Welcome to Citi's 2025 Global Property CEO Conference. I'm Anthony Pettinari with Citi Research, and we're pleased to have with us PotlatchDeltic CEO Eric Cremers and CFO Wayne Wasechek. 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 liveqa.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&A. Yeah, thanks, Anthony, and good morning, everyone. It's great to be with you. So PotlatchDeltic is a timber REIT. We are headquartered in Spokane, Washington. We got an enterprise value of about $4.5 billion. We segment our business into three different business units. The first one is our Timberlands business unit. We have 2.1 million acres of timberland. About 600,000 acres of that is up in Idaho, and about 1.5 million 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 1.2 billion board feet per year. We're about the 10th 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. Our last business unit is our real estate business. 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 20,000-30,000 acres or so. 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. We call it a multiple of TMV, Timber Management Value, and that's typically 3-5 times. We also have in our real estate business; we own a master-planned 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. It's been a great little cash cow for us. We've got about 10 years left of remaining lots to sell. Capital allocation, it's 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 million 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 million buying back 2.5 million 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&P and Moody's. Debt- to- EV is 20% or so. And along with all this, a 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. 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? Yeah, it's a good question, Anthony. We are the timber REIT most leveraged to lumber. Rayonier 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 fact that we operate six lumber mills producing 1.2 billion board feet of lumber. But we also have an indexing arrangement for sawlog sales in Idaho. Roughly 75% of our sawlogs in Idaho are sold on an indexed 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&L EBITDA benefits $15 million. So just to give you a sense of that, over the past eight, nine months, lumber prices have improved about $100. That means from July of last year to today, our P&L swing is about $150 million of EBITDA. And there's a reason why we have this strategy. It's because we have a very favorable outlook on where lumber markets and where lumber prices are headed. The fact is the United States is significantly underbuilt in residential construction, something like 4 million-6 million units short, whether single-family or multi-family. And also from an R&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 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. We have a favorable outlook on repair and remodel 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 break-even. 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 going up to take advantage of cheap fiber in the South. And roughly 5 billion 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 U.S. from Canada. And Canada, by the way, supplies the U.S. with roughly 25% of its lumber needs. So today, duties are 14%. This fall, they're going to somewhere between 25% and 30%. We don't know exactly where the Commerce Department is going to shake out. That means that duty is going to be going up pretty significantly to Canadian producers. And then meanwhile, there's a lot of discussion here about lumber tariffs because the U.S. imports a lot of lumber 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 back half of the year. And we think the risk is all skewed to the upside. And I think 2026, 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 multi-family will get going again, and R&R will improve as well. So we have a very favorable outlook on where lumber markets are headed. 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? Lumber, yeah. Lumber, how much is that as competitive? How much do you compete with the Canadian market based upon your geography? Yeah, so lumber is. I mean, there's two big grades. There's 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, and frankly, our lumber, roughly half of it is Southern Yellow Pine, and half of it is SPF equivalent. It's Hem-Fir and Douglas Fir. We're all competing with one another is a simple answer. So if 25% of the lumber goes up 25% because of the tariffs, there's going to be some price increase. I mean, there might be, I don't know how much. I mean, how would you guesstimate what the price increase would be? Yeah, that's another really good question. So yeah, 25% is poised to go up 25% here with the tariff. The question that we don't know the answer to just yet is, what do the Canadians do? Now, publicly, they have come out and said they expect to raise their prices 25%. 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, do they all go to 25%, or do some of them say, you know what, we'll eat some of that tariff ourselves? I didn't hear that. So they would raise it 25%, then there'd be a 25% tariff on top, so they'd be completely non-competitive. Am I understanding that right? They would be competitive, except to the extent that U.S. producers also raise their price, and we're all at equilibrium selling at the same price. But if they raise 25% and then there's a 25% tariff on top of that, that's almost a 50% increase in price of Canadian timber, right? Or lumber. They're going to have a lot of mills that are underwater, and they're going to have some really tough decisions to make. They're not going to cut price 25%. I just want to be clear. They're going to raise price 25%. Sorry? They're not going to cut price. They're going to raise price. Well, yeah, they're going to raise prices. Sure. The question is, they're losing money. It'll be almost impossible for them to hang on to free cash flow with prices, costs going up 50% like that, 25% + 25%. But some of them have got big balance sheets. Some of them have production in the South already, so that can offset a new tariff on their Canadian mills. So they're not all just producing in Canada. So I don't know that all of that 25% will get passed on to consumers. I mean, they're going to get a volume hit, I would think, if they do that. But either way, they're going to get a volume hit. There was also another proposal by Trump that he was going to increase the amount you can harvest. I don't know if that's the. Yeah, there's talk, so it's pretty widely known that federal forests are oversupplied. The U.S. government has not done a very good job managing its forest ever since the spotted owl back in the early 1990s, and what happened was 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 have harvesting activity in this mountainous terrain, the road network really matters a lot. We spent 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 in its timberland because it's kind of 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. So the 1% applies to the federal forests, whereas you guys control your own harvest base. Is that what you're saying? Yeah. Okay. Yeah, and I think probably the biggest impediment to additional harvesting on federal land is going to be environmentalists. Anytime a tract comes up for consideration, environmental groups are going to threaten a lawsuit. It'll be tied up in the courts for years, which this has been happening even in the last 20- 30 years. The federal government every once in a while decides to go harvest a tract, 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 its tracks. So I think this is really all about trying to control for fires. We know 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 fire control. So if the federal government doesn't harvest more and Canada is too expensive, the U.S. producers produce more, private producers, right? And they have to produce more, and prices are going to most likely go up. I mean, so you could see a benefit from higher volume, harvest volume, and higher prices. But I guess you want to make sure you don't overharvest because then you. Yeah, we want to be sustainable. Have a problem later. Where are you on that? Are you sort of on the borderline overharvesting or borderline underharvesting right now? Yeah, 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 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. You 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 25-year harvest plan today calls for a low point in that 25-year span of around 7.1 million tons per year. So we're at 7.4 today, and a high point of around 8 million-8.1 million tons per year. So it's going to vary depending upon the year, along with M&A activity. We are always buying and we're always selling. That's going to impact that harvest profile as well. So you have some capacity if you wanted to increase the harvest volumes to get to that eight to meet demand. You want that one, Wayne? Yeah, I think we manage that. Like as Eric said, we have a long-term harvest profile. So 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. Thank you. 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 U.S.-Canadian lumber dispute and the import duties and tariffs and where the whole thing could go? Yeah. So there has been a dispute with Canada over them subsidizing their sawmills going back 100 years. This has been going back and forth, and 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 want to, for lack of a better word, they want to give their logs away to the mills for employment purposes and keep those mills running, well, that's not allowed. It's not proper behavior. They're being subsidized their mills. So what the U.S. 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. The higher the price of lumber is, the way the Commerce Department thinks about it, the less the government is subsidizing the mills in Canada. The lower the price of lumber, the more the Canadian government is subsidizing those mills. So that number, that duty, it fluctuates depending upon what lumber prices are, and it gets recalculated every year. Well, for 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? They can look and see that there's roughly a 25% - 30% duty. That's what the new duty is going to become this fall. That duty is totally separate from the tariff that Trump is talking about. They're completely separate taxes, if you will, on imported Canadian lumber. No matter what, costs for Canadian producers are going up this fall from roughly 14% - 25%. Great. Great. They could go to 50%-55% totally. If you have a 25% duty off of 25%-30% import, 25% tariff off of 25%-30% import duties, you could have a 50%-55% total tariff plus duty on Canadian. Yeah, that's true. And this is in a 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 onerous, let's put it that way. 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? Yeah, they own some land in the state of Idaho. So does the state of Idaho. The state of Idaho is pretty active, and it's managing its forest. I think the revenue the state gets is used to pay for their school system. 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 million board feet per year in about the next 10 years. While there's talk of federal harvest going up, there's also potential for state of Idaho harvest going down. I also don't lose any sleep over this, Anthony. 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 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. 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. What does 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? Yeah. So the largest market for lumber is repair and remodel. The simplest way to think of the R&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&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, interest rates have been relatively high for that sort of thing. And 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 move. A lot of R&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. R&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. They both spoke about positive comps for 2025. I do have a favorable outlook on R&R markets going forward. The second largest market segment for lumber demand is new residential construction. That's about 35% of the market. That's both multifamily and single-family. 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. The normal run rate for multifamily might be, I don't know, 300,000-400,000 units per year, and it surged to 600,000 units per year, mostly in the Sunbelt, the growth areas of the U.S. And what we're seeing now is that multifamily is getting completed and rents installed out in markets like Austin, Texas and Dallas, Texas and Houston, Texas. 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, 12 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 4,000 or 500,000 units per year, perhaps a year from now. Now, on the new residential side, like I said earlier, the U.S. is underbuilt, 4 million - 6 million units. There's a lot of people out there that really want to own a house, that want to move out of their parents' basement, if you will. And these high interest rates are 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. Great. Great. One question that we've gotten. In terms of a supply response, if we do have continued improvement in lumber prices, how quickly can people bring on supply potentially in the U.S. South? You want that one, Wayne? Yeah. I mean, probably over the last 12 - 18 months, we've seen three to four billion board feet of capacity come out of the market. Some of that, how much of that is permanent? How much of that is temporary? It's really hard to say. I mean, if you curtail a mill, it's a significant challenge on restarting that mill. Once your labor disperses, trying to bring that labor back is extremely challenging. So 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. Great. Great. And in terms of your own system, you recently completed the Waldo Project. Can you talk a little bit about that? Go ahead, Wayne. Yeah. We just completed a strategic investment for our Waldo sawmill, $131 million. We announced that back in 2022. We recently just completed construction here late last summer, August of 2024. 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 million board feet of capacity to 275 million-280 million board feet of capacity, so another incremental 85 million board feet. It also not only additional capacity, but a reduction in processing costs, about 30%, about a 6%-10% increase in log recovery. 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. If you can improve your recovery, you can significantly improve your cost metrics running a sawmill. With those cost reductions, the efficiencies, Waldo would be a top mill from a cost curve standpoint in the U.S. South. 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. We're very excited. The project's been going fantastic. Great. 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 values that you're seeing for industrial quality timberlands, and then kind of log price trends also. 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, sawlogs to the price of lumber. Certainly, depending on where lumber prices are, that fluctuates based on that. That's about 1.5 million tons of our harvest volume annually. The remaining approximately 6 million tons is in the U.S. South. We own 1.5 million 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 2023 to 2024. Certainly, that's a reflection of where lumber markets have been. But I think the overall 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 capacity, 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 think that'll continue to use fiber down there. But yeah, the U.S. South is the cheapest fiber in the free world. So that's where we'll see all 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? Yeah. Certainly, we've seen pricing increase from timberland values. And it's not only, I think, while markets have been fairly constant. I think the old adage, 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 solar opportunity, carbon capture and storage, carbon sequestration, there's just a lot of optionality emerging for timberlands. And so that's brought a lot of participants into the space. Great. Can you talk a little bit more about maybe solar projects in the pipeline, CCS projects in the pipeline, where you see the opportunities? And with the change in administration, do you see that impacting the opportunity? Yeah. For us, that's the top opportunity for us for natural climate solutions. I mentioned a number of them, but solar is number one. Right now, we have 35,000 acres under solar option with various solar developers. And that's anywhere between $10,000-$15,000 an acre. So on a net present value basis, that's over $400 million on an NPV basis for those 35,000 acres. Now, we've also identified another 30,000-35,000 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 and feel and have continued discussions with solar developers, so it has not dropped off at all. I think we feel like solar won't be impacted by the change in administration, I mean, for various factors, but one being the U.S.'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 yeah, 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, the Trump administration isn't targeting those subsidies for solar. And in fact, 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. 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-$15,000 per acre. We're talking about 70,000-75,000 acres. We're talking about $800,000-$900,000 of value. Our enterprise value today is $4.5 billion. But we're talking about the 3% 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 enormous. Great. 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. Great. 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.