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Executives

Hans Vanden Noort - Chief Financial Officer and Senior Vice President

Paul Boynton - Chairman, President and Chief Executive Officer

Lynn Wilson - Senior Vice President, Forest Resources

Charlie Margiotta - Senior Vice President, Real Estate

Jack Kriesel - Senior Vice President, Performance Fibers

Analysts

Mike Roxland - Bank of America/Merrill Lynch

Chip Dillon - Vertical Research Partners

Mark Wilde - Deutsche Bank

Mark Weintraub - Buckingham Research

Josh Barber - Stifel

Steve Chercover - D.A. Davidson

Paul Quinn - RBC Capital Markets

Stuart Benway - S&P Capital IQ

Collin Mings - Raymond James

Rayonier Inc. (RYN) Q1 2013 Earnings Conference Call April 25, 2013 2:00 PM ET

Operator

Welcome, and thank you for joining Rayonier’s First Quarter 2013 Teleconference Call. At this time, all participants are in listen-only mode. (Operator Instructions) Today’s call is being recorded. If you have objections, you may disconnect at this time.

Now, I would like to turn the call over to Hans Vanden Noort. Thank you, sir. You may begin.

Hans Vanden Noort - Chief Financial Officer and Senior Vice President

Thank you, and good afternoon. Welcome to Rayonier’s investor teleconference covering first quarter earnings. Our earnings statements and presentation materials were released this morning 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, as well as our Form 10-K filed with the SEC lists some of the factors which may cause actual results to differ materially from the forward-looking statements we may make. They are also referenced on page two of our presentation material.

With that, let’s start our teleconference with opening comments from Paul Boynton, Chairman, President and CEO. Paul?

Paul Boynton - Chairman, President and Chief Executive Officer

Hey, thanks, Hans. I am going to make a few overall comments before turning it back over to Hans to review our financial results. Then we are going to ask Lynn Wilson, Senior Vice President of Forest Resources to comment on our timber results. Following our review of timber, Charlie Margiotta, Senior Vice President of Real Estate will discuss our land sales results, and Jack Kriesel, Senior Vice President of Performance Fibers will take us through the results of our cellulose fibers business.

We are pleased to report our first quarter earnings from continuing operations of $103 million, or $0.79 per share as each business unit has stronger performance than in the prior first quarter, and we benefited from a $19 million in tax credits. Our operating cash flows continue to be strong with cash available for distribution well above our $0.44 per share dividend. In addition to excellent financial performance for the quarter, we executed on our strategy of becoming a specialty chemical manufacturer as we completed the sale of our commodity Wood Products business and made good progress toward a mid-year completion of the cellulose specialties expansion project at our Jesup mill. We integrated the December acquisition of 63,000 acres of highly productive timberland in Texas with strong HBU potential into our Gulf region operations.

And finally in April, we acquired two of our three partners’ ownership interests in the New Zealand joint venture to increase our ownership to 65% as we further positioned ourselves for a long-term play in the Asia-Pacific basin. And all our balance sheet and cash flows are strong providing us the financial flexibility to execute our strategic objectives.

And with that, let me turn it back over to Hans to review the financials.

Hans Vanden Noort - Chief Financial Officer and Senior Vice President

Thanks, Paul. Let’s start on page 3 with the overall financial highlights. As Paul noted, we kicked off 2013 with a solid first quarter. Sales totaled $394 million, while operating income totaled $115 million and income from continuing operations was $103 million. The sale of our Wood Products business resulted in its first quarter earnings and gain on sale being treated as discontinued operations income, which totaled $45 million. We will use income from continuing operations for the comparisons throughout this call.

On the bottom of page 3, we provided outline of capital resources and liquidity, our cash flow was strong with pro forma EBITDA of $151 million. Cash available for distribution of $67 million was below the prior year, as a result of our election to exchange black liquor tax credits from the AFMC to CBPC. This exchange generated a $19 million tax benefit that required us to pay $70 million of taxes this quarter. On a cash basis, we have realized a $19 million benefit through $89 million in lower future cash tax payments with approximately $60 million realized during the remainder of 2013 and $29 million in the first half of 2014. We ended the quarter with $1.2 billion of debt and $266 million in cash. So, on a net debt basis, we finished at $934 million. We feel very comfortable with our current balance sheet and liquidity.

Now, I will run through the variance analyses. On page four, we prepared our sequential quarterly variance analysis. In Forest Resources, as expected, operating income decreased. The negative variance primary results from lower recreational license income, which is largely recognized in the fourth quarter of every year. We had price improvements in all regions, although our volumes were lower. Real estate income was stronger reflecting a $20 million sale of timberland in Washington.

Moving to Performance Fibers, you can see the overall price impact was neutral as increased sales of specialty prices were offset by weaker fluff pricing. Volumes were unfavorable due to the timing of customer shipments. Corporate and other expense were $4 million below fourth quarter due to a favorable mark-to-market gain on New Zealand dollar hedges and lower compensation expense.

Let’s move on now to page five and the year-over-year variances. In Forest Resources, the year-over-year improvement was driven by higher pulpwood and saw log prices in all regions and increased volumes in our Atlantic and Northwest regions. The real estate results in the first quarter reflects the previously noted Washington State timberland sale. In Performance Fibers, operating income increased to $11 million, reflecting price improvement from cellulose specialties and significantly higher volumes due to the timing of customer orders. Finally, our corporate and other expenses were $4 million below last year, which included stock incentive compensation expense related to the previous CEO’s retirement.

We will move now to page six, where we reconciled our GAAP metric of cash flow by operating activities to our non-GAAP metric cash available for distribution or CAD. As you can see, our first quarter CAD was $67 million, which was after making the $70 million tax payment for the final black liquor tax credit exchange.

With that let me turn the teleconference over to Lynn Wilson to cover Forest Resources.

Lynn Wilson - Senior Vice President, Forest Resources

Thank you, Hans, and good afternoon. Let’s start with page eight and the Northern region, which is primarily our Washington state operation. Average stumpage prices increased 20% over the fourth quarter as export and domestic saw log demand strengthened. With consistently strong U.S. lumber prices and our ability to capitalize on China demand, saw log prices increased steadily throughout the quarter. Volumes declined over fourth quarter due to seasonal weather conditions, but were comparable to first quarter of the prior year. In 2013, we believe overall demand will remain strong, driven by improving domestic log markets and continued demand from China.

Sales results in the Pacific Northwest and New Zealand continued to support our expectations of improving markets. As markets continue to strengthen, we are positioned to maintain the 2012 volume levels in 2013. Overall, based on current pricing, we expect delivered log prices will be up 5% to 10% in 2013.

In the Atlantic and Gulf regions on page nine, pine stumpage prices increased from the fourth quarter. We experienced an improved harvest mix percentage of saw logs to 35%, slightly higher than the 2012 average of 30%. Prices were also higher than the same period last year for both saw log and pulpwood, as we continue to capitalize on more competitive markets. Volumes seasonally declined from the prior quarter, but were higher than the first quarter of the prior year. For the full year we continued to anticipate that 2013 pine harvest volume will be comparable to 2012 and the pine prices will be 5% to 10% above 2012. Overall Forest Resources operating income should be well above 2012 due to stronger demand driving higher prices.

Now let me turn it over to Charles Margiotta to cover Real Estate.

Charlie Margiotta - Senior Vice President, Real Estate

Thanks Glen. Real Estate operating income was up from the prior period and year due primarily to the sale of 5,450 acres in Washington State for $20 million, and solid rural markets in our Gulf region. We are also continuing to see increased interest in development property in our costal corridor.

Page 10 to details real estate rural HBU and development acres sold, indicating a relatively low quarter compared with a typical run rate driven by the timing of closing. We expect the balance of the year to have a quarterly run rate of 3,000 acres to 5,000 acres. We also expect development acres to accelerate somewhat.

Page 11 details per acres prices. Rural prices were solid driven, as I noted by Gulf region sales in Texas, Louisiana, and Mississippi. We are pleased with our recent Gulf region timberland acquisition, which included very good HBU properties. The spike in average development prices resulted from the sale of 4 acres on our East Nassau property for a road of infrastructure project for $242,000 per acre.

Page 12 is the non-strategic timberland sales chart. First quarter consisted primarily of the 5,450 acres Northwest sale at $3,700 per acre that resulted from an unsolicited offer. We expect non-strategic acres will be above the prior two years. I’d like to also note that we expect formal confirmation this quarter that our 1,800-acre Crawford, Florida industrial site near Jacksonville has been awarded mega-site certification, which will enhance its visibility and marketability to industrial users and make it our second site to receive this important certification.

I’ll turn it over to Jack to cover Performance Fibers.

Jack Kriesel - Senior Vice President, Performance Fibers

Thanks, Charlie, and good afternoon. Performance Fibers continues to report strong earnings driven by robust cellulose specialty business. On page 13, you see net selling prices for our two Performance Fibers product lines. Cellulose specialty prices were up $65 a ton or 4% compared to the same quarter prior year and $24 a ton or 1% from the fourth quarter of 2012 primarily due to our 2013 price increase partially offset by a lower quality mix this quarter. As expected, prices for absorbent materials which consists principally of fluff pulp, declined $91 a ton, or 12% from the same quarter in the prior year and $62 a ton or 9% from the previous quarter as market conditions weakened.

Moving on to page 14 and looking at volumes, our first quarter cellulose specialty sales volume was approximately 15,000 tons above the first quarter of 2012, reflecting the timing of customer shipments. Absorbent materials sales volumes increased 5,000 metric tons. Remember, absorbent materials production will seize in mid May as we begin our annual shutdown and complete our CSE project. As a result, absorbent materials sales volumes will decrease throughout the year as inventories are depleted.

During the first quarter, we successfully completed our annual shutdown of the Fernandina mill. The mill is up and running and we are now preparing for the Jesup mill extended annual shutdown and CSE conversion. The CSE project continues to progress toward a midsummer startup after it’s completion of the shutdown. We have completed and started up 13 of the 29 project components. Six additional projects are to be completed before the shutdown and the remaining 10 are to be completed during the shutdown. The cost of the project continues to track to the previously stated range of $375 million to $390 million. Overall, we expect that Performance Fibers operating income will be 10% to 15% below 2012 record results primarily due to additional costs, lower volumes from the CSE transition, and weaker absorbent material prices.

Now, let me turn it back over to Hans.

Hans Vanden Noort - Chief Financial Officer and Senior Vice President

Thanks, Jack. The acquisition of an additional 39% of the New Zealand joint venture resulted Rayonier owning 65% of the JV. Accordingly, we now will have to consolidate the joint venture. To assist you in updating your models, page 15 gives our current estimates of the income statement and liquidity impacts for the remainder of 2013. As with most timberland acquisitions, there is very little net income initially due to the depletion expense after writing up the timber assets to fair value.

On page 16, we have included our estimate of the balance impact. We will be adding about $543 of timberland values. On the liability side, we will have to consolidate long-term bank debt of approximately $196 million.

Now, I’d like to provide estimates of some key metrics, including the impact of the New Zealand joint venture consolidation for the remainder of 2013. We expect depreciation, depletion and amortization of $187 million and a non-cash cost basis of land sold of $8 million, or approximately $195 million in total. Capital expenditures excluding strategic investments for timberland acquisitions and the CSE project are expected to total about $153 million. We continued to expect 2013 spending on the CSE to range between $130 million and $145 million. We expect interest expense, net of interest income of about $47 million, which is net of $5 million of interest capitalized for the CSE project. With respect to income taxes, we expect our effective tax rate from continuing operations to range between 18% and 19%. When you put all these elements together, we again anticipate very strong cash flow. We expect operating income and CAD all to be slightly above 2012. Also, we continue to expect that 2013 earnings will be weighted more heavily to the first half of the year, reflecting the realization of the tax credits, the first quarter $20 million timberland sale and the impact of the CSE on the back half of the year.

Now, let me turn it back to Paul for some summary comments.

Paul Boynton - Chairman, President and Chief Executive Officer

Thanks Hans. So, as you’ve heard, we are off to a great start in 2013 and we expect to achieve slight improvements in operating income pro forma, EBITDA, CAD and EPS even during the transition year for Performance Fibers as we complete the CSE project to position that business for further growth and high margin specialties. In the first quarter, we realized benefits from the early stages of the recovering U.S. housing market as saw logs prices and saw logs pulpwood mix improved and as that home building market gains momentum, we expect to see further strengthening in saw logs demand and prices in the U.S. South as well has increased interest in our real estate development properties.

In the Pacific Northwest, we expect improving domestic demand and solid export markets to continue to support strong log prices. We remain committed to expanding our timberlands over time, with a disciplined acquisition approach and optimizing their value through exceptional management practices. Our acquisition of additional ownership interest in our New Zealand joint venture at an attractive price is consistent with this strategy and positions us to benefit to a greater degree from a growing demand for wood fiber in Asia and particularly China. In short, we are confident that we are well-positioned to drive cash flow and value creation in 2013.

Now on a final note, I would like to thank Charlie Margiotta who after 37 years with the company has announced this past February his retirement plan for this July. We wish Charlie and his family all the best in retirement and thank him from being a key part of the Rayonier team.

With that I would like to close the formal part of the presentation and turn the call back over to the operator for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And first question comes from Mike Roxland, Bank of America-Merrill Lynch.

Mike Roxland - Bank of America/Merrill Lynch

Thanks very much. Congrats on the good quarter and Charlie congrats on your retirement.

Charles Margiotta

Thank you.

Mike Roxland - Bank of America/Merrill Lynch

Just quick question, first on southern log pricing, obviously came in a little better than we had been expecting, are you actually starting to see better demand for logs in the U.S. South or were there any one-time issues let’s say like weather which positively benefited pricing?

Lynn Wilson

Well, right now we are feeling optimistic as compared to where we were six to nine months ago. While some of our customers have extended their hours work, many of them have not added a second shift to return to full capacity, continue to have conservative optimism, but we have seen in certain markets a translation back to the stump.

Mike Roxland - Bank of America/Merrill Lynch

From better housing Lynn, right that’s what you mean in terms of the…

Lynn Wilson

Lumber and solid wood correct, Mike.

Mike Roxland - Bank of America/Merrill Lynch

Lynn, can you call on what markets you’re seeing that in?

Lynn Wilson

Yes, our best markets right now are in our Gulf States, Alabama and in what we call our Southwest resource unit primarily West Louisiana and East Texas.

Mike Roxland - Bank of America/Merrill Lynch

Got you. Thank you for that. And then Jack just quickly on Performance Fibers, sale of specialties volumes came in a little bit higher than we have been expecting. And I know you guys had an easy comp last year, but want to just to get a sense from you as to what drove the 13% year-over-year increase, were any customers ordering ahead of the C-Mill conversion, just to make sure they had enough supply?

Jack Kriesel

No, the big difference Q1 2012 to Q1 2013 is the carryover in 2012, we had quite a bit of volume that was on the C that counted in 2012, okay, excuse me 2013.

Hans Vanden Noort

Just a high proportion of international shipments, Mike.

Mike Roxland - Bank of America/Merrill Lynch

I got you. They were, okay, so it was more shipments that did not get reflected in 4Q just an accounting because in transit, okay. Got it, okay. And just last question, Paul, can you just remind us of the company’s long-term plans concerning Performance Fibers? Is it a key part of the portfolio? Could it ultimately be divesture spot at some point and really if it’s held on to and given the expected acceleration of the EBITDA, what are some of the tools the company has or that it can use to really get cash out of the TRS and into the REIT rather than having all trapped at the TRS?

Paul Boynton

Yes, Mike, thanks for question, and I’ll probably divide this up and Hans can jump in here, but yeah, clearly Performance Fibers is key and strategic to the company, hence our investment in it. We have got 85 years of rich history. We are the leader around the globe in Performance Fibers, cellulose specialties, and therefore we are going to continue to invest and keep our leadership position. We expect the value of that business to continue to grow. And as such, we will continue to look at structuring opportunities and a variety of other things to make sure that we always stay within our REIT metrics. Hans, I don’t know if you want to add anything to that?

Hans Vanden Noort

Well, I just say over time, we have come up with a variety of methods, whether doing internal like kind exchanges. We have done some structuring of some of the higher and better use of properties being sold down under installment notes, which allow us basically to generate interest income, if you will, between the two entities. We have got some other structuring possibilities to move properties up and attach cash and kind of internal spends. So, over the years, we have come with a variety of methods. And so that we really haven’t had the situation of cash trap, and in fact we are actually majority of our debt if you look at now was actually in the TRS.

Mike Roxland - Bank of America/Merrill Lynch

Got it. Good luck in the quarter and the balance of the year.

Hans Vanden Noort

Great. Thanks Mike.

Paul Boynton

Thanks Mike.

Operator

Next question Chip Dillon, Vertical Research Partners, your line is open.

Chip Dillon - Vertical Research Partners

Yes and good afternoon.

Hans Vanden Noort

Hey, Chip.

Chip Dillon - Vertical Research Partners

Hey, first question is on the temporary value or pricing moving up, can you tell us to what extent some of that is – or if any of it is mix saw logs versus pulpwood, especially given that we have the – you mentioned the recovery in lumber production. And how much of it would be of the 5% to 10% is just that you are actually getting that much in pricing on a like-for-like basis?

Lynn Wilson

Chip, right now what we have seen is a 30% to a 35% shift in saw log based on that mix between thinnings and clear cuts and the total volume that we had in the first quarter. So, that is the portion of the transition and the remainder of that is in the pricing.

Chip Dillon - Vertical Research Partners

Got you. Okay, very helpful. And then on the land sales and I am sorry, this will be the last time I can ask Charlie this question, but – and best of luck to you, but what do you see as the rough idea of the total acres that you think will be sold in the year by category or total and what should the basis be for the year?

Charlie Margiotta

Thanks Chip. I will take a run at the acres. We note that the run rate for the balance of the year should be 3,000 to 5,000 acres. With land sales, it’s always hard to hit it on the number, because they are so driven by closings, but if you add that add up and add the first quarter, I think the rural and development will be somewhat similar to last year, last two years. And as we noted non-strategic will probably be up. We had that really good start in the Northwest with that unsolicited offer. So, I’ll just repeat, we are all in development probably at a run rate of the last two years.

Chip Dillon - Vertical Research Partners

And in the basis?

Charlie Margiotta

Yeah. Chip, as far as basis, we are estimating the non-cash cost to land around $8 million and then the depletion on that I would say roughly in that $17 million, $18 million range, but that does very quite a bit depending on the specific properties that are sold.

Chip Dillon - Vertical Research Partners

Of course, got you. And then on the ramp up of the CSE project, I know in the last couple of years you have had some pretty good guidance in terms of how the transition would work. As you get – as you actually enter and maybe already have, some of the lower end of the dissolving pulp markets, as that gets ramped up. And I think it’s around, it’s the end of ‘15 you might be completely on the back up to the high alpha only. Is that still roughly the plan or has anything in the marketplace allowed you to accelerate the transition or decelerate that?

Paul Boynton

No. Chip, that’s roughly the plan. Nothing significant has changed with those ratios.

Chip Dillon - Vertical Research Partners

Got you. Okay and I don’t know if you have any comment, but do you sense that or have you – what are your initially thoughts about sort of the change in ownership of your main competitor in the high alpha business, do you have any views about that, it’s kind of ironic that your former Chairman actually worked to that entity, when it still had a different owner?

Paul Boynton

Chip, maybe I’ll take it. First, Buckeye has been a great competitor. The expertise of dissolving pulp and cellulose especially it does reside within Buckeye and not their acquirer. And we think that they’ve had a kind of a full offence against us in the marketplace and so we don’t expect that to change in anyway with the new ownership. They are well capitalized before and obviously they will be well capitalized in the future. I think the second point with that is just to recognize that we compete head-to-head with Buckeye in a very narrow space. When you think about it, it’s really just in the markets required a softwood fiber using our craft process, which is their sole capability, but just a small part of our Jesup operation. And in fact, when you look at the overlap of our entire cellulose specialty business and Buckeye, it’s probably in the range of 6% to 8% of our volume. So, in other words, 92% or more of our volume is not significantly in a head-to-head competition with Buckeye, so just a couple thoughts on it.

Chip Dillon - Vertical Research Partners

Got you, that’s very helpful. Thank you.

Paul Boynton

Thanks Chip.

Operator

Mark Wilde, Deutsche Bank. Your line is open.

Mark Wilde - Deutsche Bank

Good afternoon. And Charlie, enjoy retirement, this company has changed so much over the last 37 years.

Charlie Margiotta

Correct.

Mark Wilde - Deutsche Bank

Particularly, I think since we got spun out ITT and you did the re-conversion. Anyway a few questions, first to just kind of follow up on Chip with the CSE conversion. Has there been any change to timing there?

Paul Boynton

No, we’re still on schedule for the mid-summer startup.

Mark Wilde - Deutsche Bank

Okay. And any significant impact from that outage you had earlier this month?

Paul Boynton

No, we had actually most of that issue focused in our recovery boiler area and impacted us about 6,000 tons, but a big chunk of that was on the fluff line. We kept at least one of our dissolving lines running during that time. So, we should be able to make up the balance of that volume throughout the year.

Mark Wilde - Deutsche Bank

Okay, alright. And then turning next to New Zealand, Hans how is that New Zealand land outs going to be consolidated, treated relative to the REIT rules?

Hans Vanden Noort

Alright, it’s a good a REIT asset, it will be owned by the REIT, so I mean our investment was already owned by the REIT, so there is really no change.

Mark Wilde - Deutsche Bank

Okay, alright. And then when – I noticed when you were flashing the slides on timber pricing that there was a real disjoint between stumpage prices and delivered log prices, is that something you would expect to narrow over time so that such that log prices would be moving up more in line with what’s happened stumpage?

Lynn Wilson

That’s a good question but at this point in time the way that we are selling our delivered logs we have an extended log supply agreement that’s calculated so that’s the lagging indicators over time because it’s recalculated throughout the year. Whereas with stumpage that’s real time data and as we put those sales out and those are capturing the market currently. So, I would say on an ongoing basis there would always be a two months to three months lag in our delivered price and it would be muted by the fact that it’s a calculated pricing for a portion of our logs for that log supply agreement.

Mark Wilde - Deutsche Bank

Alright and then just kind of a technical issue when people buy stumpage from you that’s typically for what kind of a harvest over the next 12 months something like that?

Lynn Wilson

Yes, it is over a 12 months period or in some cases we actually put a year end date on notes to ensure that it falls within calendar year. So, typically 12 months or calendar year end.

Mark Wilde - Deutsche Bank

Okay, alright, that’s very helpful. I will pass it on. Good luck in the second quarter and through the year.

Paul Boynton

Thanks Mark.

Operator

Okay, next question, Mark Weintraub, Buckingham Research. Your line is open.

Mark Weintraub - Buckingham Research

If following up a little bit more on the New Zealand acquisition, just to clarify, so it’s a good REIT asset and so the income is non-taxable, is that correct?

Hans Vanden Noort

That’s correct. It would be subject to local country tax. However, the way we have it structured we have the venture has significant loss carry-forwards. And then when it comes to the U.S., it’s not subject to income tax just like any other REIT income. So, for the foreseeable future, we shouldn’t be subject to any income taxes there.

Mark Weintraub - Buckingham Research

And is that somehow unique to this situation or would that basically be true for any overseas timberland that you might own, would that be good REIT assets as well?

Hans Vanden Noort

Yeah, it’s true for any overseas investment.

Mark Weintraub - Buckingham Research

And maybe share a little bit along those lines would you expect over time to become to have more of an international presence, because I am not sure that several years ago, it was clear that, that would be the case. So, it sounds like you have done some work and gotten very comfortable with the notion that the international assets are good REIT assets. And with that shift, does that make you perhaps have a greater appetite to grow internationally?

Paul Boynton

Hey, Mark, it’s Paul. We have long been international, but let me just reiterate what we have kind of stated in the past as far as our priority on acquisitions. And one it’s been in the United States, and particularly in the Southeast as well as in the coastal Pacific Northwest; two, it’s been in New Zealand; and then three in Australia. We have looked at assets around the globe for a long time. We used to have own and manage assets in Chile. So, we are very familiar with them, but again this particular move in New Zealand was primarily driven by our strong belief that there is a net deficit of wood in the Asia-Pacific basin for the long-term, and we know that’s going to go up and down in the short-term, but we really like to position in the long-term. So, places like New Zealand, like the Pacific Northwest and like Australia are in great opportunity to capture that value as time goes forward.

Mark Weintraub - Buckingham Research

Great. And then – and that probably leads into the next question or partially answers to next question, as I look at, I think it was page 15 where you give the financials on the JV, it looks like cash available for distribution of $5 million is that related to – would that be your prior interest, the 65% holding? And I mean $5 million versus the amount of money spent looks very low and presumably it’s something that as you expect to grow substantially over time, is there anyway to give us a way to model the potential growth in the cash generation?

Hans Vanden Noort

Yeah, let me start with the first part of your question, Mark. The $5 million of CAD is the venture, but recall or remember that the venture itself has venture specific debt of about just under $200 million. And so that’s after the associated interest that goes with. So, that’s a little different than let’s say your typical acquisition that we do state. So, consider that important. And also this is just for the remainder of the year here, so we just wanted to give you guys some idea of how the metrics will start to change. At this point, I don’t think we are really ready to give you any longer term guidance for ‘14 or beyond other than what reiterating what Paul said is we are very comfortable in the region and we think the dynamics there between the increasing demand and the deficit in particular in China is going to give us some really good return opportunities there. Also I would just say by taking out two of the partners that we are going to have a little more operating flexibility which is one of the partner and we think we can be a little bit in structure and otherwise there as well.

Paul Boynton

Mark, I was going to add to that too. Just to reemphasize it, we had somewhat of a cumbersome ownership structure with the four partners and we got our great opportunity to increase our ownership and attract the volume price and put us some majority ownership as well as continue to be the manager of the property. So, we will begin immediately looking for opportunities to take out some of the cost can simplify the structure as well as how we look forward and move on in future. So, again, there is quite a few reasons why, one to strategically and two, just immediately opportunity and take some cost out while this was an attractive move for us.

Mark Weintraub - Buckingham Research

Okay, thank you.

Paul Boynton

Sure.

Operator

Okay. Next question Josh Barber, Stifel. Your line is open.

Josh Barber - Stifel

Hello, hi, good afternoon.

Paul Boynton

Hey Josh.

Josh Barber - Stifel

Okay, sorry about that. I am wondering if you can talk about the purchase price on those New Zealand assets, it looks like it’s a bit of a premium to where you were carrying the assets, was that just because there is just some long-term depreciation and depletion there but that’s pretty much the overall expectation of market value what does that equate to on a price per acre basis, would you be able to fill us in on that?

Paul Boynton

You are correct, we have our historical basis was lower and so what’s going to happen in the second quarter is do shows us we are going to under the new accounting rules we are going to basically have to fair value this and so that’s what we are trying to give you idea on ’16 as a result of that you will see the increase in timberland assets. And actually as a result of that we will report a gain in the second quarter reflecting the increase in the value from what our previous position was. So, will that all come out here in the next quarter.

Josh Barber - Stifel

Okay. And I imagine that and any of the other tax savings of the exchange are not included in your guidance. I mean it could make numbers higher but it’s not actually going to be reflected in your guidance?

Paul Boynton

Yeah, well again the New Zealand shift on the acquisition that was definitely not in the guidance. The AFMC is part – in part of the guidance, you recall Josh last couple of years we had a series of these black liquor benefits and so that is in the guidance I think we said that last call as well.

Josh Barber - Stifel

Okay, and Paul your comments I think on the overlap between Buckeye and Rayonier that’s very helpful, my only follow-up to that is after Buckeye is finished with their expansion project and after C-Mill conversion is finished will that overlap still be I guess as limited are you guys going to be competing a little bit more directly on some of those markets going forward?

Paul Boynton

Yeah I would say still, it’s still limited their facility is a craft process and it’s only soft wood fiber. So, it puts it in a range where we compete together again somewhat narrowly which is high tenacity, tire cord, sausage casings and filtration. So, there is some of our smallest end markets is where we will have the overlap and they can go other places within a limited ability but for the most part that will be head to head. But again Josh that I think in that expansion they have already sold that that’s 70% from what hear in their reports and of course our volumes already out there sold is 85% highest level. So, again I think a lot of that’s already factored into how we compete today.

Josh Barber - Stifel

Okay great. Thanks very much guys.

Paul Boynton

Thank you.

Operator

Steve Chercover, D.A. Davidson. Your line is open.

Steve Chercover - D.A. Davidson

Good afternoon, I am afraid most of my questions have been answered but I don’t know if you elaborated on where 5400 acre parcel was located?

Paul Boynton

Yeah, in Washington State, it was – we responded to an unsolicited offer from someone who basically surrounded the property and it was somewhat isolated for us and we are able to generate a transaction that made a whole lot of sense.

Steve Chercover - D.A. Davidson

Great, so, but it is timberland, it’s evidently well stocked timberland?

Paul Boynton

It was okay stocked, yeah.

Steve Chercover - D.A. Davidson

Okay. Thank you for that clarification.

Operator

Okay, next question Paul Quinn, RBC Capital Markets.

Paul Quinn - RBC Capital Markets

Yeah, thanks and good afternoon I guess. Just a question on the timberland side maybe you could give a little bit more color on the export mix of what you are seeing in I guess your Northern area and then how you are going to whether you going to give us additional details in the future on the New Zealand opportunity?

Lynn Wilson

Paul, our primary mix right now as far as export market is that we are delivering about 24% in the first quarter to the export market, the remainder we are very strong in the domestic market. And then for us on ongoing operations that is over 65% Western Hemlock and primarily to China on our exports.

Paul Boynton

So, Lynn I think just to add to that so we saw again pretty consistent quarter-to-quarter fourth quarter to first quarter export percentage perhaps what changed there that was just again the strength of both kind of moving forward. So, kind of equally responding, correct?

Lynn Wilson

Correct.

Paul Quinn - RBC Capital Markets

Okay and in terms of additional details on New Zealand is that going to be provided going forward?

Paul Boynton

Yeah as we continue to integrate the property as far as the acquisition we will give guidance as we go forward Paul for sure.

Paul Quinn - RBC Capital Markets

Okay. And then just on the Performance Fibers side I noticed the drop in pulp prices and that seems to be counter to some of your competitors out there. Just wondering if there is anything specific and what you are seeing in that market going forward?

Hans Vanden Noort

Well, when you look at the fluff pulp prices, the list price has really been flat for quite sometime. Until recently just this month, there is some announcements by a couple of suppliers of the price increase from May, but discounts have been pretty significant across that and pretty consistent. It seems like the MBSK is doing much better at this point in time than fluff pulp.

Paul Quinn - RBC Capital Markets

Okay. And just because I have got a lot of questions on this Buckeye announcement yesterday, a lot of people have asked whether you guys were able to compete in that process and the way I have described it is limited because of the re-growth as well as potential competition issues? Is that a fair characterization?

Hans Vanden Noort

No, I don’t think so. I mean, this Buckeye again has been there for long time. They have been public. We have certainly if we had an appetite, we could have gone that direction. We just have strategically decided not to. We put our strategic expansion dollars into Jesup as you know Paul. And we thought that was a better return for our shareholders, particularly given our knowledge in acetate and ethers, where we think we can pickup some higher margin business in some of the other parts of the cellulose specialty business. And so therefore we have kind of just chased some other things with our strategic dollars than that opportunity.

Paul Quinn - RBC Capital Markets

Great, thanks for the answer. Best of luck.

Hans Vanden Noort

Alright, thanks Paul.

Operator

And the next question, Stuart Benway, S&P Capital IQ, your line is open.

Stuart Benway - S&P Capital IQ

Thank you. I just want to make sure I understand the tax credit situation, so you are saying I think $79 million this year from a benefit and $29 million in 2014, so, that’s a $50 million hurdle to overcome for 2014? Is that the right way to look at it?

Hans Vanden Noort

No, when we filed the amended return effectively we had to pay in the $70 million as part of the exchange to the credits. We’ll then get back $60 million of reduced tax payments this year and $29 million in ‘14. So, effectively $70 million going out in Q1, you are realizing $89 million in total with the split of $60 million and $29 million that I have just mentioned.

Stuart Benway - S&P Capital IQ

Okay, but you said $60 million for the remainder of 2013 that does not include the $19 million?

Hans Vanden Noort

The $19 million is the net difference in our favor between the $70 million that we are having to pay in the total of $89 million that we are going to realize.

Stuart Benway - S&P Capital IQ

Okay. Okay, thank you. And just on the fluff pulp, I mean, is that the issues there, do you think it’s because of the new capacity, or there is conversions of capacity have been added? I mean, is demand – I mean end-market demand still, to me that is a pretty stable market for end-market demand, so it’s probably the capacity that’s making the price issue?

Hans Vanden Noort

Certainly that the new capacity that’s come on over the last year or so is what’s causing a good chunk of that, and but the demand overall continues to be probably about 4% or so on, 4 million to 5 million ton market.

Stuart Benway - S&P Capital IQ

You mean growth?

Hans Vanden Noort

Correct.

Stuart Benway - S&P Capital IQ

Okay, good. And did you say that the fiber’s earnings will be down 10% to 15% this year, is that what I heard?

Hans Vanden Noort

That’s correct.

Stuart Benway - S&P Capital IQ

Okay. And just one quick question on Asia, on the New Zealand, I mean, do you see that demand, is that coming more from homebuilding from sawlogs or is it more in pulpwood?

Paul Boynton

Most of that business is headed to China anyway. It’s used for concrete formation and construction. So, it’s used for, again the pouring of concrete in the construction of cement concrete building. So, that’s where the by and large most of that is headed into. Some of that is certainly into plywood, some of into some decking kind of price, but by and large, it’s concrete formation for construction.

Stuart Benway - S&P Capital IQ

Thank you.

Operator

Collin Mings, Raymond James, your line is open.

Collin Mings - Raymond James

Hi, good afternoon. Congrats on the quarter. Just a quick question, Jack, I was just curious if you could comment on what you are seeing in the commodity viscose market, I know you don’t plan to be in that segment longer term, but just kind of wanted an update as it relates to the phasing in process of that higher grade product over time?

Jack Kriesel

Yeah. As noted earlier, it would be a few year process in terms of the phase in or the majority of that taking place early on. But the overall market right now is certainly the supply from a commodity viscose pulp has continued to increase. Some numbers are ranging from 2 million to 3 million tons of additional capacity over the next few year, obviously that’s announced as you know a lot of that probably won’t happen especially if the pricing stays south of $1000 type level. The demand for viscose stable fiber continues to be growth I don’t know 9%, 10% or so. So, there is a little bit of an imbalance between the demand growth versus the supply which will probably – will keep that some pressure on the pricing for next year or so unless something fundamentally changes in the marketplace in terms of cotton supply or some other factor.

Collin Mings - Raymond James

Okay great, it’s very useful color. And then just switching gears real quick, guys can you maybe comment a little bit more on just the interest in the real estate properties particularly on the development side and maybe how that momentum is built over the last three or six months?

Charlie Margiotta

Yeah, it’s Charlie. Sure and I think I said this last quarter and versus last quarter it’s gotten better enough playing that and certainly from the year ago it’s gotten a lot better. We are just really beginning to see serious interest in land for residential development and to some extent commercial and industrial. Converting those to transactions is always challenging but we really assume a material difference in interests with a whole variety of reasons for that. But yeah I – we are feeling a whole lot better today than we are feeling six to nine months ago.

Collin Mings - Raymond James

Is it – as far as to level of interest would you say some of it’s more in the Bryan County area up near Savannah or the Florida markets that you have land in or can you maybe just break the interest level in those two markets out a little bit?

Paul Boynton

The three we think we really think about on a county level the three areas the Bryan County area, Nassau County and St. Johns County. I will say that the interest is in smaller properties then to say three or four or five years ago when we are selling multi-thousand acre properties. But we are pleasantly surprised by the discussion around price. So, yeah it’s along the costal corridor where we have property.

Collin Mings - Raymond James

Okay alright. Well, thanks again for the color congrats again on the quarter.

Paul Boynton

Thanks Mings.

Operator

Blank Wilde – I am sorry Mark Wilde, Deutsche Bank. Your line is open.

Mark Wilde - Deutsche Bank

Yeah, just a little bit of follow-up and then under one with those New Zealand holdings I think those are scattered kind of around one or both islands and I wondered if they would be any plans to try to consolidate those holdings over time?

Paul Boynton

Mark you are right. We got property from the Northern – of the north island to the south into the South island. They are good assets, we know very well and we managed them for a long time. But certainly with a consolidated ownership will give us a little bit more flexibility to take a look at them. But we don’t have any plans at this point in time.

Mark Wilde - Deutsche Bank

Okay and then how do you think about just kind of volatility down there because it’s just seem like over time these New Zealand timber markets have had some of the wildest swings that I have seen globally?

Paul Boynton

Yeah certainly as you compare that to the U.S. market and where we will use one discount rate given the market volatility in New Zealand in Australia as we look at property there we would have to use one that’s a little bit higher than what we are using now. So, yes we definitely note that and we do have to factor that into anything we do in terms of an acquisition.

Mark Wilde - Deutsche Bank

Yeah and then Hans I think in New Zealand the convention is to kind of revalue timber like every other year to kind of a market value, is that something you are going to have to build on those properties?

Hans Vanden Noort

Well we have been doing that for the local financial statements under IFRS.

Mark Wilde - Deutsche Bank

Okay.

Hans Vanden Noort

So, that will continue, but it won’t be implemented into our GAAP statements. Once you record the acquisition we do have fair value and then we just do it one time.

Mark Wilde - Deutsche Bank

Okay.

Hans Vanden Noort

That we just start the normal depletion.

Mark Wilde - Deutsche Bank

Okay. And then finally, so you had mentioned Australia and I know that there have been a lot of these busted investment schemes down there kind of plantation, forest reinvestment schemes that people have been looking at and some of the TIMOs have actually done some stuff with, is that an area that you are still interested in?

Paul Boynton

Mark, we do look at it. We have yet to get comfortable with a property set in Australia for some of those reasons that you mentioned there. And also some of the markets are fairly one dimensional as you know as a company we really like multi-dimensional properties like in the U.S. we talk about good markets for sawlogs as well as pulpwood as well as HBU as well as any kind of biomass. And some of the properties we have looked at in Australia really lacked lot of the flexibility. So, we tend to be pretty gun shy and we would have to put on such a volatility discount there that just does not materialized in anything for Rayonier.

Mark Wilde - Deutsche Bank

Okay, reasonable and rationale, it seems to me. Again, good luck through the balance of the year.

Paul Boynton

Thanks Mark.

Operator

At this time, I have no further questions.

Hans Vanden Noort - Chief Financial Officer and Senior Vice President

Great, well thanks for your participation and please contact Ed Kiker with any follow-up questions.

Operator

Okay, thank you. That does conclude the call for today. Your may disconnect your phone lines at this time.

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