Welcome, and thank you for joining Rayonier's second 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 & Strategic Planning.
Thank you and good morning. Welcome to Rayonier's Investor Teleconference covering second quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at rayonier.com. I would like to remind you that in these presentations, we include forward-looking statements made pursuant to the safe harbor provisions of federal securities laws. Our earnings release 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 Dave 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 our U.S. and New Zealand Timber results. Following the review of our timber segments, Mark will discuss our Real Estate results as well as our outlook for the balance of 2022. We achieved earnings per share of $0.16 and adjusted EBITDA of $83 million in the second quarter. Adjusted EBITDA was 13% below the prior year quarter as favorable results in our Southern Timber and Pacific Northwest Timber segments were more than offset by lower adjusted EBITDA in our New Zealand Timber and Real Estate segments.
Drilling down further, our Southern Timber segment generated adjusted EBITDA of $39 million in the second quarter, which was $27 million above the prior year period. Weighted average net stumpage realizations increased by 18%, driven by strong demand for both pulpwood and saw timber, while favorable logging conditions further contributed to a 4% increase in harvest volumes. The construction of our Southern Timberlands portfolio, with 73% of our ownership located in top quartile markets, helps us benefit from some of the most intense markets across the U.S. South, which in turn allowed us to register higher stumpage realizations despite increased cut and haul costs. In our Pacific Northwest Timber segment, we achieved adjusted EBITDA of $14 million, up 3% from the prior year quarter.
The year-over-year increase was primarily attributable to 19% higher weighted average log prices, partially offset by a 6% reduction in harvest volumes and higher costs. Our operations in the region continue to benefit from favorable domestic lumber markets, as well as incremental tension created by export market demand. In sum, our U.S. timber segments continue to generate strong financial performance and pricing gains driven by favorable end market demand as well as localized supply tension, and both segments are on pace to achieve record adjusted EBITDA for the full year. Conversely, our New Zealand segment continues to be impacted by various export market headwinds. Second quarter adjusted EBITDA of $15 million declined 46% from the prior year period as our team contended with compressed margins due to significantly higher fuel, shipping, and port costs coupled with lower delivered log pricing.
Export demand continued to be impacted by China's strict lockdown measures in response to a rise in COVID-19 cases, which in turn led to persistently high port inventories. In our real estate segment, we generated adjusted EBITDA of $25 million, down from $29 million in the prior year period, as significantly higher per acre values in the current quarter were more than offset by a 41% reduction in acres sold. While the timing of land sales will remain lumpy quarter to quarter, our real estate team continues to capitalize on strong demand for rural land, as well as positive momentum across both our Wildlight and Heartwood development projects. As Mark will discuss in greater detail later in the call, we are updating our full year adjusted EBITDA guidance to $210 million-$330 million.
Following an excellent start to 2022, we are on track for a stronger year than we had originally anticipated in both our Southern Timber and Pacific Northwest Timber segments and expect that both segments will post record years. In addition, our Real Estate segment outlook is fairly consistent with our prior guidance. However, in our New Zealand Timber segment, export market headwinds have persisted longer than we had anticipated and have negatively impacted our full year outlook. Overall, the net impact of our revised outlook by segment translates to a modest reduction in the upper end of our total full year adjusted EBITDA guidance versus our prior guidance. With that, let me turn it over to Mark for more details on our second quarter financial results.
Thanks, David. Let's start on page five with our financial highlights.
Sales for the second quarter totaled $246 million, while operating income was $36 million, and net income attributable to Rayonier was $24 million or 16 cents per share. Pro forma EPS was also 16 cents per share as we had no pro forma items in the quarter. Second quarter adjusted EBITDA was $83 million, down from $95 million in the prior year period. On the bottom of page five, we provide an overview of our capital resources and liquidity. Our cash available for distribution, or CAD, for the first half of the year was $120 million versus $111 million in the prior year period. The increase was primarily driven by higher adjusted EBITDA and lower cash interest paid, partially offset by higher cash taxes and capital expenditures.
Note that cash taxes were elevated in the first half of the year due to the required timing of estimated tax payments for our New Zealand subsidiary following the full utilization of its NOLs in 2020. A reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on page eight of the financial supplement. We closed the second quarter with $279 million of cash and $1.3 billion of debt. Our net debt of $1 billion represented 15% of our enterprise value based on our closing stock price at the end of the second quarter. We continue to believe that 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 seven years, our weighted average cost of debt is 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 second quarter timber results.
Thanks, Mark. Good morning. Let's start on page nine with our Southern Timber segment. Adjusted EBITDA in the second quarter of $39 million was $8 million above the prior year quarter. The year-over-year improvement was primarily driven by a significant increase in net stumpage pricing, higher non-timber income, and modestly higher harvest volumes, partially offset by higher overhead costs. Strong customer demand and drier weather conditions across most of our operating areas allowed us to execute on our harvest plan, with volume increasing 4% versus the prior year quarter despite ongoing challenges with trucking availability. Average sawlog stumpage pricing was roughly $34 per ton, a 22% increase compared to the prior year period. The improved pricing reflects robust demand from sawmills, which continue to benefit from strong lumber prices, as well as increased competition for chip-n-saw volume from pulp mills.
Pulpwood net stumpage pricing also improved significantly from the prior year quarter, increasing 18% to over $21 per ton. Despite an unfavorable shift in our geographic mix versus the prior year period, strong end market demand and competition among mills to secure supply allowed us to capture favorable price increases. Overall, weighted average timber prices improved 18% year-over-year. We've been encouraged by our ability to maintain strong pricing throughout the summer and believe there has been a step change in log prices in many of our markets as compared to the past several years. As expected, though, our net stumpage realizations in certain markets have moderated relative to early 2022 as mill inventories have normalized and rising costs led by diesel fuel have compressed margins on delivered log sales.
While domestic demand for both sawtimber and pulpwood remains strong across our operating areas, Southern log exports remain constrained by the pinewood nematode policies implemented by China earlier this year. As previously discussed, several exporters in the U.S. South have exited the market, and we have largely pivoted our U.S. South log exports to Vietnam and India. While these markets are relatively small compared to China, we saw a significant increase in log exports to both countries during the second quarter and are excited about the potential to further expand our presence in these markets over the long term. Also of note, second quarter non-timber sales of $8 million were up over $2 million versus the prior year quarter, with a large pipeline easement sale driving the increase.
Moving to our Pacific Northwest Timber segment on page 10, adjusted EBITDA of $14 million was 3% above the prior year quarter, with higher net stumpage realizations more than offsetting lower harvest volumes, higher costs, and lower non-timber income. Volume declined 6% in the second quarter as compared to the prior year quarter as wet weather conditions hindered production early in the quarter. At nearly $117 per ton, our average delivered sawlog price during the second quarter was up 19% from the prior year quarter, driven by continued strong demand from domestic lumber mills, as well as a favorable species mix, as a higher proportion of Douglas fir sawtimber was harvested in the current year quarter.
Meanwhile, second quarter pulpwood pricing of $45 per ton was up 56% year-over-year, reflecting strong end-market demand as well as the resumption of chip exports, which resulted in greater competition from pulp mills to secure supply. Page 11 shows results and key operating metrics for our New Zealand Timber segment. Adjusted EBITDA in the second quarter of $15 million was $13 million below the prior year quarter. The decline in adjusted EBITDA was largely driven by higher costs and lower delivered log pricing, partially offset by higher carbon credit sales, favorable foreign exchange rate impacts, and a slight increase in harvest volumes as compared to the prior year quarter.
Average delivered export sawtimber prices of $140 per ton were down 5% as compared to prior-year quarter, reflecting reduced demand stemming from the COVID-19 lockdowns in China. Net stumpage realizations for export sawtimber were further reduced by elevated fuel prices, significantly higher port costs and freight costs, and increased demurrage charges due to port congestion. While log inventory levels in China continue to gradually trend lower, they're still elevated as the offtake from ports remains weak given the country's zero-COVID strategy and strict lockdown measures. Ongoing COVID-19 containment efforts in China will likely continue to negatively impact log demand over the near term, and there remains uncertainty regarding the degree to which these Chinese policymakers will implement stimulus measures as they look to balance COVID-19 prevention, economic growth, and growing inflationary pressures.
Despite these near-term headwinds, we expect that log inventories in China will continue to normalize as the year progresses, which should lead to improved export pricing. Longer term, we remain optimistic that ongoing supply side constraints, including a reduced flow of European logs in China, the continued ban on Australian log imports by China, and the ban on Russian log exports which commenced at the beginning of this year, will collectively translate to more favorable export market backdrop as COVID-related headwinds ease. Shifting to the New Zealand domestic market, demand has remained quite resilient due to strong construction backlogs. That said, the sharp decline in the New Zealand dollar drove a 10% decline in US dollar domestic sawtimber prices. Excluding foreign exchange impacts, domestic sawtimber prices decreased 2% in the second quarter, reflecting less competition from the export market.
Domestic pulpwood prices in New Zealand were likewise impacted by foreign exchange rates, declining 20% in US dollars versus 14% in New Zealand dollars. The decline in New Zealand dollar domestic pulpwood prices was driven by less competition from export markets for lower quality logs. While log markets in New Zealand have been challenging, this has been partially offset by higher non-timber income, which increased to $3.8 million in the current quarter. Non-timber income in New Zealand primarily reflects carbon credit sales. Carbon pricing has generally stabilized and remained well above 2021 average pricing, following a sharp pullback earlier this year when carbon markets globally were disrupted by the Russia-Ukraine war. Moving ahead, we plan to remain optimistic in our sale of carbon credits depending on carbon market conditions and pricing expectations.
Lastly, in our trading segment, we posted a slight operating loss in the second 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 12, our Real Estate segment delivered strong second quarter results. Real estate sales totaled $34 million on roughly 4,700 acres sold at an average price of nearly $7,500 per acre. Real estate adjusted EBITDA in the second quarter was $25 million. Sales in the improved development category totaled $12 million. In our Wildlight development project, north of Jacksonville, Florida, we closed on $10.5 million of sales during the quarter, including a 22-acre multi-family apartment site for $4.8 million, a 31-acre single-family build-for-rent site for $4.4 million, and 19 residential lots for $1.3 million, or roughly $70,000 per lot.
In our Heartwood development project, south of Savannah, Georgia, we closed on $1.1 million of sales during the quarter, consisting of 26 residential lots at an average price of roughly $42,000 per lot. Overall, we are encouraged by the momentum that continues to build across our Wildlight and Heartwood development projects and expect that both projects will continue to benefit from favorable migration and demographic trends. Turning to the rural category, sales totaled $23 million, consisting of approximately 4,600 acres at an average price of roughly $5,100 per acre. Notably, over half of our rural sales during the quarter consisted of a 2,300-acre sale in St. Johns County, Florida for $13.7 million or $5,850 per acre.
On the rural sales front, we have seen some indications that higher interest rates and recent financial market volatility are impacting the willingness of certain buyers to transact. However, the overall level of demand and pricing that we're seeing for rural land, especially larger tracts, remains favorable relative to pre-pandemic levels as buyers continue to be attracted to the space, privacy, and recreational opportunities offered by these properties in a post-pandemic environment. Now moving on to our updated outlook for the full year. Based on our first half results and our expectations for the balance of the year, we now anticipate full-year adjusted EBITDA of $310 million-$330 million, reflecting a modest reduction in the upper end of our total full-year adjusted EBITDA guidance relative to our prior guidance.
With respect to our individual segments, we now expect that our Southern Timber segment will achieve full year harvest volumes of 6.4-6.6 million tons, which is at the higher end of our prior guidance, reflecting strong year-to-date production. We further expect that pricing in the U.S. South will remain relatively strong, although we expect that stumpage realizations in the second half of the year will moderate to some extent, primarily due to increased cut and haul costs. Overall, we expect to achieve record full year adjusted EBITDA in our Southern Timber segment of $156-$162 million, which represents a 7% increase at the midpoint from our prior guidance and roughly a 30% increase from the prior record we set in 2021.
In our Pacific Northwest Timber segment, we now expect full-year harvest volumes of 1.6-1.7 million tons, due in part to a modest adjustment in our harvest plan to reflect land sales as well as reduced China export volume. We further expect the weighted average delivered log prices will remain well above prior year levels for the balance of the year. However, we anticipate these pricing gains will be partially offset by higher cut and haul costs due to elevated diesel fuel prices. Similar to our Southern Timber segment, we are on track for a record year in our Pacific Northwest Timber segment and are now expecting adjusted EBITDA of $59 million-$63 million. In our New Zealand Timber segment, we now expect full-year harvest volumes of 2.6-2.7 million tons.
While domestic log demand was strong throughout the first half of the year, export market dynamics were negatively impacted by ongoing COVID-19 lockdowns in China. We remain optimistic that export sawtimber prices will stabilize in the second half of the year in response to improved offtake from Chinese ports and a reduction in competing log supply. However, we expect that net stumpage realizations on export volume will continue to be constrained by elevated port and freight costs. In the domestic market, we anticipate log demand will remain strong, although we expect that pricing will be modestly lower in the second half of the year as compared to the first half of the year due to added supply pressure from reduced export volume. Partially offsetting these headwinds, we expect increased carbon credit sales for the second half of the year as compared to the first half.
Overall, we now expect the New Zealand timber segment will generate full-year adjusted EBITDA of $55 million-$60 million. In our real estate segment, we now expect full-year adjusted EBITDA of $74 million-$79 million. Following a strong start to the year, we expect relatively lighter real estate transaction activity in the third and fourth quarters. Lastly, we now expect corporate segment expense of $33 million-$34 million. The increase from prior guidance is largely due to the accelerated realization of equity compensation expense for retirement eligible employees. More details regarding our updated guidance can be found on page 14 of the financial supplement and Schedule G of our earnings release. I'll now turn the call back to Dave for closing comments.
Thanks, Mark. Overall, as we reflect on the second quarter, we're pleased with how our team worked together to navigate the challenges posed by the inflationary environment that is impacting many parts of the global economy, as well as the transitory impacts of the COVID-related lockdowns in China. Despite these challenges, our U.S. timber segments are on track to deliver another record year in 2022, highlighting the relative strength of the markets in which we operate, the operational flexibility afforded by our pure-play timber REIT model, and our relentless focus on active portfolio management to create long term shareholder value. While the near term operating environment in New Zealand is more challenging, we believe that our operations there are very well positioned over the long term, given China's significant fiber supply deficit, coupled with our broad export market capabilities.
Underscoring the sustainability of our core businesses, the advantageous positioning of our timber, timberland portfolio, and the company's strong capital structure, our board of directors approved a 5.6% increase in our quarterly cash dividend to $0.285 per share in May. We have consistently communicated that a stable and growing dividend is a fundamental component of our capital allocation strategy and long term value proposition, and this recent dividend increase reflects our commitment to growing our dividend over time in a measured and sustainable manner. In addition to our focus on achieving important operational and financial goals, we also continue to direct efforts toward improving the disclosure of our environmental, social, and governance practices. To this end, we are planning to release our 2021 sustainability report in the coming weeks.
We look forward to reporting on how we are advancing various ESG-related initiatives in the pursuit of our mission to provide industry-leading financial returns while also serving as a responsible steward of the environment. In sum, we're very pleased with our strong first half results and relatively stable outlook for the balance of the year, particularly in light of the significant export challenges and inflationary headwinds that we've contended with. As we move forward, I remain confident that the strength of our markets, our nimble approach to capital allocation, and the dedication of our employees leave us very well-positioned to execute on our growth strategy and to build long-term value for our shareholders across the economic cycle. This concludes our prepared remarks, and I'll now turn it 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 Greg Andreopoulos with Citi. Your line is open.
Hi, good morning, everyone. This is Greg on for Anthony. Congrats on the solid quarter despite all the challenges. I'm thinking about southern log prices. I'm looking on a year-over-year basis. Southern log prices were up for you guys like, you know, 5-6% in the first half of 2021, accelerated to like mid-teens% in the second half, and then now in the first half of this year, somewhere around 25% year-over-year. Is it fair to say that southern log price growth has met or exceeded your expectations? I guess first, and then if so, can you give us some context around what has driven that, whether it be general inflation, sawmills coming online sooner than expected or more favorable weather?
I'm just trying to think about the drivers as, you know, I think about pricing in the second half of the year.
Sure. This is Doug. I would say we've been expecting to see this price shift, and we've been talking about that for, you know, quite a few years now as we see more capacity come online in the wood basins we operate. We continue to see new capacity announcements across the South as companies reposition themselves in the region.
With the high cost of lumber in British Columbia, now we've seen a lot of lumber production in British Columbia. We've seen a lot of mills moving to the South, and we really think it's a benefit to us. The capacity announcements made since 2020, which total roughly 6 billion board feet across U.S. South, about half that's fallen into our operating area. Of that, we've seen about 1.8 billion of it start to come operational. We've seen the impact of those operations, particularly in Florida and Georgia, but also going into Alabama. We expect the additional new capacity to add optionality and further tension in our markets as facilities complete their various ramp-up schedules on our remaining approximately 1.2 billion board feet over the next 18-24 months in our wood baskets.
When you think about that, 1 billion board feet is roughly equivalent to 4 million green tons of demand. It's a significant amount of demand in wood basket. The recent announcement by Canfor of their 250 million board feet greenfield mill to replace a smaller one in Alabama, in Mobile, is a good example of what we're seeing. What we've really seen is an increase in demand as we go across. In those wood baskets where there's already a tight growth-demand ratio, we're seeing that response in the market.
That makes sense. That's very helpful.
If I could add to that. You know, keep in mind as well, and this gets to Doug's opening comment that we expected this. You know, go back to the comment in the prepared remarks that, you know, 73% of our southern portfolio is in top quartile markets. The thing that separates those markets is the growth-to-drain relationship is roughly balanced. Those markets are essentially poised for greater price elasticity than the weaker markets that have had all the inventory build that we've been hearing about for a number of years. You combine that with the added capacity that Doug touched on, the added pressure and tension from log exports.
You know, we are not surprised to see this kind of response in those top markets.
That's very helpful. I appreciate it. Just one more question, if I may, about kind of the market for timberlands. I guess in May, we saw, you know, obviously a merger announcement between two of your large peers. Then another one of your peers, you know, bought almost 90,000 acres in the Carolinas. I guess I'm just wondering what you think those transactions say about the current market for timberlands. I know you mentioned the increase in rates has kind of changed buyer psychology a little bit. And maybe going forward, where you see the most opportunity furthering your portfolio in terms of a timberlands acquisition or selling standpoint. You know, do you guys see yourselves as a net buyer or seller of timberlands in the current market?
I think we're. We always are in the market. We're looking at all the deals. There's more deal flow in the South than there is in the Northwest or New Zealand, and we're actively looking in all of our regions at any point in time. I think some of what you're seeing is, you know, you've got a lot of factors that have contributed to stronger timberland markets. You've got a little bit of a flight to quality as we have a deteriorating macro environment that's drawn more capital into this asset class. We've seen that with foreign capital, either in direct timber investments or through the public companies.
I think you're also seeing, you know, a lot of integrated players putting more of the cash that they've generated off of higher lumber prices and plowing that back into timberland assets. We are trying to remain fairly disciplined, but I'd say it's a, you know, it's a pretty active and pretty strong market right now on the timberland side. We're always looking to grow, but we're gonna be, you know, careful and thoughtful where we do that. We have a bias towards looking for properties that have a benefit to our existing age class structure. So we're always looking for that complementary fit as we look at various opportunities.
One of the things that we feel really good about is how we're positioned from a balance sheet standpoint. The ATM program that we put in place, as well as the cash flow that we're generating above our dividend level, you know, puts us in a really good position to go after properties that we think have a good fit for us.
That's very helpful. Thank you. Just one more, if I could sneak one more in. Just, you know, kind of similar vein. In New Zealand, I'm just wondering what you're seeing in terms of transaction trends there. Whether you can talk about deal size or dollar per acre values, especially given, you know, some of the headwinds you're seeing there in terms of Chinese demand, freight costs, et cetera.
Yeah, I'd say that New Zealand has had fairly similar characteristics. You know, keep in mind, New Zealand has an added element that we don't have in the U.S., which is a regulated carbon market. There's an awful lot of capital that's flowing into New Zealand timber deals right now, really in pursuit of some of those carbon metrics. I think the positioning that New Zealand has with China is also drawing a lot of that capital. It's also a very strong market. Keep in mind, the deal flow in New Zealand tends to be a lot smaller than what we're used to, particularly in the U.S. South. We tend to see more smaller deals in New Zealand than we do larger ones.
That makes sense. Thank you very much. I'll turn it over.
Thank you. Our next question will come from Mark Wilde with BMO Capital Markets. Your line is open.
Thanks. Good morning, Dave, Mark, Doug.
Morning.
Morning.
Just to kind of follow on a question around Southern Timber markets. You know, I know you probably wanna avoid kind of broad generalizations, but you think we can finally kind of say that the Southern Timber market has turned after 15 pretty rough years?
Well, I think we can say that for a subset of it, but not for the whole. I mean, I think keep in mind, Mark, you have the lower quartile markets have a growth-to-drain ratio in excess of two. You know, those markets are not seeing price increases for a fairly long time.
Yeah. Okay.
You're seeing that in the relative results.
Yeah. It does seem to me though, Dave, you're starting to see capital go to some of these markets where, you know, timber prices have been quite weak, so it's, you know, in terms of just, capital for kind of converting projects. Do you think that's so?
What we have always said is you have to have a lot of components to draw that capital, and you know, right now you have strong lumber markets. Historically, markets need a strong residual market to draw that capital. If you don't have a strong residual market and you know, we see that in the context of pulpwood pricing. You know, if you've got very low pulpwood prices, you're gonna have low residual markets. That's gonna be an impediment to drawing some of that capital. Also, I think labor is increasingly an issue. I don't think that you're.
This is why you're not seeing kind of a one-for-one relationship of where that capital's flowing to where you've got the biggest builds in inventory. We see that as translating to very differential price elasticity going forward. It, you know, as you look in our investor materials, you're seeing the spread between the top markets and the bottom markets in excess of two times from a composite stumpage standpoint. Again, that's where we get back to sort of harping on the fact that, you know, we're fortunate we have 73% in the top quartile. We have nothing in the bottom quartile. That's why, you know, that's why our overall stumpage prices are performing the way they are.
Yeah. Dave, just turning a bit here. Can you help us just think through any impact from the Ukrainian war and the drop in Russian wood volumes to the West and what that might mean for the New Zealand business, if it means anything?
Yeah. I think that we certainly see that as a positive when we think about New Zealand. Right now, a lot of the focus on New Zealand is really about the COVID restrictions that China has in place, which, you know, we don't see those as permanent. Keep in mind that Russia has embarked on a long-term goal of eliminating log exports. This started back in 2007 when they put tariffs in place, and then it culminated at the beginning of this year with an outright ban on logs. They were a fairly large log supplier into China. I think New Zealand has been the primary beneficiary of that.
If you shift into the western part of Russia, western Russia has been a significant supplier of lumber into the European and North African markets. That has really started to decline. As that has declined, you're gonna see more pressure on traditional European lumber exports into the U.S. start to go back into Europe. We see that as a positive for our U.S. holdings. In a bigger picture sense, we see a net benefit for New Zealand primarily because of the log flows.
Russia is a large supplier of lumber into China, but we don't think they have enough capacity to offset the decline that they've had on the log side.
Okay. All right. That's helpful. Finally, just one for Mark. You know, you guys mentioned the shift in investor interest that you're seeing from different parts of the world. I've definitely picked this up when we talked to some of the TIMOs, and they talk about how incrementally much of their capital now is coming from places like kind of Canada into Europe, which I think is much, much different than it was 10 or 20 years ago. Can you just talk from a Rayonier perspective about, you know, where you're seeing investor interest and whether it kind of mirrors that, those trends that we're hearing about in the private market?
Yeah. I'd say it continues to be relatively diverse, and I think there's certainly interest in, you know, among European investors, for example, has picked up pretty considerably. You know, the percentage of our shareholder base that's comprised of European investors has picked up pretty considerably in the last several years. And I think there are a lot of things driving that. You know, certainly ESG and the recognition of timberland is solution around climate change, as well as the potential future to monetize natural carbon, natural climate solutions within our portfolio. I think all of those things are driving interest in this sector, and certainly outsized interest relative to what we were seeing, you know, five years ago.
Okay. All right. Fair enough. I'll turn it over.
Our next question will come from Mark Weintraub with Seaport Research Partners. Your line is open.
Thank you. For sure, that step change in your markets in the U.S. South has been evident. I guess the question I have is, the context has also been we've had stronger housing, which has sort of helped get that lumber production demand up, although COVID did perhaps keep it lower than what it might otherwise have been 'cause of operational issues there. And container board demand has also been quite strong. If we do go into a period where housing is weaker and there are some signs where maybe that container board demand growth is gonna slacken at least in the near term, does that create a pause? Does that create a potential pullback?
Because of structural shifts, particularly in lumber, do you think that we continue to see strengthening in your markets with a focus on the U.S. South?
Thanks, Mark. I mean, there's a lot of aspects to that question. I think certainly as we look at housing, we don't see this as something akin to the global financial crisis where you saw, you know, a collapse in housing. You go back to that and you had, you know, really accelerated inventory of new homes, and we don't have that right now. We've had an increase certainly in the inventory of new homes. But I think behind that you have a historically low inventory of existing homes for sale. We sort of look at the interplay between those two as being fairly important.
I think another thing to keep in mind, just structurally, is that you've got, historically, the U.S. has relied a lot on Western Canadian lumber, particularly from British Columbia. That's where you're seeing kind of a structural shift of that capacity shifting into the U.S. South. This has been an ongoing process. I think that is going on at the same time that you've got any of these sort of changes going on in the housing market. We see that as governing any type of kind of decline similar to what we had in that last cycle.
I think on the container board side, you know, we see that as a pretty broad and defensible sector. You know, keep in mind there that we've also got, you know, strong exports out of that sector. You know, we don't feel that we're in that same level of risk that you may have seen a cycle ago.
Just to contextualize, those seem to definitely be kind of medium longer term comments. In the shorter timeframe the timber markets, are they sort of at a different velocity so that if there's a hiccup, you wouldn't expect to see it too meaningfully impact your markets, and only if it was a longer duration would that show up? Maybe relatedly, is there any kind of update you can give us? When you are establishing contracts for wood, I mean, how far in advance are you doing it for what lengths of time?
Sure. This is Doug. It's a variety, and I won't really go into percentages 'cause that's kind of part of our secret sauce in the timber marketing. We have sales that we look at across the board. In some cases, we have stumpage agreements that are 12-18 months out, so we've locked in pricing for 12-18 months, which kind of hedge us for any downside to your point. We also have a mix of delivered wood and other agreements that may go anywhere from monthly to six monthly, and also less leverage up to the upside of things.
To your point about a short-term hiccup, I think we're our strategy is very well protected to try to minimize anything that could happen from that, but also give us that flexibility to capitalize if there are opportunities upsides. We use that stumpage delivered mix to try to manage through those issues you're talking about. More generally speaking, timber prices historically have been much stickier than lumber prices. I mean, you saw that in the wake of the global financial crisis with the kind of the cratering of the housing market. Timber prices didn't bottom out for three or four years thereafter, and it's obviously been a pretty slow period of years that it's taken to kind of get prices back up to a more attractive level.
You know, again, it's hard to say with certainty, you know, in a you know kind of meaningful downside scenario around the economy or housing, kinda how exactly that translates to timber prices in the South and Northwest. Generally speaking, you know, those prices have tended to move a lot slower than kind of the knee-jerk reactions that we'll see in lumber prices or in kind of other markets more broadly.
At the risk of overstaying my welcome in the Q&A here, just New Zealand now you talked about step change in the U.S. How about New Zealand? Would you say there has been any kind of structural step change to the better, to the worse, or, and what would the drivers have been as you think about that business?
I think the primary step change I touched on earlier has been this gradual decline in Russian log volume beginning in 2007. You've seen, if you look in our investor materials, you can see the growth in New Zealand taking up you know the largest share of that increase in log volume coming from other countries. I think we've largely experienced it. There's a lot of noise going on right now with some of the short-term aspects associated with the COVID lockdowns in China. That's kind of getting the news. I think the underlying fundamental is that New Zealand is extremely well positioned to serve that China market.
Thank you.
Thank you. As a reminder, 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 Paul Quinn with RBC Capital Markets. Your line is open.
Yeah, thanks very much. Good morning, gentlemen. Just maybe start on lumber markets. I mean, we've seen a major correction in cash prices, and futures are down in the $480 range this morning. You know, you commented that you don't expect southern log prices to, you know, you haven't seen any slowdown over the summer. I wonder if that's true or what you're seeing in the Pacific Northwest.
Yeah. In the Pacific Northwest, we also haven't seen any slowdown. Still strong and steady demand from our customers. I think that kind of balanced supply, growth-to-drain ratio is helping out in that area. We always have the opportunity for exports to kinda help maintain a bit of a floor there, and we have seen our export program continue on. Actually exports from the Northwest to China, and this isn't a Rayonier statement, this is a U.S. statement, have been up, you know, 3% over the last quarter, but down to Japan. We haven't seen any fallout yet in those markets, and customers are still actively looking for logs.
Okay, thanks. Dave, you mentioned the regulated carbon markets in New Zealand. Just wondering how that works and, you know, what your outlook is. Is that an outlook for those credits to be similar to Q2 2022 going forward or to back off from that level?
We have the carbon markets in New Zealand. The biggest hurdle that any kinda carbon market has is around the idea of additionality and New Zealand developed a methodology for this by basically drawing a line in the sand at 1990. Kind of pre that period, you are not getting credit because timber was already in place. Post that period, you're getting credit. So as we plant trees from 1990 on, we generate carbon credits. Ultimately, when we sell those trees or we harvest those trees, we give credits back, and we retain a small increment that we have the ability to monetize.
We have a fairly large inventory of carbon credits today that we have been opportunistically looking to sell when we see strong pricing. You'll recall, you know, we laid off that market completely last year because we saw softer pricing, and we had an expectation for stronger pricing. As we've seen the stronger pricing this year, we've been dipping into that market. But we have a pretty steady supply of these carbon credits going forward, you know, over the next, you know, rotation as we see these post-1990 forests being reestablished over and over again.
We continue to look opportunistically and, you know, I think you'll see that you'll see some level of carbon sales in our results, you know, going forward, every year.
What is that carbon pricing currently at in New Zealand?
The current pricing there is roughly NZD 80, New Zealand dollars, per New Zealand Unit, which is the measure for those carbon credits.
All right. That's all I have. Best of luck, guys. Thanks.
Thank you. This concludes the question and answer session. Now I will turn the conference back over for closing remarks.
Hi, this is Mark McHugh. Thanks for joining us today, and feel free to follow up with me or Collin Mings with any additional questions. Thank you.
Thank you. That does conclude today's conference. Thank you for participating. You may disconnect at this time.