Potlatch Deltic at Citi’s 30th Annual Conference: Strategic Insights on Timber and Solar

On Tuesday, 04 March 2025, Potlatch Deltic (NASDAQ: PCH) participated in Citi’s 30th Annual Global Property CEO Conference 2025, presenting a strategic overview of its operations. The company, led by CEO Eric Kremers and CFO Wayne Wacek, highlighted both opportunities and challenges within its timber REIT business, focusing on lumber market dynamics and emerging natural climate solutions.

Key Takeaways

• Potlatch Deltic’s earnings are heavily influenced by lumber prices, with 55% tied to market performance.
• The company is investing in solar projects, with 35,000 acres under solar option valued at $400 million.
• Waldo sawmill modernization aims to boost capacity and reduce costs.
• Share repurchases and special dividends are key components of capital allocation.
• Potential tariffs on Canadian lumber could affect market dynamics.

Financial Results

• Enterprise Value: Approximately $4.5 billion
• Lumber Production: 1.2 billion board feet annually
• Share Repurchases: $115 million over the past three years, buying back 2.5 million shares
• Waldo Sawmill Investment: $130 million
• EBITDA Impact: $15 million for every $10 change in lumber prices
• Solar Option NPV: Over $400 million for 35,000 acres

Operational Updates

• Timberlands: 2.1 million acres, with 600,000 in Idaho and 1.5 million in the Southeast
• Wood Products: Seven mills, including six lumber and one plywood mill
• Real Estate: Rural land sales and a master-planned community with ten years of remaining lots
• Waldo Sawmill: Expansion increases capacity from 190 million to 275-280 million board feet, reducing processing costs by 30% and increasing log recovery by 6-10%

Future Outlook

• Strategic Plans: Focus on sawmill modernization, share repurchases, and special dividends
• Emerging Opportunities: Solar farms, lithium deposits, and carbon offsets
• Market Outlook: Favorable lumber market driven by under-building in the U.S. and potential increases in repair and remodel activity
• Challenges: Tariffs and environmental regulations could impact lumber prices and timber harvesting

Q&A Highlights

• Tariffs: Discussion on potential tariffs on Canadian lumber and their impact
• Lumber Duties: Clarification on import duties separate from proposed tariffs
• Supply Response: Examination of how quickly U.S. producers can increase lumber supply
• Solar Projects: Details on potential solar projects on Potlatch Deltic land

The full transcript of the conference call provides further insights into Potlatch Deltic’s strategic direction and market positioning.

Full transcript - Citi’s 30th Annual Global Property CEO Conference 2025:

Anthony Petneri, Citi Research Analyst, Citi: Welcome to Citi’s twenty twenty five Global Property CEO Conference. I’m Anthony Petneri with Citi Research, and we’re pleased to have with us, Potlatch Deltic and CEO, Eric Kremers and CFO, Wayne Wacek. This session is for Citi clients only and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqanda.com and enter code GPC25 to submit questions. Eric, I’m going to turn it over to you to introduce your company and provide any opening remarks and then we’ll move into Q and A.

Eric Kremers, CEO, Potlatch Deltic: Yes. Thanks, Anthony, and good morning, everyone. It’s great to be with you. So Potash Deltic is a timber REIT. We are headquartered in Spokane, Washington.

We got an enterprise value of about $4,500,000,000 We segment our business into three different business units. First one is our Timberlands business unit. We have 2,100,000 acres of Timberland. About 600,000 acres of that is up in Idaho and about 1,500,000 acres is down in six Southeastern states. We also have a wood products business.

We have seven mills, six produce lumber, and one produces industrial grade plywood. Our total lumber production is about 1,200,000,000 board feet per year. We’re about the tenth largest lumber producer in The United States. But being small doesn’t mean we’re not competitive. We constantly track our margins with our larger peers and we are right in line with them.

And our last business unit is our real estate business. And that business unit really has two product offerings. First, it has a rural land sales program. Typically, we’ll harvest or excuse me, typically, we’ll sell about 1% of our rural land every year, so about 20,000 to 30,000 acres or so. And we’ll sell that land at prices that are multiples of what the land would be worth if it were left in a timber growing state.

So we call it a multiple of TMV, timber management value, and that’s typically three to three to five times. We also have, in our real estate business, we own a master plan community in Little Rock, Arkansas. It is not a business that we would go out and develop on our own. It’s one that we inherited from the Deltic merger, which we completed in 2018. And it’s been a great little cash cow for us, and we’ve got about ten years left of remaining lots to sell.

Capital allocation, extremely important to us as a REIT, as you might imagine. We think of all the different levers that we can pull to create value for our shareholders, which would include things like our $130,000,000 investment into our Waldo, Arkansas sawmill to expand and modernize the facility. We’ll repurchase shares from time to time. Over the past three years, we’ve spent $115,000,000 buying back 2,500,000.0 shares. We’ll pay special dividends.

We had outsized profits during the COVID years when lumber prices really ran up and we returned a lot of capital back to shareholders in the form of special dividends. So we are very careful and cautious with our capital allocation. We’ll never pull the trigger on something in a big hurry. We get asked questions from time to time. Gee, your stock is really depressed.

Why don’t you go back, go do a major repurchase? And the reason we’re not going to act hastily, is simply because we don’t know what the future holds. And there’s always opportunities that present themselves as time goes on, and we want to make sure that we don’t miss those opportunities. The last thing I’d mention, we got a great balance sheet. We’re investment grade by S and P and Moody’s.

Debt to EV is 20% or so. And along with all this great core business is an emerging natural climate solutions business, which consists of things like solar farms. We have great lithium deposits in South Central Arkansas. We’re going to be producing carbon offsets for sale to the marketplace for companies trying to get to net zero. So we think we got a great story to tell here.

So with that, Anthony, I’ll turn it back to you.

Anthony Petneri, Citi Research Analyst, Citi: Great. Thank you. Can you talk a little bit more about your earnings leverage to lumber and then kind of current lumber market conditions as we move into sort of the spring building season?

Eric Kremers, CEO, Potlatch Deltic: Yes. It’s a good question, Anthony. We are the timber REIT most leveraged to lumber. Rainier has virtually no lumber exposure. Weyerhaeuser has some lumber exposure.

Our company, roughly 55% of our earnings are tied back to what happens with lumber prices. A good chunk of that is through just the the fact that we operate six lumber mills producing 1,200,000,000 board feet of lumber. But we also have a indexing arrangement for sawlog sales in Idaho. Roughly 75% of our sawlogs in Idaho are sold on an index basis. So if lumber goes up, log prices go up, lumber prices go down, log prices go down.

So the math is something like this. For every $10 move in lumber prices, our P and L EBITDA benefits $15,000,000 So just to give you a sense of that, over the past eight, nine months, lumber prices have improved about $100 So that means from July of last year to today, our P and L swing is about $150,000,000 of EBITDA. So there’s a reason why we have this strategy is because we have a very favorable outlook on where lumber markets and where lumber prices are headed. The fact is United States is significantly under built, in residential construction, something like four to 6,000,000 units short, whether single family or multifamily. And also from an R and R standpoint, when you step back and you think about all the home equity that has been built up in this country, we’re at record levels right now.

And when a consumer has a record level of of home equity, they’re more likely to put money back into their house, whether it’s finishing a basement, a deck, a fence, what have you. So we have a favorable outlook on repair to model markets as well. So where are we at right now in terms of lumber markets? Well, we’ve seen this $100 swing, from last July. That swing was largely supply driven.

Prices got so low, they were breakeven. Many mills were even losing money. And the cause of that was that we had kind of slack demand. The Fed had been on an aggressive interest rate path, slowing down new residential construction. So demand got soft, all the while capacity was was going up to take advantage of cheap fiber in the South.

And roughly 5,000,000,000 board feet, roughly 10% of capacity came off the market. And that’s what lit a fire under prices starting in July. Now where we sit here today, Canadian duties, are roughly 14% on imported lumber into The US from Canada. And Canada, by the way, supplies The US with roughly 25% of its lumber needs. So today, duties are 14%.

This fall, they’re going to somewhere between 2530%. We don’t know exactly where the commerce department is gonna shake out. That means that duty is gonna is gonna be going up pretty significantly to Canadian producers. And then meanwhile, there’s a lot of discussion here about lumber tariffs. Because US imports a lot of lumber from from Canada, Trump is talking about 25% tariffs, which would only be on top of those duties that I just spoke about.

So we think the backdrop here is very favorable for lumber prices, for the for the back half of the year. And we think the risk is all skewed to the upside. And I think ’twenty six, frankly, is even going to be a much better year. If we get a couple more Fed rate cuts, we’ll get not only single family going, we think multifamily will get going again, and R and R will improve as well. So we have a very favorable outlook on where lumber markets are headed.

Unidentified speaker: Can you expand a little bit on the proposed tariffs? And I think you said 25% is imported of the total U. S. Timber. Is that right?

Eric Kremers, CEO, Potlatch Deltic: Lumber, yes.

Unidentified speaker: Lumber, how much is that competitive? Like, how much do you compete with the Canadian market based upon your geography?

Eric Kremers, CEO, Potlatch Deltic: Yes. So lumber is I mean, there’s two big grades or southern yellow pine, and then there’s spruce pine fir, SPF is what they call it. Those two markets overlap quite a bit, and builders can substitute for one species for the other. So at the end of the day, those two markets are always going to move up and down together and they’re going to find a way to converge in the middle, taking into consideration logistics costs, transportation costs. No doubt there are certain builders that have a strong preference for one species over another.

But when that price differential gets to be too big, they will find a way to work with the other species. So we think of it in our frankly, our lumber, roughly half of it is southern yellow pine and half of it is SPF equivalent is hemp fur and Doug fir. So we all we’re all competing with one another is a simple answer.

Unidentified speaker: So if 25% of the, lumber goes up 25% because of the tariffs, There’s going to be some price increase. I mean, it might be, I don’t know how much. I mean, how would you guesstimate what the price increase would be?

Eric Kremers, CEO, Potlatch Deltic: Yeah. That’s a that’s another really good question. So, yeah, 25% is poised to go up 25% here with the tariff. The the question, that we don’t know the answer to just yet, what do the Canadians do? Now publicly, they have come out and said they expect to raise their prices 25%.

They’re as you can imagine, they’re not happy about what’s going on here. So they’re going to try to raise their prices 25%. The question is, you know, do they all go to 25% or do some of them say, you know what, we’ll eat some of that tariff ourselves?

Unidentified speaker: I didn’t hear that. So they would raise a 25, then there’d be a 25 tariff on top, so it’d be completely noncompetitive. Am I understanding that right?

Eric Kremers, CEO, Potlatch Deltic: They would be competitive except to the extent that US producers also raise their price, and we’re all at equilibrium selling at the same price.

Unidentified speaker: But if they raise 25 and then there’s a 25 tariff on top of that, that’s, you know, almost a 50% increase in

Eric Kremers, CEO, Potlatch Deltic: Yeah.

Unidentified speaker: Pricing in AB and timber, right, lumber.

Eric Kremers, CEO, Potlatch Deltic: They’re gonna have a lot of mills that are underwater, and they’re gonna have some really tough decisions to make. Do they They’re

Unidentified speaker: not gonna cut price 25. I just wanna be clear. They were gonna raise price 25. Sorry? They’re not going to cut price.

They’re going to raise prices. Yes, they’re going to raise prices.

Eric Kremers, CEO, Potlatch Deltic: Sure. And then so then the question is, they’re losing money. There’s it will be almost impossible for them to hang on to free cash flow, with prices costs going up 50% like that, 25 plus 25. But some of them have got big balance sheets. Some of them have production in the South already, so that can offset, you know, a new tariff on their Canadian mills.

So they’re not all just producing just in Canada. So I don’t know that all of that 25% will get will get will get passed on to consumers. I mean, they’re gonna

Unidentified speaker: get a volume hit, I would think, if they do that. But, either way, they’re gonna get a volume hit. Can you there was also another proposal by Trump that he was gonna increase the amount you can harvest. I don’t know if that’s the

Eric Kremers, CEO, Potlatch Deltic: Yeah. There’s there’s talk. So it’s pretty widely known that federal forests are are oversupplied. The US government has not done a very good job managing its forests, ever since the spotted owl back in the early nineties. And what happened was, there’s this we’re talking mostly about the West now.

The federal government owns very little timberland in the South. So they stopped harvesting in the West really to protect the spotted owl. A lot of mills closed, as a result. And the federal government, by and large, walked away from its forest in the Pacific Northwest. And so for many years, decades, you’ve had excess growth taking place, in that forest.

Now what also happened was, they lost their road network. When you when you have harvesting activity, you know, in this mountainous terrain, the road network really matters a lot. We spend we spend tens of millions of dollars over decades establishing our road network for our 600,000 acres in Idaho. Well, the federal government has no road network, and it’s Timberland because it’s kinda let it go, so to speak. Also, because they’ve let those trees grow for so long, they’re enormous trees.

Mills these days, they tend to run they’ve got a special diet that they like, and that diet is smaller logs. So will those larger logs even fit in today’s mills? It’s doubtful.

Unidentified speaker: So the 1% applies to the federal forests, whereas you guys control your own harvest pace. Is that what you’re saying?

Eric Kremers, CEO, Potlatch Deltic: Yes. And I think probably the biggest impediment to additional harvesting on federal land is going to be the environmentalists. Anytime a track comes up for consideration, environmental groups are going to threaten a lawsuit. It’ll be tied up in the courts for years, which is this has been happening even, you know, in the last twenty, thirty years. Our government, every once in a while, decides to go harvest a track and they put it up public notice and all of a sudden, an environmental group will file a lawsuit and it’s just dead in the tracks.

So I I think this is really all about, trying to control for fires. We know the the new Forest Service chief, Tom Schultz, from Idaho Forest Group, and he’s come out and said, this is really not about getting additional fiber out of the woods. It’s really about managing for for fire control.

Unidentified speaker: So if the federal government doesn’t harvest more and we Canada is too expensive, either The US producers produce more, private producers. Right? And Right. I mean, they have to produce more and prices are gonna most likely go up. I mean so you could see a benefit from higher volume, harvest volume, and higher prices.

But I guess you wanna make sure you don’t over harvest because then you Yeah.

Eric Kremers, CEO, Potlatch Deltic: We wanna be sustainable.

Unidentified speaker: Have a problem later. Are you where are you on that? Are you sort of on the, borderline overharvesting or borderline underharvesting right now?

Eric Kremers, CEO, Potlatch Deltic: Yeah. So so we’re sustainable, long term sustainable. We have a long term harvest profile. We’re trying to do two things with that long term harvest profile. We’re trying to maximize net present value, which if you think about it, if you’ve got a a forest and you’re a timberland operator, on the one hand, from a net present value standpoint, you’d like to harvest every last tree today.

But the reality is there isn’t a mill network that could take every last tree today. We also need to save trees for tomorrow and the next year. So we generate these long term harvest plans and it’s going to fluctuate up and down over the years. I think our twenty five year harvest plan today calls for a low point in that twenty five year span of around 7,100,000 tons per year. We’re at 7.4 today, and a high point of around eight, eight point one million tons per year.

So it’s going to vary depending upon the year along with M and A activity. We are always buying and we’re always selling. That’s going to impact that harvest profile as well.

Unidentified speaker: So you have some capacity if you wanted to increase the harvest volumes to get to that eight, to meet demand?

Eric Kremers, CEO, Potlatch Deltic: You want that one, Wayne?

Wayne Wacek, CFO, Potlatch Deltic: Yes. We think we manage that. Like as Eric said, we have a long term harvest profile. So we don’t I think we have plenty of opportunity to supply the market and also our internal mills. But again, it’s a sustainable model.

So we don’t tend to vary that significantly, based on market conditions.

Unidentified speaker: Thank you.

Anthony Petneri, Citi Research Analyst, Citi: Eric, there’s a few things to follow-up there, and we’ve gotten this question online. But just quickly, can you just kind of remind us about the import duties being separate from the Trump tariffs, right? So even if there’s no tariffs from Trump, we still have this import duty mechanism. I mean, without going through the whole history of it, can you just give us like a little bit of background on kind of The US Canadian lumber dispute and the import duties and tariffs and, you know, where the whole thing could go?

Eric Kremers, CEO, Potlatch Deltic: Yeah. So there has been a dispute with Canada, over them subsidizing their sawmills going back a hundred years. This has been going back and forth. And as we exist, as we sit here today, there are duties, the latest agreement, which really isn’t an agreement. The Commerce Department just came out and said they did an exhaustive study, and they said Canada is subsidizing their sawmills.

It’s because the federal and the provincial governments up in Canada, they own all the timberland. And they wanna, you know, for lack of a better word, they wanna give their logs away to the mills, you know, for for employment purposes, and keep those mills running. Well, that’s that’s not allowed. It’s not proper behavior. It’s it’s they’re being subsidized their mills.

So what the US government has done is stepped in and put in place a duty. And that duty, on imported Canadian lumber is determined by looking at what the price of lumber is. Higher the price of lumber is, the way the commerce department thinks about it, the less the government is subsidizing, the the mills in Canada. The lower the price of lumber, the more the Canadian government is subsidizing those mills. So that number that that duty, it fluctuates depending upon what lumber prices are.

And if and it gets recalculated every year. Over the last year, we have had an 8% duty on imported Canadian lumber. And that got changed in August. It got changed to 14%. And as we sit here today, the duty is 14%.

So it’s going to go up again, though, this fall. And there are estimates. People can look and say, okay, where have lumber markets been? And they can look and and see that there’s roughly a 25 to 30% duty. That that’s what the new duty is going to be come this fall.

That duty is totally separate from the the tariff that Trump is talking about. They’re they’re completely separate taxes, if you will, on imported Canadian lumber. So no matter what, costs for Canadian producers are going up this fall, roughly 14% to 25%.

Anthony Petneri, Citi Research Analyst, Citi: Great. Great. So they could go to 50% to 55% totally. If you have a 25% duty off of 25%, thirty % import, 25% tariff off of 25%, thirty % import duties, you could have a 50% to 55% total tariff plus it’s going

Eric Kremers, CEO, Potlatch Deltic: to be on Canadian. Yes, that’s right. And this is in a, you know, what’s traditionally been a pretty low margin business at the end of the day. So that incremental cost on them is going to be owners. Let’s put it that way.

Anthony Petneri, Citi Research Analyst, Citi: Great. Maybe following up on the timber question. The federal government owns a lot of land, obviously, in Oregon and Washington State. You’re in Idaho. Do the feds own a lot of land in Idaho?

And could there be any kind of direct or indirect impact to you and your market there?

Eric Kremers, CEO, Potlatch Deltic: Yeah. They own some land in the state of Idaho. So does the state of Idaho. And the state of Idaho is pretty active in its managing its forest. And I think the revenue the state gets is used to pay for their school system.

So it’s an important source of revenue. I do know the state of Idaho recently put out a report that said their harvest volumes are going down about 100,000,000 board feet per year, in about the next ten years. So while there’s talk of federal harvest going up, there’s also potential for state of Idaho harvest going down. But I would I would also, you know, I don’t lose any sleep over this, Anthony. And it’s simply because the environmental community is so strong at stopping these harvesting activities.

I’m sure at the margin, there’s going to be a little bit of incremental wood coming out of the federal forest. But I would bet a lot of money that’s really for fire prevention and not to try to clean up the federal forest and create revenue for the federal government.

Anthony Petneri, Citi Research Analyst, Citi: Got it. Got it. And maybe going back to the lumber markets themselves, can you remind us maybe what percentage of industry shipments are going to new construction versus repair and remodel? And then we’re here in March, like what is sort of normal seasonality look like in the lumber markets as we get into the building season? Maybe what does it look like this year?

Eric Kremers, CEO, Potlatch Deltic: Yes. So the largest market for lumber is repair and remodel. Simplest way to think of the R and R markets is somebody wants to build a fence, somebody wants to build a new deck, finish off a basement, remodel their kitchen. That’s actually the largest market segment for lumber. R and R markets have been held back over the past couple of years, a couple of different things.

One is high interest rates. So if you want to take out a home equity line of credit, you know, interest rates have been relatively high for that sort of thing. And then the second thing, existing home sales have been limited. I think we’ve all read that a lot of people have got mortgages that are in this 3% kind of range, and they don’t want to give up that 3% mortgage. So they’re not going to they’re not going to move.

And a lot of R and R activity takes place when somebody moves. They’re moving into their new house to look at it and say, oh, gee, before I move in, I want to finish the basement or what have you. So r and r markets have been a little soft. The home centers have had negative comps for the past two and a half years. I’m pleased to say that their most recent quarter, they had Home Depot and Lowe’s both had positive comps, and they both spoke about positive comps for for 2025.

So I do have a favorable outlook on r and r markets, going forward. So the second largest market segment for for lumber demand is is new residential construction. That’s about 35% of the of the market. That’s both multifamily and single family. There a new residential construction has been held back over the past couple of years, number one, because of higher interest rates.

But number two, there was a surge in multifamily construction starting about two years ago. Normal run rate for multifamily might be, I don’t know, 300,000, four hundred thousand units per year, and it surged to 600,000 units per year, mostly in the Sun Belt, you know, the growth areas of The US. And what we’re seeing now is that multifamily is getting completed, and rents installed out in markets like Austin and Dallas and Houston. We’re now seeing those multifamily units get completed, and we’re starting to see those units get absorbed and we’re starting to see rents go back up again. And so that’s a signal to us that multifamily is poised to turn around here in the next, who knows, twelve months or so.

We think multifamily is going to move up off these depressed levels. And if we’re down around 300,000 multifamily units per year, I think we’ll move back up into the 400,000 or 500,000 units per year, you know, perhaps a year from now. Now on the new residential side, like I said earlier, you know, The U. S. Is under built 4,000,000 to 6,000,000 units.

There’s a lot of people out there that really want to own a house, that want to, you know, move out of their parents’ basement, if you will. And these high interest rates are not not helping them. It’s an affordability issue, and that affordability is partially driven by all the inflation the country has seen over the past couple of years. But in large part, it’s also due to these high interest rates. So if we can get rates to come down a little bit, I think that could be a really nice stimulus for single family as well.

Anthony Petneri, Citi Research Analyst, Citi: Great, great. One question that we’ve gotten in terms of supply response, if we do have continued improvement in lumber prices? How quickly can people bring on supply potentially in The U. S. South?

Wayne Wacek, CFO, Potlatch Deltic: Yes. I mean, probably over the last twelve to eighteen months, we’ve seen 3,000,000,000 to 4,000,000,000 board feet of capacity come out of the market. Some of that’s, you know, how much of that is permanent? How much of that is temporary? You know, it’s really hard to say.

I mean, you know, if you curtail a mill, significant challenge on restarting that mill, you have to once your labor disperses, trying to bring that labor back is extremely challenging. So if you’re the longer a mill goes, the more challenging it is to restart. So again, difficult to say how much would come back on, maybe half of that would be our initial estimate, but we don’t have direct insight into that. And it would take time. It’s not going to immediately come back on.

So over a period of time, that would certainly come back into the market.

Anthony Petneri, Citi Research Analyst, Citi: And in terms of your own system, you recently completed the Waldo project. Can you talk a little bit about that?

Wayne Wacek, CFO, Potlatch Deltic: Yes. We just completed a strategic investment for a Waldo sawmill, dollars 131,000,000. We announced that back in 2022. We recently just completed construction here late last summer, August of ’20 ’20 ’4. And when we looked at what we wanted to do from an investment standpoint, there were a number of considerations.

We even looked at doing a greenfield mill, but we really thought the best course was increasing the capabilities at our Waldo sawmill. We already had a labor force in place and really felt like that was the best investment for us. And so we’re going from 190,000,000 board feet capacity to two seventy five million, two eighty million board feet capacity. So another incremental 85,000,000 board feet. It also not only additional capacity, but a reduction in processing costs about 30%, about a 6% to 10% increase in log recovery.

So log recovery is how much of the log do you utilize to produce lumber, which is significant, given that approximately 60% of your cost is fiber costs. So if you can improve your recovery, you can significantly improve your cost metrics running a sawmill. And so with those cost reductions, the efficiencies, you know, Wallow would be a top mill from a cost curve standpoint in The U. S. South.

And we’re excited. We’re definitely on track. We’ve been ramping up since construction was completed back in August. We expect that to be completed at least by mid year this year of hitting the full nameplate capacity, if not earlier. So we’re very excited.

The project’s been going fantastic. Great.

Anthony Petneri, Citi Research Analyst, Citi: Great. So we’ve talked a lot about the lumber market. I’m wondering if you can talk a little bit about the log market, log prices and the market for Timberlands themselves. So maybe you can tell us about your footprint, where you’re located, and again, the kind of the values that you’re seeing for industrial quality Timberlands and then kind of log price trends also.

Wayne Wacek, CFO, Potlatch Deltic: Well, I guess we’ll tackle the log markets first. Starting with our timberlands in Idaho, as Eric mentioned earlier, we index about 75% of our logs, saw logs to the price of lumber. Certainly, depending on where lumber prices are, that fluctuates based on that. That’s about 1,500,000 tons of our harvest volume annually. The remaining approximately 6,000,000 tons is in The U.

S. South. We own 1,500,000 acres down there across six states. Lumber markets have been fairly, I would say, flat, log markets down in the South. We saw maybe a slight price decline, maybe $1 per ton from $23 to $24 Certainly, that’s a reflection of where lumber markets have been.

But I think the over underlying principle in The U. S. South is really what we call growth to drain. Growth for many years has exceeded the drain being how much converting capacity is used for fiber. And, we expect that to probably continue.

We do think eventually converting capacities, that’s where all capacity is being added is in The U. S. South. So we think eventually those markets will change not only from sawmills, but other industries as well, whether it be pellet mills. There’s a lot of opportunities for bioenergy.

There’s a lot of planning and investment that’s going into The U. S. South. So we we think that’ll continue to use fiber down there. But The U.

S. South is the cheapest fiber in the free world. So that’s where we’ll see all

Anthony Petneri, Citi Research Analyst, Citi: the capacity additions. Great. And in terms of sort of the market values that you see for Southern Timberlands, I mean, obviously, there’s a lot of variation between regions and quality of lands. But can you talk about sort of the direction of Timberland prices maybe over the last five years?

Wayne Wacek, CFO, Potlatch Deltic: Yeah. Certainly, the we’ve seen pricing, increase, from Timberland values. And it’s not only I think while markets have been fairly constant, I think the the old adage, you know, there’s they’re not making more land. So it’s a great asset to hold. And also, you look at the other opportunities that are emerging for Timberlands, what we call natural climate solutions.

So whether that be, you know, solar opportunity, carbon capture and storage, carbon sequestration, there’s just a lot of optionality emerging for Timberlands. And so that’s brought

Unidentified speaker: a lot of

Wayne Wacek, CFO, Potlatch Deltic: participants into the space. Can you talk a little

Anthony Petneri, Citi Research Analyst, Citi: bit more about, maybe solar projects in the pipeline, CCS projects in the pipeline, you know, where you see the opportunities? And with the change in administration, do you see, that impacting the opportunity?

Wayne Wacek, CFO, Potlatch Deltic: Yeah. For us, that’s the top, opportunity for us for National Climate Solutions. And I mentioned a number of them, but but solar is number one. Right now, we have 35,000 acres under solar option with various solar developers and on a, you know, and that’s anywhere between $10,000 to $15,000 an acre. So on a net present value basis, that’s over $400,000,000 on an NPV basis for those 35,000 acres.

Now we’ve also identified another 30,000 to 35,000 acres of solar potential. And really the key characteristics are large contiguous land that’s flat, certainly where it’s sunny, that’s close to major power grid. And we have identified, we go through a stratification process. So we’ve identified additional areas where we think there are solar opportunities. But certainly that’s emerged as the top opportunity for us from a natural climate solution perspective.

As it relates to the current administration, since the Trump administration has come into office, I mean, we’ve continued to see, in field and have continued discussions with solar developers. So it has not dropped off at all. I think, you know, we feel like, solar won’t be impacted by, the change in administration, I mean, for various factors, but one being U. S. Continued interest in energy independence.

Certainly, that’s going to take a multitude of energy sources, but solar is clearly one solution for that. Two, it’s relatively cheap, easy to get onto the grid. So it’s an important source of energy. So, yes, we think that it won’t be affected by and it really doesn’t need subsidies to survive, albeit there are subsidies provided with the IRA. But given the cost effectiveness of solar, it doesn’t need that.

But also, from what I’ve heard and read, you know, the Trump administration isn’t targeting those subsidies for solar. And in fact, you know, we’ve read that 18 Republicans wrote to Speaker Johnson saying, hey, don’t touch these credits. These are important to us. I think if you look where all the solar developments are, the vast majority are in The U. S.

South in Republican states. So we think that those incentives will survive.

Eric Kremers, CEO, Potlatch Deltic: I think one thing to mention as it relates to solar, when you step back and you think about the kind of values we’re talking about here, this is land that’s going to be valued at $10,000 to $15,000 per acre. You know, we’re talking about 70,000, 70 five thousand acres. We’re talking about, you know, $800,000,000 9 hundred million dollars of value. Our enterprise value today is $4,500,000,000 We’re talking about this three percent of our acres, the 70,000 acres we’re talking about here. 3% of our acres is worth 15% of our enterprise value.

The analysts don’t have that value built into their NAV models or their cash flows or anything. I think they’re waiting for it to start happening for those options to get exercised, which is probably another year or two away. But our view is that it’s coming, and the leverage there is just it’s just enormous.

Anthony Petneri, Citi Research Analyst, Citi: And Eric, Wayne, just to be clear, when you do these solar projects, you’re just leasing the land. I mean, you’re not putting any capital in or That’s correct. Correct. Well, I think we’re coming up on the shot clock here. So if there’s any questions, Eric, Wayne, thank you for joining us.

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