Plum Creek Timber Co., Inc. (NYSE:PCL)Q2 2015 Earnings CallJuly 27, 2015 5:00 pm ETExecutivesJohn B. Hobbs - Vice President-Investor RelationsRick R. Holley - Chief Executive Officer & DirectorDavid W. Lambert - Chief Financi
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No surprises from the Plum Quarter. It was modestly better than expected, and R. Holley & his team continue to focus on capital allocation (selling non-core assets; buying back stock). But, the meat from any PCL conference call isn't really about Plum: It's about the marketplace.
Here are some highlights...
Anthony Pettinari - Citigroup Global Markets, Inc.
During the quarter, there was some discussion on CalPERS looking to trim its exposure to timberlands. And given Southern sawlog price recovery has been maybe a little bit disappointing relative to expectations at the beginning of the year for another year, are you seeing any kind of difference in institutional interest for timberlands or maybe the level of price for land, especially in the South? I was wondering if you could just kind of update us on what kind of level of interest you're seeing in the market and the transactions you're seeing?
Rick R. Holley - Chief Executive Officer & Director
I think the level of interest from an institutional standpoint continues to be very high, whether it's in the Pacific Northwest or in the South for timberlands...
So I think there's continued to be a high level of interest. I think CalPERS is going through their entire portfolio and try to trim costs and other things. We've been more than a bit disappointed in some of their timber investments of-late. And I think they've decided with those as they have with many different investments they've made that they're just going to exit. So I think their focus and maybe actions are quite different from what we see amongst any of the other institutions.
Gail S. Glazerman - UBS Securities LLC
Okay. In terms of land available on the market. It's not really just CalPERS, there's the Foley land, Molpus land. I mean, do you feel like there is kind of an incremental supply of timberland on the market? Or are they just getting maybe a little bit more headlines than they normally would at this stage?
Rick R. Holley - Chief Executive Officer & Director
Well, the Foley land has been on the market for several months now and didn't appear to be a lot of activity. I think part of it has to do with the quality there, just not of interest to people. And the CalPERS land that they've had on the market is, have a little challenge because of a supply agreement and some other constraints. We just heard, as you did, about the Molpus bringing 50,000 acres in the Southern United States on the market. And I suspect, depending on the quality, that will get a lot of attention.
So you kind of see these 50,000 acre things in the market from time and again, and I think you're going to continue to see that. And a lot of it has to do with the timing of some of the investments these people made with the TIMOs and they're coming up for renewal. And it's just time to take them to market or maybe a client want some current yield or something and so they take some of these lands to market, and we see that all the time. So that's not unusual. And I think you'll continue to see that this year and next.
Switching gears slightly, what was said about timberland price assumptions & valuations going forward?
Mark Wilde - BMO Capital Markets (United States)
Last question I had is just a bigger picture question. I mean, you guys are generating on the range of about $60 an acre in EBITDA on the Southern lands. Can that kind of number continue to support $2,000 an acre or $2,100 an acre just from a longer-term perspective?
David W. Lambert - Chief Financial Officer & Senior Vice President
I think market participants are looking at not only the productivity of the lands and what they can produce, but what the expected pricing would be. I think if someone were to say, hey, we're going to get stuck at 1.1 million housing starts and Southern log prices aren't going to go up, I think that would impact valuations in the South. But I don't think anyone that's in this business is looking at that thinks that that's a realistic outcome and that's not the basis for the valuation.
Hmmm. Given what Mr. Holley & Co. were forecasting last year for housing starts in 2015, I would place far higher odds on that "unlikely" scenario (stuck at 1.1 million housing starts). In other words, everyone is still making aggressive assumptions when buying timberland assets in the US South. To me, this forward looking, confident math would be akin to analysts buying oil assets with $80 or even $100 still as a reasonable assumption. Smart? Time will tell...
The Upshot: The team at Plum may not be the best at forecasting housing demand / construction, or handicapping the US consumer, but they know their marketplace. This writer is far from an expert, but when it comes to assessing the impact & importance of CalPERs in the timber sphere, it's better to listen to a major industry player (than, say, the Wall Street Journal).
Be sure and check Sam Radcliffe's views on the Plum call, too: