market in the later half of the year, meaning really we tried to really closely manage our CapEx for real estate. We don't trying to get out over our skis and create excess inventory. So we really tried to stay just in front of demand. And yes, our outlook for the rest of the years when we were bringing a couple sub developments to the market, those will be completed here in the coming months. And then be available for market later this year. So that's really a lot availability and what we're bringing to market and that's what's driving the timing.

Matthew McKellar

Great.
Thanks for the detail.
There.
And then I wonder if you could just provide a bit more commentary on the state of the timberlands markets for M&A. Maybe just what you're seeing, whether there's been any changes in sentiment in the markets and what have you maybe since your last update?

Eric Cremers

Yes.
So so I think the best way to describe it is that the market is relatively quiet right now. I mean, I would say in general 3 to 4 billion of timberland changes hands each year, and we'll see where we wind up this year. But I think it's going to wind up being a relatively light year so far from the trade rags and the industry have highlighted the fact that we've had four busted deals in the industry so far this year, deals that did not get done. And now I would also say that they were generally speaking from what I know about them. They were very low quality deals. So it's no surprise that they didn't get done.
But I do see demand for high-quality timberland remains quite high.
And it's just that right now, there isn't a lot of high-quality timberland on the market. And so we'll see how the market shakes out. But I think there's no doubt demand is still out there.

Matthew McKellar

Great.
Thanks for that. And it's all online, and I'll turn it back.

Eric Cremers

Thanks.
Thanks.

Operator

Nico Piccini, Truist Securities

Nico Piccini

Hi, guys. This is Nico on for Mike Roxland today.

Wayne Wasechek

I'm morning.

Eric Cremers

Just mean more First off, can you talk about any any early indications on demand for carbon credits, realizing that you're a little ways away from actually placing in the market and then has that changed at all since you began pursuing forest carbon grades now?
You know our carbon credit deal, it's going to be a voluntary project.
And we've had the price discussions with our broker and with the party that we think is going to wind up, buying them into. And we think the price stock is still in this 20 to $30 ton range, and we still feel pretty good about it until when do you have anything to add to that?

Wayne Wasechek

Yes, no, I think Qinnan. It's more of the updates we gave in the past. We're still on track and moving the project forward trying to target later this year, but we'll see now it's a complex and we're developing high quality credits and that takes time. And we're also dependent on third parties that are involved in the accreditation process.
So we'll ultimately that'll drive completion. But yes, definitely, we think there's strong demand there.

Nico Piccini

Understood.
Thank you for that.
And just realizing that so for solar and carbon credits seem to be the more mature as just initiatives not just for Potlatch, but the industry. Is there any can you give any update or maybe an estimate of when we might see those other initiatives come into play like bioenergy with carbon capture sequestration?
Yes.

Wayne Wasechek

I mean, certainly, we're in the early innings on biomass, maybe brine lithium. We're looking at carbon storage and sequestration. Yes, those are we're developing all those opportunities. We continue to make progress. I think it's difficult to put a exact timeframe on when we would see monetizing some of these type of projects, but world and we're very active in each one of those and pursuing pursuing each of those opportunities with outside parties. We're under some NDAs as it relates to CCS as we continue to look at that opportunity. I think we estimate at CCS, we may have around or up to about 150,000 acres that are suitable for CCS.
And we're active in looking at that geological formations that I think will support CCS.
So we're active in all those areas aggressively pursuing each of those opportunities.

Nico Piccini

Got it. Thank you, guys.
I'll turn it over.

Operator

George Staphos, Bank of America.

George Staphos

Hi, thanks, everybody.
Good morning.

Eric Cremers

Morning.

George Staphos

Just want to come how you do and so the harvest levels in the first quarter were a touch better, I think, than your initial guidance. Was that just a weight issue? Are there other things that were driving the slightly better harvest profile.
And then and maybe staying on that same topic as we look to the south and again, we all know that these are local markets. We can't look monolithically. Nonetheless, pricing remains relatively flat in the South, it's been relatively flat and flat for a long time.
When do you see the inflection coming in timber pricing in the south Yes, George.

Wayne Wasechek

So your first question on harvest volume, yes, we were, I would say slightly ahead in the south as first quarter compared to what we had planned and we had just favorable harvest conditions. And we took advantage of those conditions and drove a slight uptick in our and our harvest volume. But we continue to maintain and our overall outlook for harvest volumes for the year, somewhere around probably 1.6 million.

George Staphos

Yes.
So no real change there. I think it's just taking advantage of conditions when you when you can and as far as pricing is concerned?

Wayne Wasechek

Yes, I think you're right. We've been in a pretty stable environment. I think that's our near-term outlook, both on the demand side and the pricing side, even when we've looked across and kind of digging deeper into both of our markets, whether that's kind of on the Gulf Gulf South side or the Southeast, I think we see pricing relatively stable across the board when that turn?
Yes, I think as markets continued attention, especially in the southeast side, where we see a premium because markets are more attention I think when when the lumber demand picks up those tension markets, you'll see a bigger increase in pricing in that region probably compared to where we were a little bit less tension in the Gulf South region. So that will probably lag, but there is additional capacity coming online. So timing is difficult to ultimately say, but we do think those markets will tension over time as well. But and yes, I think as soon as we see demand picking up, you can see those especially those tension markets really turning around much quicker.

George Staphos

I mean the log and lumber markets have decoupled in the south for a long time. Is your view that we're getting to a point maybe in within the next year that they will recover. And so as we start to see lumber prices moving, are we actually will see a higher propensity to pay for logs? Or is that still kind of too hard to call at this juncture?
Yes, with all the branches, that was the answer.

Wayne Wasechek

Yes, I think that's a bit of color. I mean, look, we haven't the prices have been fairly stable.
And when we saw the historic run-up in lumber prices, we didn't see a huge increase in log prices in the South, I mean, but we continue to add capacity in the South. And I think as those tension, you'll see prices come up over time. But it's difficult to pinpoint exactly when that will be. I mean, there's a lot of variables involved.

Eric Cremers

And I think, George, you got it. You got to step back and think about like what happened after the great financial crisis. All those mills closed in the south when you think about what happened to growth to drain. The forest was growing much faster than the harvest each year. And so a lot of standing inventory went on the stone each and every year for 15 years.
And the latest industry data that I saw, it had drain actually equaling or maybe even slightly exceeding growth.
So now the standing timber inventory in the south has now reached an equilibrium. And if you look out over the next five years, in fact, drain is going to be higher than growth. So you'll start to see those standing inventories come back down again.
Now to Wayne's point, every market is going to be a little bit different, right?
The already tension markets are going to show more tension assuming lumber demand continues to improve and you'll see those tension market show better price appreciation on the non-pension markets. But the reality is even the non-pension markets are expected to get to get better over the over the coming years as drain exceeds growth.

George Staphos

Would you be maybe more willing now than in past years to consider selling in areas where you're not going to see that tension in next several years, given that inorganic 15 plus years since the crisis?

Eric Cremers

Well, as portfolio managers were always open to selling, I mean just take a look at our FIA. transaction where we sold four year old trees for 1,700 bucks an acre. That's good core timberland for sure, but it's just we've got young trees that have no cash flows or virtually no cash flows for 20 some years. And so we're always opening open to the idea of selling. But I think that the thing you got to keep in mind is you don't want to be just in the tension markets, look at the pullback that we've just had over the past year to what's which markets have taken it the hardest in the South. It's been those most attention to markets because those are the areas where capacity comes out first. And so I think you want to play in both pension and non-pension markets, frankly, the sawmill expansions, the additions that we're seeing, they tend to be in more of the weaker markets and the fact that capacity is going in those weaker markets is what in turn is going to drive log prices higher. But at the end of the day, like I said at the start, we're portfolio managers at the right price. We'll sell just about anything.

George Staphos

No.
Understood. And I appreciate the thoughts on that or I guess my final question, I'll turn it over recognizing the land sales we'll make for a nicely improved 2Q versus 1Q. If we hold that aside and we look just at Timberland and wood products, Wood Products, lumber volumes might be up a touch from what we saw in the first quarter. But pricing right now is relatively stable and actually, may you're expecting to be lower in timberlands. Harvest lines are now recognizing if you're going to be opportunistic. It will be a touch lower than the first quarter where you've got Northern prices up Southern prices down. So it seems like operationally EBITDA kind of flat 2Q versus 1Q.

Eric Cremers

Would you agree with that very, very quick analysis and I think that was pretty pretty quick analysis. I mean, my expectation is yes, lumber markets are weak and we actually had a decent April, not a great April, but it was certainly better than say the first quarter some. So I think wood products could be to be a little bit better. And I think timber lands, I don't know. It may be flattish, but yes, real estate should be up significantly.

George Staphos

Okay.
Thank you very much, guys, for the thoughts.
Good luck in the quarter.
Thanks.

Operator

It does from there.
I'm showing there are no more questions. I'll now turn the call back over to Wayne waste.

Wayne Wasechek

Thank you for your questions.
And your interest in PotlatchDeltic. That concludes our call.

Operator

Ladies and gentlemen, that concludes today's call and thank you all for joining. You may now disconnect.