Welcome, and thank you for joining Rayonier's first quarter 2022 teleconference call. At this time, all participants are in a listen-only mode. During the question and answer session, please press star one on your telephone keypad. Today's conference is being recorded. If you have any objections, you may disconnect at this 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 Conference covering first 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 in 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 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 David Nunes, President and CEO. Dave?
Thanks, Collin. Good morning, everyone. First, I'll make some high-level comments before turning it over to Mark McHugh, Senior Vice President and Chief Financial Officer, to review our consolidated financial results. We'll ask Doug Long, Senior Vice President, Forest Resources, to comment on 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 2022. Overall, we were very pleased with our strong start to 2022. For the first quarter, we achieved earnings per share of $0.20 and adjusted EBITDA of $98 million. First quarter adjusted EBITDA increased 41% versus the prior year quarter as record results in both our U.S.
Timber segments, coupled with a very solid contribution from our Real Estate segment, more than offset lower adjusted EBITDA from our New Zealand Timber segment. Drilling down on our different operating segments, our Southern Timber segment generated adjusted EBITDA of $48 million for the quarter, which was 53% above the prior year first quarter and represented an all-time record quarterly result for this segment. We're very encouraged to see strong demand drive a 31% increase in net stumpage realizations, while favorable logging conditions further contributed to a 25% increase in harvest volumes. These strong results in our Southern Timber segment are a testament to both the strength of our operating areas as well as our team's ability to capitalize on favorable market conditions.
In our Pacific Northwest Timber segment, we achieved adjusted EBITDA of $22 million, up 22% from the prior year quarter and likewise an all-time record result for this segment. The year-over-year increase was primarily attributable to 17% higher log prices partially offset by a modest reduction in harvest volumes and higher costs. Our operations in the region continue to benefit from very favorable domestic lumber markets as well as healthy export market demand. Conversely, financial results in our New Zealand Timber segment declined significantly versus the prior year quarter, as higher pricing was more than offset by compressed margins due to significantly higher shipping costs, 14% lower production volumes, and unfavorable foreign exchange impacts. First quarter adjusted EBITDA on our New Zealand Timber segment was $10 million, down from $21 million in the prior year quarter.
In our Real Estate segment, we generated adjusted EBITDA of $25 million, up considerably from $5 million in the prior year period, as a significantly higher number of acres sold was partially offset by a modest decrease in weighted average prices due to the mix of acreage sold. Our team continues to do a tremendous job of capitalizing on strong demand for rural land as well as residential lots and commercial parcels within our development projects. With that, let me turn it over to Mark for some details on our first quarter financial results.
Thanks, Dave. Let's start on page 5 with our financial highlights. Sales for the quarter totaled $222 million, while operating income was $45 million, and net income attributable to Rayonier was $29 million or $0.20 per share. Pro forma EPS was also $0.20 per share as we had no pro forma items in the quarter. We generated first quarter adjusted EBITDA of $98 million, which was up considerably from the prior year period due to much higher contributions from both of our U.S. timber segments as well as our Real Estate segment. 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 quarter was $65 million versus $47 million in the prior year period.
The increase was primarily driven by higher adjusted EBITDA, partially offset by higher cash taxes, cash interest paid, and capital expenditures. Note that cash taxes were elevated in the first quarter due to the required timing of tax payments for our New Zealand subsidiary following the full utilization of its NOLs. A reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on page 7 of the financial supplement. Consistent with our nimble approach to capital allocation, we raised $30 million through our at-the-market equity offering program during the first quarter at an average price of $41.46 per share.
As previously discussed, we view the ATM program as a cost-effective tool to opportunistically raise equity capital, strengthen our balance sheet, and match fund both on acquisitions. We closed this first quarter with $257 million of cash and $1.3 billion of debt. Our net debt of $1 billion represented 14% of our enterprise value based on our closing stock price at the end of the first quarter. Looking ahead, we believe our balance sheet is well-positioned for a higher interest rate environment following the steps we took in 2021 to extend our debt maturities and lower our average cost of debt. Currently, our weighted average maturity is roughly 7 years, our weighted average cost of debt is roughly 2.7%, and essentially all of our debt is fixed.
I'll now turn the call over to Doug to provide a more detailed review of our first quarter timber results.
Thanks, Mark. Good morning. Let's start on page 8 with our Southern Timber segment. As Dave mentioned, we achieved record quarterly adjusted EBITDA in the first quarter of $48 million, which was $17 million above the prior year quarter. The year-over-year improvement was primarily driven by a significant increase in net stumpage pricing and higher harvest volumes, partially offset by higher costs and lower non-timber income. More specifically, volume climbed 25% during the first quarter as drier conditions enabled stumpage customers to ramp up production to meet strong demand despite ongoing constraints on trucking availability. Sawlog stumpage pricing rose 29% versus the prior year quarter. At over $35 per ton, first quarter pricing marks the highest average southern sawlog stumpage realizations we have registered in over a decade.
The improved pricing reflects strong demand from sawmills as the increased capacity that has been built over the past few years in several of our wood baskets continues to come online and benefit from strong lumber prices. Upward pressure on chip-n-saw pricing due to increased competition from pulp mills was also a positive contributor. Pulpwood pricing also improved significantly to over $24 per ton, increasing 41% from the prior-year quarter, reflecting robust competition across several wood baskets as customers look to secure supply and replenish low mill inventories. Overall, weighted average stumpage prices improved 31% year-over-year.
We continue to be very encouraged by customer demand and the pricing environment across our southern footprint, but have recently seen pricing gains moderate in some operating areas as mill inventories normalized with drier weather conditions, resulting in more favorable logging conditions, which increase available supply in some markets. Southern log exports remain constrained by the pine wood nematode policies implemented by China earlier this year. Several exporters in the U.S. South have exited the market in response to these policies. We are still working with our valued customers in China to provide log shipments to specific ports where the customer assumes phytosanitary risk upon delivery. However, we have largely pivoted our U.S. South log exports to Vietnam and India for now.
While we expect the nematode policies will remain a headwind over the near term, we believe that strong underlying demand, coupled with the breadth of our export capabilities, leave us well-positioned longer term to supply logs to our customers in China and other parts of Asia through our U.S. South export program. Moving to our Pacific Northwest Timber segment on page 9, we likewise set a new record with quarterly adjusted EBITDA of $20 million, which was $4 million above the prior year quarter. The year-over-year increase was driven by higher stumpage realizations, partially offset by lower harvest volumes, higher cost, and slightly lower non-timber income. Volume declined 6% in the first quarter as compared to the prior quarter, primarily due to the timing of stumpage sales.
Turning to pricing at roughly $106 per ton, our average delivered solid price during the first quarter was up 16% from the prior year quarter, as domestic sawmills benefited from strong lumber prices and healthy export market demand, providing incremental tension to the market. Meanwhile, pulpwood pricing increased 28% in the first quarter relative to the prior quarter, as demand from pulp mills in the region remains quite favorable with all mills operating near capacity. Page 10 shows results in key operating metrics for our New Zealand Timber segment. Adjusted EBITDA in the first quarter of $10 million was $11 million below the prior year quarter. The decline in adjusted EBITDA was largely driven by higher freight and demurrage costs, lower harvest volumes, and unfavorable foreign exchange impacts, partially offset by higher carbon credit sales.
Volume declined 14% in the first quarter as compared to the prior quarter, as production at the beginning of the year was deferred in response to port congestion and elevated log inventories in China. At nearly $128 per ton, average delivered prices for export sawtimber were up 5% in the first quarter as compared to the prior quarter, but down from the highs seen in the last three quarters of 2021. The improvement in export sawtimber prices versus the prior year period reflected our ability to pass on some of the higher freight and demurrage costs we are experiencing to our customers. Chinese log inventories remained elevated throughout the first quarter, but the pricing environment for radiata pine logs appears to have stabilized and overall log inventory levels are slowly coming down.
That said, offtake from ports remains relatively weak given the COVID-related lockdowns that have been imposed in parts of China. A significant level of uncertainty remains around the ongoing COVID-19-related disruptions in China, as well as the prospect of Chinese policymakers implementing new stimulus measures. However, we expect that as demand stabilizes, export sawtimber prices will likely move higher due to ongoing supply-side constraints, including the reduced flow of European logs in China, the continued ban on Australian log imports by China, and the ban on Russian log exports that commenced at the beginning of this year. Shifting to the New Zealand domestic market, demand has remained strong to start 2022. During the first quarter, average delivered sawlog prices in U.S. dollars decreased 6% from the prior year period to $76 per ton.
However, excluding the impact of foreign exchange rates, domestic sawtimber prices actually improved 1% versus the prior year period.
Average domestic pulpwood prices declined 13% as compared to the prior quarter, which is also driven in part by foreign exchange rates, as well as less export competition. We resumed sales of carbon credits in New Zealand in early 2022, following a more than doubling of carbon credit pricing over the prior year. However, we subsequently paused sales as the war in Ukraine disrupted carbon markets globally in February, leading to a pullback in pricing. Pricing has since partially recovered to above 2021 average pricing. Moving ahead, we plan to remain opportunistic in our sale of carbon credits depending on market conditions. Lastly, in our trading segment, we posted a slight operating profit in the first quarter. As a reminder, our trading activities typically generate low margins and are primarily designed to provide additional economies of scale to our fee timber export business.
I'll now turn it back over to Mark to cover our Real Estate results. Mark?
Thanks, Doug. As detailed on page 11, our Real Estate segment delivered strong first quarter results. Real Estate sales totaled $34 million on roughly 8,700 acres sold at an average price of just over $3,800 per acre. Real Estate adjusted EBITDA in the first quarter was $25 million. Sales in the improved development category totaled $5 million. In our Wildlight development project, north of Jacksonville, Florida, we closed on $3.6 million of sales during the quarter, representing 52 residential lots for an average price of roughly $70,000 per lot. In our Richmond Hill development project, which we have branded as Heartwood, we closed over $1 million of sales during the quarter, including 10 residential lots at an average price of $44,000 per lot and a 4-acre commercial property for $246,000 per acre.
We've been encouraged by the activity within our Heartwood development project and are excited that Pulte Homes is set to open initial model homes there this summer, adding to the positive momentum surrounding this project. Much like Wildlight, we expect that the Heartwood project will benefit from favorable migration and demographic trends impacting the local market area. Turning to the rural category, sales totaled nearly $17 million, consisting of approximately 4,800 acres at an average price of just under $3,600 per acre. Thus far in 2022, demand for rural land has remained healthy as the space, privacy, and recreational opportunities offered by these properties continue to attract buyers. Despite the recent increase in interest rates, demand for rural land has held up well, and our team has built a solid sales pipeline for the balance of the year.
Lastly, during the first quarter, we also closed on the sale of just under 4,000 acres of non-strategic holdings in Clallam County, Washington, for roughly $11 million to a conservation-oriented buyer. Now moving on to our outlook for the balance of 2022. Following a solid start to the year, we are well on track to achieve our prior full-year adjusted EBITDA guidance of $310 million-$340 million. In our Southern Timber segment, we expect to achieve our full-year volume guidance and are encouraged by the year-over-year pricing gains that have been realized across our operating areas. Overall, we continue to expect a significant increase in full-year adjusted EBITDA from this segment as compared to the prior year.
However, we anticipate lower quarterly harvest volumes for the remainder of the year as compared to the first quarter, as we experienced above-average salvage removals to start the year. Also, while we expect net stumpage realizations to remain well above prior year levels, we anticipate modestly lower weighted average prices for the remainder of the year as compared to the first quarter due to higher mill inventories, a higher proportion of thinning volume, and a less favorable geographic mix. In our Pacific Northwest Timber segment, we expect to achieve our full-year volume guidance, although we expect lower quarterly harvest volumes for the balance of the year following strong removals in the first quarter. We further expect that weighted average log prices will remain near first quarter levels for the balance of the year, driven by continued strong sawtimber demand and improving pulpwood markets.
In our New Zealand Timber segment, we expect to achieve our full-year volume guidance with increased quarterly harvest volumes for the balance of the year. While a significant level of uncertainty remains around the ongoing COVID-19-related disruptions in China, we expect that once demand stabilizes, constrained log supplies will drive export sawtimber prices higher. We further expect that domestic sawtimber and pulpwood pricing will remain relatively flat for the balance of the year. Consistent with our previous guidance, we anticipate a higher-adjusted EBITDA contribution from this segment in the second half versus the first half of the year. In our Real Estate segment, we expect to achieve our full-year adjusted EBITDA guidance. Following strong real estate results in the first quarter, we anticipate lower quarterly results for the balance of the year.
Overall, we remain intently focused on achieving significant premiums to standalone timberland values through the activities of our real estate platform. I'll now turn the call back to Dave for closing comments.
Thanks, Mark. Over the last several years, we've taken deliberate steps to continually improve the quality and diversity of our timberland portfolio as we look to grow cash flows and value per share over time. We believe active portfolio management, if done well, can create alpha for our investors. The acquisition of Pope Resources in 2020, as well as the numerous other acquisitions and dispositions our team has successfully executed since our separation into a pure-play timber REIT, have been made with an eye toward improving our land base and long-term financial profile. To this end, we were very pleased with the record quarterly-adjusted EBITDA results posted by both our U.S. Timber segments to start 2022.
We believe these results reflect not only improving market conditions, but also the relative strength of the markets we operate in, as well as the quality of the people we have in place to capitalize on the opportunities afforded by our assets. As we look out over the balance of 2022, we're optimistic about the end market demand we are seeing.
While we are not immune from the supply chain and inflationary pressures that are impacting many parts of the global economy, our team continues to be quite successful navigating logistical challenges and recouping cost increases through higher log pricing. In addition to our strong financial performance to start the year, I'm also encouraged by the steps we're taking to prepare Rayonier for a low carbon economy. We believe that carbon represents a very significant opportunity for our sector, not only to be part of the solution to climate change, but also to improve the economics of our forests. Ultimately, by using more wood and by substituting them for other more energy-intensive building products, such as concrete and steel, we have the potential to sequester more carbon and reduce net greenhouse gas emissions.
We also believe forestry will play a key role in the voluntary carbon offset markets and further view our land resources as a means to support other advancements designed to help combat climate change, such as renewable energy infrastructure and Carbon Capture and Storage projects. In sum, 2022 is off to an encouraging start, and our team is actively taking steps to ensure we're well-positioned to generate industry-leading returns and build long-term value per share. To this end, following the actions we took in 2021 to strengthen our balance sheet and optimize our cost of capital, we believe we are well-positioned to execute on future high-quality growth opportunities. This concludes our prepared remarks, and I'll now turn the call back to the operator for questions.
Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star one, unmute your phone, and record your name clearly. If you need to withdraw your question, press star two. Again, to ask a question, please press star one. Our first question will come from Anthony Pettinari with Citi. Your line is open.
Good morning. I just wanted to follow up on trends into China. In terms of offtake from ports and demand there, is it currently deteriorating, or is it stable or maybe improving a little bit? Then just kind of relatedly, you know, you discussed the supply constraints, capacity constraints from Europe, from Russia, from Australia, which seems significant. I don't know if there's any way that you can kind of frame or quantify, you know, those supply constraints into China specifically. Thanks.
Sure. This is Doug. Yeah, at the end of April, log inventories at China's main ports were around 5.7 million cubic meters. That was down about 2% from March. However, the offtake from the ports does remain below what we would expect post-Lunar New Year. Many construction projects were put on hold as COVID cases in China were on the rise. That's prompted Chinese authorities to impose lockdowns and travel restrictions. While log inventories levels remain elevated, we do expect consumption to pick back up and inventory levels to normalize as the pandemic situation improves and lockdowns are lifted.
The recent Chinese government stimulus measures, coupled with constraints on flow of logs into China that we noted in the prepared remarks, do contribute to our expectation that the second half of the year will be relatively better for our New Zealand operations. You know, right now we're seeing removals from the ports at about 50,000 cubic meters per day, and that's down significantly from what we'd expect to see, probably half of what we expect to see during this time. It is definitely offtake is down from what we would expect to see. A lot of that has to do with, we believe, the COVID measures. To the point, we're seeing the inventory going down. It's come down 2%.
Part of your question there about Europe, we've seen supply come down about 50% over the same period last year from Europe, so significant reduction from there. Also from South America, significant reduction, down over 80% over the same period. That's due to the high freight rates we're seeing. So while offtake is down from where it should be due to COVID lockdowns, we're also seeing really decreased inbound logs to China. You have the additional, you know, restraints coming out of Australia and then the log export ban out of Russia. So just a lot of things that have brought down the amount of wood coming in. We do believe if lockdowns are removed, that the slowdown in log supply will take several months to correct.
It's not just something you can turn on the switch and it comes back, you know. Once you put wood on the water, it's gonna take a month at least and take a while to build those inventories so you can get the wood on the water. We do think the inventories in China will be drawn down quite quickly. And as that happens, we're looking at places like New Zealand going into wintertime, and so their production will also be slower. Really we do believe that the second half of the year should be pretty good for us.
China's promoting significant stimulus package of around $2.3 trillion to recover the economy after lockdown, and they've said that's gonna be through increased infrastructure investments, some further tax breaks and reducing their bank reserve ratio to put more liquidity into the construction market. China's construction market employs about 25 million workers domestically, so you have to think infrastructure is a really big lever they have to pull to try to improve things as they get out of the COVID lockdown.
Okay. That's very helpful. And then just, you know, regarding potential, you know, further growth opportunities after you've de-leveraged, you know, post-Pope, is it safe to say that, you know, you might be primarily focused on kind of bolt-ons in around kind of coastal Southeast regions that you're already established? You know, is it possible to continue to grow in New Zealand or Pacific Northwest? Would you maybe look at other regions of the South or maybe further east in the South? I'm just wondering if you could talk about sort of the opportunity set and potential size of acquisitions that you might go after.
Sure, Anthony, this is Dave. I think that, you know, we're active pretty much all the time in all three of our geographies. We're active both on looking at bid properties as well as privately negotiated transactions. You know, we first and foremost look for complementary fit to our existing assets. We also are looking at both CAD and NAV accretion. I think that last point's important. You know, we don't believe in just growth for growth's sake. We're looking to have that NAV accretion. You know, in our minds, that's one of the areas that kind of keeps us disciplined. Right now it's a pretty active market.
Our team's very busy, but we're also remaining pretty disciplined. There's a lot of buyers right now. You're seeing increased capital flowing into this asset class based on some of the inflationary pressures and the view of timber being an inflation hedge. You're seeing it also in the context of just general geopolitical risk and a flight to quality, flight to safety. You know, lastly, with rising lumber prices, you've got a number of integrated players that are bidding aggressively based on high lumber prices. It's a pretty competitive market right now, but you know, we're active across it.
Okay, that's very helpful. I'll turn it over.
Next, we'll hear from Mark Wilde with BMO Capital Markets. You may proceed.
Thanks. Good morning, Dave, Mark, Colin. I wondered, just starting out, I mean, the pricing in the South was just remarkable this quarter, Dave. I'm just curious if you wanna put any more color around that. Just, you know, any thoughts on, you know, whether this is indicative of a broader turn in the Southern timber market. I think a lot of us have written about the market having been, you know, fairly depressed on a South-wide basis over the last, you know, 15 years.
Sure, Mark, this is Doug. Now as we've been discussing for the past 5 years, we believe that U.S. South is not a homogeneous market, and that we're well positioned in wood baskets with tightening growth-to-drain ratios. During that time, we've made portfolio decisions to exit certain wood baskets that we believe will be fundamentally weaker for a long time, and to grow in markets that were poised for market tension due to declining growth-to-drain ratios. We believe this is really starting to come to play, and as we've seen them and talked about now for quite a while, and saw the results in 2021 also. I'll start at a high level and then touch a bit more on the pricing realizations that we reported in our supplemental data.
As discussed, you know, in our prepared remarks, we're really encouraged by the pricing gains we've seen over the past year or so. Sawtimber and chip-n-saw pricing was up across each of our resource units in the South versus a year ago. It's been across the entire South that we've seen this, but it has been different depending on the resource units we're operating in. Pulpwood prices were higher in all but one as compared to a year ago. I really think the magnitude of the year-over-year gains that we've been able to post reflect the relative strength of the specific markets that we're operating in across the U.S. South. In addition, our team's done a nice job bringing certain tracts to market at the right time to align with the weather conditions or localized supply and demand imbalances.
We're off to a very strong start here in 2022, and we think this positive momentum will continue as the mills ratchet up operations and COVID-related disruptions become less common. Many of our markets are positioned to maintain a pricing premium to the Southwide averages as we move forward based on what we're seeing on the recent increases that we've had in capacity. As we think about it, Florida and Georgia have roughly 1 billion board ft come online since 2020. That's on top of additional 1 billion board ft that came between 2018 and 2020. You're talking about equivalent to 4 million tons per billion board ft, so about 8 million tons of demand just in that Florida, Georgia market.
This increased sawlog demand in these markets has really created a well-tensioned wood basket where pricing has responded. Encouragingly, in Alabama, we've added about another 600 million board ft since 2020, and we're seeing demand in this market materially improve also. The growth-to-drain ratio is large in Alabama, so pricing has been a bit more tempered, but still very favorable, and we're seeing improvements. Then finally, as we move further west in the Gulf States, Texas, Louisiana, some of the capacity expansions have been a bit slower, but we're tracking about another 500 million board ft of oncoming expansions or startups in the near future in that area too. As you can hear, we think that there's been a lot of opportunities there, a lot of movement, and some great growth in those wood baskets for us.
The South, like we said, is not homogeneous, but the ones we're working in, we see improvements as we go, and really seeing that come home here starting on the Atlantic Coast and working its way across to the Gulf. Still, we're seeing, you know, and fully expect to see some back and forth with our customers in areas, particularly as weather conditions dry. That, you know, that's typical to go through something. We think there's always that natural tension between buyers and sellers, and there'll be some price fluctuations. All that said, we think we're working off a higher pricing base than we were a year ago. As it relates to our specific pricing results, Mark mentioned in our prepared remarks, we expect some net stumpage realizations to remain well above prior year levels.
We do anticipate modestly lower weighted average prices for the remainder of the year as compared to the first quarter. That's due to some higher mill inventories, but also a simply higher proportion of thinning volume and less favorable geographic mix. A lot of that has to do with during the COVID disruptions and lack of truck drivers, we saw a lot of our wood that was closest to the mills being harvested and sent to the mills. Now we're gonna have to reach out a bit further to some of our other tracts that are further away, so we have some increased cost in that.
Okay. I wonder just kind of toggling over to increase in inflation and increase in interest rates. How do you guys think about that?
Impact kind of across your business. It and I think has an effect in many different dimensions.
I mean, it certainly has a lot. I'm sorry, Mark, this is Mark. I think it certainly has a lot of different dimensions. I mean, we could probably talk the balance of the call on different aspects of that. I mean, I think, you know, as we think about how it relates to, you know, timberland values and transaction activities and transaction activity in the timberland space, yeah, I guess I'd start by making two observations. First, timberland is generally viewed as a pretty effective inflation hedge, which contributes to capital flows into the asset class in inflationary environments. You know, second, and somewhat related to first, is that timberlands are generally valued on long-range DCF basis using real rather than nominal discount rates.
If you look back over the last 20 or 30 years, U.S. South timberlands have pretty consistently been valued at around a 2.5% EBITDA cap rate. That's really been irrespective of where interest rates have been at any given point in time. You know, to some extent, I think this reflects the notion that timberland is expected to deliver a base real return plus some inflationary component of return over the long term. You know, 10-year TIPS yield is still hovering right around 0%, while the yield on 10-year Treasuries has moved up to around 3% today. I'd argue that the real interest rate is still very low from a historical perspective.
I'd certainly say that the values we've seen in the timberland, you know, transaction market would suggest that we're seeing continued compression in discount rates for timberland assets kind of, you know, despite the inflationary environment and higher interest rate environment that we're in today. You know, I think it's also important to note, you know, you asked a question about rising prices in the South. You know, we are seeing very strong pricing momentum and cash flow momentum in the South today. As we talked about on the call, as Doug just talked about, our composite stumpage pricing was up, you know, 30% on a year-over-year basis relative to a year ago.
In 2021, you know, to put that in context, in 2021, you know, we had a record year for EBITDA in the South, about $120 million. And the midpoint of our guidance for full year 2022 is up about 25% from that. And obviously, we've gotten off to a really strong start here with Q1. You know, if you assume that we're able to maintain, you know, this step change in pricing and cash flow, and if you assume that that historical, you know, cap rate relationship persists, you know, then that suggests that timberland values are poised to move, you know, up considerably. You know, southern timberland values in particular.
You know, certainly relative to any kind of legacy perspective that, you know, all southern timberland trades at, you know, $1,800-$2,000 per acre. You know, so I guess that's how I'd address as it relates to timberland values. Obviously, it touches a lot of different aspects of our business as well. You know, as we think about our balance sheet, you know, as we noted in the prepared remarks, pro forma for the debt repayment early this year, our weighted average borrowing cost is roughly 2.7%, down from about 3.1% a year ago.
We were able to lock in new long-term financing as well as restructure some of our existing debt on very favorable terms amid a much lower interest rate environment, you know, 12-18 months ago. Currently, we have no near-term maturities. Like we said on the call, our weighted average maturity has been extended to roughly 7 years, and all of our debt is fixed until at least 2024, at which time only a small portion becomes unhedged and some even lower cost hedges kick in as well. So there really isn't much impact to our balance sheet over the near to medium term from higher interest rates.
Overall, I think we're in a really good spot, you know, in terms of where the balance sheet is at, you know, given the environment that we're in.
Super. That's a good summary, Mark. Very helpful. I'll turn it over.
Our next question will come from Mark Weintraub with Seaport Research Partners. Your line is open.
Thank you. Couple follow-on clarifications. One, thanks for all the details on the regionally what's going on, timber drain and growth. If you could just tell me, are there some areas where you operate or what percentage of the areas where you operate would you say that drain has caught up to growth or is very close to it?
Well, I'd say, you know, Mark, if you think about the breakdown of the quartiles, you know, we have over 60% in the top quartile, which has of our Southern holdings is balanced. When it's balanced, we believe that, you know, ultimately translates to higher price elasticity. It's in those regions which are in kind of that coastal Georgia, Florida, South Carolina area where we've had, you know, very strong pricing response to rising lumber prices, and that certainly contributed. Conversely, we have no land in the bottom quartile where you've got growth drain relationships in excess of 2x.
That's really why you see our pricing gap out, you know, relative to broader South-wide averages. It's one of the things that we've been sort of pounding that message home for a number of years now. The South is not homogeneous, as Doug said. It's very localized, and we spend a lot of time trying to manage our footprint within that so that we're positioned in some of those stronger markets.
Great. Second, thanks for sort of the color on inflation more generally. How does freight show up in your business and I realize it's probably complicated and there may be differences situation to situation, but how much of higher pricing that we're seeing might be in part related to freight that you report, the higher prices you report.
Mark, just to clarify, are you talking about trucking or ocean freight?
Either/or, but if you could, I was thinking more on the trucking side, but you bring up ocean freight. How would that be playing in as well, I guess?
Yeah. The short answer on the trucking side, Mark, is that we report stumpage, so it's net of the trucking and in the South or in the U.S. We'll have delivered pricing that incorporates freight, but then we report that as net stumpage, so that you can kinda see that on an apples to apples basis. Then, where we're involved in export sales, you know, we are selling that on a delivered basis, so we incur the export pricing. That's one of the reasons that you see, you know, a little more volatility out of New Zealand as you see freight rates move around a bit.
Yeah. Mark, we try to be pretty transparent around that in the supplemental materials. I mean, we report our cut-and-haul costs by segment as well as our delivered volume by segment. You can back into our average cut-and-haul rates. Obviously that's gonna vary, you know, kind of that mix between, you know, kind of the logging portion and the trucking portion by different region. But, you know, it's there in aggregate. Then we also report the ocean freight costs where we're doing export, which at this point is all three of our segments.
Thanks, Mark, for that clarification 'cause I really was also including the cut-and-haul. The freight you're referring to, that's just you to the customer, but there is an element. Is there an element which you are picking up that gets captured in the cut-and-haul that's separate?
No. I mean, again, in the South, we report stumpage prices, and so that's net of cut-and-haul, but some of that volume is delivered, you know, so it's gonna be a higher price on the top-line basis 'cause it's gonna reflect the increment of cut-and-haul. The Pacific Northwest, we report delivered prices, but then you can kinda see the cut-and-haul and how that works down to a net stumpage realization. Yeah, I'd say, from a cost standpoint, New Zealand is clearly the one with the most moving pieces there because a lot of that volume is going export, and ocean freight costs, in particular, have moved up pretty considerably.
You know, at a very high level, I'd say we've you know much more than recouped those cost increases in the South and the Pacific Northwest. in New Zealand, despite you know pretty high prices that have you know persisted for the last year, it obviously came off some in Q1, we enjoyed really high prices in most of 2021. A lot of that was eaten up by higher ocean freight costs.
Okay. Then David, you mentioned integrated players bidding for timberland, given, you know, what's going on with lumber. Is that new or I mean, I assume those are some private players, et cetera, you're referencing. Or is that a changed dynamic 'cause I hadn't heard that much about integrated players being aggressive in the bidding for timberlands, but I could be wrong.
No, I think we've seen that over time on a fairly regular basis when you've got strong lumber cash flow. You know, lumber's a very cyclical business, and as you've seen, you know, as you get to the tops of those cycles, you tend to see those players wade in and secure more, you know, more timberland for the future. That's been a pattern I've seen, you know, throughout my career. I just think, you know, right now with the extraordinarily high lumber prices, you just have more players doing that.
Last, I mean, it seems that, you know, the North American businesses did really well. I don't know if you'd characterize it as it's doing better than what you would have anticipated 3 months ago. On the flip side, New Zealand obviously struggles with what's going on with China, et cetera. The question directionally is how dependent is making the guidance that indeed New Zealand gets better and China gets better? Or are you actually ahead of where you would have thought in North America and it looks better at this juncture that provides at a minimum cushion and, you know, frankly, upside? How would you kinda characterize those two drivers from where you were 3 months ago?
Yeah. I mean, all of the above. I mean, I would definitely say that we've gotten out of the gate very strong in the U.S. Businesses. I'd certainly say that we're trending higher relative to our initial guidance in the South and the Pacific Northwest. You know, Real Estate obviously had a very strong Q1, and like we said in the prepared remarks, you know, we feel comfortable that we're on pace to hit the adjusted EBITDA. Real Estate's obviously always lumpy and you know, transactions can come in and out of the pipeline, and so we never wanna get too you know, aggressive in terms of our outlook on Real Estate this early in the year. New Zealand, you know, there are clearly still some headwinds there.
I mean, we had said even last quarter that we anticipated the second half of 2022 being stronger than the first half. Obviously, we've had some pretty significant COVID disruptions that have impacted our export business there. You know, we were relatively pleased with the Q1 result. All things considered and New Zealand though, it will be kind of contingent upon what happens in China and how that export market evolves during the course of the year. You know, at the end of the day, just given how these different businesses are valued, you know, I'd trade you know, EBITDA in New Zealand for EBITDA in the U.S. South any day because, you know, obviously we're getting a lot more kind of valuation leverage on those earnings.
You know, we're obviously very encouraged by how we started the year, especially encouraged by the pricing momentum that we've seen in the South because that's far and away our highest multiple business from a valuation standpoint, our highest, you know, probably EBITDA to free cash flow conversion business across our portfolio. You know, on balance, I think the year has gotten off to a better start than we anticipated. Obviously, you know, we're ahead of, you know, most consensus estimates for Q1. One quarter into the year, we've generally been reluctant to kind of update our full year guidance. You know, again, particularly this year, given that, you know, we still see some challenges in New Zealand.
Great. Appreciate it.
I'll just add that in New Zealand, you know, we have seen domestically Q1 to Q2 prices rose with firm domestic demand in face of this export uncertainty. So that's a good sign. You know, as we discussed before, kind of domestic pricing typically lags export pricing. In New Zealand, back orders for lumber is maybe approximately 12 months, so some of those have a real long runway ahead of them in New Zealand. So New Zealand is not all dark. There are some bright spots in New Zealand domestically. As we talked about before, when China comes out of COVID, I think there's a real opportunity there.
Okay. Just making sure I understood that. I think you just mentioned that domestic usually lags export pricing in New Zealand, but it seems that this time around it's leading.
That's correct. At this point in time, we've seen firm domestic pricing.
Any thoughts as to why we would have this reversal, whereas it normally lags but now seems to be leading?
As I mentioned, there's a major backlog of almost a year of lumber demand. We see that the saw millers out there, you know, procuring as much wood they can to meet that.
Very strong.
Yeah.
Domestic market in New Zealand right now.
Very strong construction demand. A lot of, you know, under-built housing also. They're seeing the same things we are in the United States and other places.
Okay. Thanks very much.
Our next question will come from Buck Horne with Raymond James. Your line is open.
Hey, thanks. Good morning. Kind of want to follow up. Just given the competitive bidding environment you're seeing and the capital flowing into real estate, you mentioned kind of the diversifying mix of interested parties out there. I'm just wondering, are you beginning to see anyone pricing in carbon optionality into their underwriting? What kind of factor is carbon, you know, potential playing into some of the bids you're seeing out there?
Yeah, Buck, I think generally we'd say that it's not being explicitly factored into transactions. That said, I think it's contributing to some of the discount rate compression that we've seen. I think in the markets that we operate in and the people that we talk to, people are generally underwriting properties with timber valuations. I think where you're starting to see a little bit more carbon explicitly factored in is in some of the weaker markets that don't have the same optionality from a timber standpoint. In terms of where we operate, where you've got strong timber markets, I'd say you know today it's not playing a meaningful role.
Got you. Okay. That's helpful. Thank you. Just curious, not to make you speak too much out of turn on a competitor, but I was wondering if you'd taken a look at the Weyerhaeuser tract in terms of. In the Carolinas, that transaction that was recently completed. Were you guys looking at that acreage or, you know, in the process? You know, any color you can provide on how you viewed that deal and the transaction price it went for?
Yeah, I won't really comment on that specifically. I will just say that we look at everything, and so we see everything that's out there, and we're well aware of that. But I think from a confidentiality standpoint, we'll keep our observations to ourselves.
What I'd add to that, Buck, this is Mark. What I'd add to that is obviously that, you know, transaction that you're referring to, you know, came at a very strong price, you know, well over $3,000 an acre in the South, which is obviously, you know, well above any kind of, you know, average pricing that you might see. I think it's very much reflective of what we've talked about considerably in the past, that, you know, the U.S. South is not one big homogeneous market. You know, different assets are located in, you know, different market areas with different growth range dynamics, different pricing dynamics, you know, different productivity characteristics.
You know, that property was a very high-quality property, and certainly the price was reflective of that quality.
Understood. That's helpful color. Thank you, Mark. Take care, guys.
Our next question will come from Paul Quinn with RBC Capital Markets. Your line is open.
Yeah, thanks very much. Morning, guys. So just a question on overall guidance you gave for 2022 last quarter. You know, had timber volumes up 9% overall. Just wondering, given the very strong lumber environment, which will probably lead to higher log pricing than we've seen in the U.S. South, whether there's any inclination to take those, your guidance volumes, especially in the U.S. South and Pacific Northwest, up even higher than what you gave us last quarter?
I mean, look, we always try to be, you know, nimble and opportunistic as we kind of flex volume to market conditions. You know, that said, you know, we recognize that any time we generally set our annual harvest targets, you know, at around our sustainable yield, you know, subject to any, you know, kind of age class variation that we have in our portfolio. If you pull forward volume, you've got to sort of pay that back at some point in the future. You know, we feel as though we're in an inflationary timber price environment. We've obviously seen that here to start 2022.
I don't think that we'd be inclined to pull forward a lot of volume because as we sit here today, I don't think we see this trend reversing necessarily. It may seem like a great idea today, but then when, you know, next year we guide our volume down 5%, you know, I'm sure that won't be well received. We generally try to operate at around that sustainable yield. I think more often than not, we're pulling back volume with a view that, you know, we're likely to see kind of a near-term uptick in prices that we can recoup, you know, on a relatively short-term basis.
You know, pulling forward volume, I think is always a, you know, a little bit of a challenge relative, again, to how that reflects in a longer-term outlook.
Okay. Well, I hope you're right on future log prices that they maintain this upward momentum. What about on real estate, though? Real estate markets, you know, across the timber REITs have been strong for everybody. Any idea of pulling forward opportunities there that might not present themselves in 2023 or 2024?
If you break down our real estate portfolio and first of all, you know, touch on the improved development projects that we have, I think that's an area where buyers in this market where you have very limited new sale inventory and you've got a shortage of lots, we're seeing essentially faster absorption than we had originally underwritten in those projects. You know, our challenge is to stay ahead of that by getting more lands entitled ahead of that demand. I think we have seen in effect a pulling forward of that demand in the improved development projects. As you shift to rural HBU sales, you have a mix.
Keep in mind, we have a mix of properties that we have listed, and then we have unsolicited inquiries from properties that are not on the market. We always have a blend of those two types of rural HBU sales. I'd say in this market, you know, we see, you tend to see an uptick in unsolicited offers, and that's natural. So our team is sort of used to that ebb and flow. There's probably an element to that that's certainly present in these markets. You see it both in the average pricing, but also, you know, in the volume of activity.
Great. Thanks for the help. Thanks a lot.
Once again, if you would like to ask a question at this time, you can press star one and record your name when prompted. Our next question will come from John Babcock with Bank of America. Your line is open.
Hey, good morning, and thanks for taking my questions. I mean, really actually only one here actually, I think. You know, just broadly, could you talk about the extent to which the Russia-Ukraine conflict has impacted trade flows, both in Europe and China, and also the extent to which, there's been any, you know, sort of flow-through effect into the North American market?
Sure. At a really high level, you know, you have Russia has supplied 2 billion board ft of lumber into the European market. As we see that get tightened and removed, you know, that is more or less has the potential to offset a comparable, you know, 2.5 billion board ft of lumber exports into the U.S. We have seen the beginnings of a slowdown in lumber exports from Europe into the U.S. as a result of that. That ripple effect is starting to show up. We don't necessarily think you'll see a full elimination of European exports into the U.S. just because lumber prices are so strong.
That's one of the sort of second order effects that we see. I think the other thing that you have in play is, you know, Russia's a very strong and leading supplier of lumber into the China market, and we don't anticipate that really changing. They're gonna continue to maintain that market share. Russia, on their own, has implemented this year a ban on log exports. This is something that they've been working on a number of years that started back in 2007 with an imposition of an export tariff. A few years ago, they announced the intention of cutting off all log exports. That's something.
They were roughly a 10% supplier into the China market, as was Australia. When we talk about being bullish on China longer term, you know, you've got two large historical suppliers in Australia and Russia on the log side that aren't present. We're pretty bullish. Another element to the question is the role that European logs and lumber have played, coming into the China market. Keep in mind that much of that has been driven by the salvage volume from Europe, and that salvage volume is now in decline. They've gone through. They're past the peak of it, and that's one of the reasons, as Doug mentioned, that you're seeing a 50% decline in volumes coming out of Europe.
It's because they're on the down slope of that salvage volume. Then in addition to that, you've got the Russia-Ukraine war situation that's providing more market opportunities in Europe. You know, we think we're pretty well-positioned for that, you know, whether it's in the U.S., taking advantage of less supply going into China or in our New Zealand markets.
Okay. Just as a clarification point, I mean, do you see any potential or risk that Russia ends up changing its policies, you know, given kinda what's going on today, or you think they'll largely stick to their, you know, import-export policies as it pertains to logs?
I mean, it's hard to say. I think generally this has been a path since they've been on this path, since, you know, since 2007, I'd be surprised if they reversed it. You know, who knows in this global market.
Recognize, John, that the design of that policy was really to stimulate.
Yeah.
You know, lumber capacity on the Russian side of the border and to kinda do the processing on that side of the border. Obviously that would frustrate that objective were they to lift that ban.
Gotcha. Thank you. That's all I have.
Thank you. We are showing no further questions at this time.
This is Mark McHugh. I'd like to thank everybody for joining the call, and please follow up with any questions. Thank you.
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