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Plum Creek Timber (NYSE:PCL)

Q3 2011 Earnings Call

October 24, 2011 5:00 pm ET

Executives

David W. Lambert - Chief Financial Officer and Senior Vice President

Rick R. Holley - Chief Executive Officer, President and Executive Director

John B. Hobbs - Vice President of Investor Relations

Analysts

George L. Staphos - BofA Merrill Lynch, Research Division

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Anthony Pettinari - Citigroup Inc, Research Division

Steven Chercover - D.A. Davidson & Co., Research Division

Mark A. Weintraub - Buckingham Research Group, Inc.

Chip A. Dillon - Vertical Research Partners Inc.

Mark Wilde - Deutsche Bank AG, Research Division

Gail S. Glazerman - UBS Investment Bank, Research Division

Operator

Good afternoon. My name is Christine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Plum Creek Earnings Conference Call. [Operator Instructions] Thank you. At this time, I would like to turn the call over to our host, Mr. John Hobbs, Vice President of Investor Relations. Please go ahead.

John B. Hobbs

Thank you, Christine. Good afternoon, ladies and gentlemen, and welcome to the Third Quarter Conference Call for Plum Creek. I'm John Hobbs, Vice President of Investor Relations for the company. Today, we have on the line Rick Holley, President and CEO; and David Lambert, Senior Vice President and CFO.

This call is open to all investors and members of the media. However, the Q&A portion of the call is intended for the professional investment community. We ask that other participants please follow up with any questions by calling me at 1 (800) 858-5347 following the call. I encourage you to visit our website, www.plumcreek.com. There you'll find our press release and financial statements for the third quarter of 2011.

Before we begin, I remind everyone that certain of our statements today will be forward looking, involving known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ from those expressed or implied. These risks and factors are routinely detailed in our filings with the Securities and Exchange Commission. Following today's prepared remarks, we'll open up the call for your questions.

Now I'll turn the call over to Rick Holley.

Rick R. Holley

Good afternoon. Economic growth in the United States remains lackluster, and residential construction markets and housing reem[ph] remain well below their long-term potential. Business conditions didn't change much for us during the third quarter. Prices were stable in most areas, and harvest volumes increased in typical seasonal fashion.

The areas of our business that were healthy in the second quarter, such as hardwood sawlogs and West Coast sawlogs, remained healthy. The market that was challenging in the second quarter, namely, Southern sawlogs, remains challenging. Our geographic and specie diversity continues to serve us well. Pulpwood markets throughout the nation remained good by historical standards, and rural real estate markets haven't changed much over the past several quarters.

We continue to manage the company conservatively, keeping a close watch on all our costs. We're also working closely with our customers and contractors looking for ways to improve upon everything we do. Plum Creek is in a great position to benefit as demand grows and the U.S. economy strengthens.

David will now review our third quarter results with you and discuss our outlook for the remainder of the year. David?

David W. Lambert

Thanks, Rick. We reported third quarter earnings of $0.31 per share in the middle of our guidance range for the quarter of $0.28 to $0.33 per share. Within our Timber Resources segment, performance was much as we expected. Our Manufacturing segment results were slightly weaker than initially anticipated, and the Real Estate's bottom line was a little better.

The Northern Resources segment reported a $7 million profit, an improvement of $4 million from the second quarter's $3 million profit. The improvement from the second quarter was driven by a seasonal rebound in harvest volumes, partially offset by slightly lower sawlog prices. In the Northern Resources segment, our third quarter harvest typically increases significantly from the seasonally low second quarter level as timberland accessibility improves with the summertime weather.

This year was no exception. Our harvest volumes approached 1.2 million tons, up 62% from the second quarter. Our average sawlog price declined about $1 per ton from the second quarter. Here, our geographic and species diversity came into play. Our softwood sawlog prices in the Pacific Northwest were off about $4 per ton as incremental timber supply came onto the market. This is typical of the summer months in the Northwest, where small independent landowners gain access to their timberlands when the road systems dry out. However, this was largely offset by strengthening hardwood sawlog prices in the Lake States and Northeast where prices were up $3 per ton.

Demand for sawlogs in the Northwest was fairly stable during the third quarter. Export log shipments to China accounted for 57,000 tons or about 19% of our Oregon sawlog harvest. Export volumes appeared to be slowing in November and December, and the fourth quarter volumes are expected to be down relative to the third quarter and fall closer to 10% of sawlog harvest. As we discussed last quarter, we expect to continue to see some volatility in the buying patterns exhibited by the Chinese importers. For the year, we expect about 15% of our Oregon sawlog harvest to be sold to the export markets.

Fourth quarter sawlog prices are expected to decline $2 to $3 per ton from the third quarter levels. This is driven primarily by lower export log prices in the Pacific Northwest as Chinese demands slowed a bit during the quarter. Earlier in the year, export logs in the region commanded a premium to domestic logs. As the third quarter progressed, the export premium has narrowed.

Pulpwood prices in the Northern segment increased $2 per ton as pulpwood demand remains strong across the segment. Limited logging capacity and wet weather in the Northeast constrained supply in that region, adding upward pressure to prices. Pulpwood prices are expected to be flat for the remainder of the year. During the fourth quarter, our Northern harvests are expected to be similar to the third quarter's harvest level between 1.1 million and 1.2 million tons. Our sawlog harvest is expected to be about 700,000 tons, with pulpwood between 400,000 and 500,000 tons.

Turning to our Southern Resources. Our third quarter operating profit in the Southern Resources segment was $21 million, up $6 million from the second quarter's profit. The better results were driven by higher harvest volumes as timberland accessibility remained very good and customers began to build inventories in advance of the wet winter season. Southern sawlog prices remained weak due to favorable harvest conditions and poor domestic demand.

Our average sawlog prices increased about $1 per ton from the second quarter. This increase was due to regional and mixed shifts within the sawlog category rather than general market improvement. Our harvest strategy remains the same during this weak pricing environment for sawlogs. We continue to focus on thinning stands as a part of our normal silvicultural practices, and we are deemphasizing final harvest that produces primarily higher grade sawlogs.

As a result, sawlogs represented 41% of our Southern harvest mix compared to a long-term normal mix of approximately 50%. This is the right strategy from a long-term value standpoint and allows us to protect the value of our sawlogs while capturing attractive pulpwood prices and continuing to execute on our full silvicultural practices that enhance the growth and long-term value of our forests.

Southern pulpwood prices were unchanged and the demand for pulpwood remained good as customers began to build winter inventories during the third quarter. Our fourth quarter harvest is expected to be between 2.8 million and 2.9 million tons. We expect our Southern pulpwood harvest to be about 1.6 million tons and the sawlog harvest to make up the balance between 1.2 million and 1.3 million tons. We expect our Southern sawlog prices to hold stable at $20 per ton and expect some upward price pressure on pulpwood as customers continue to build inventories for the winter.

The Real Estate segment recorded revenues of $67 million in line with our expectations. Third quarter operating income was $46 million. The segment sales consisted primarily of recreation and small nonstrategic lands. 24,000 acres of HBU recreational lands were sold for approximately $2,000 per acre. About 16,000 acres of these sales were made to an adjacent land owner who was seeking to add lands to his ranch and property in the South. Small nonstrategic land sales covered 11,500 acres and garnered an average price of $1,200 per acre. We also completed a $5 million conservation easement in Wisconsin, covering nearly 10,000 acres.

Plum Creek continues to own and manage these lands for the timber production. We expect fourth quarter Real Estate revenues to be between $85 million and $95 million. Interest in timberland investments from the institutional investment community continues to be strong, and we expect to close on a large nonstrategic timberland sale of approximately $60 million during the fourth quarter. This sale is included in our guidance. Land bases will be approximately 20% of revenue in the fourth quarter.

The Manufacturing segment posted a $3 million operating profit in the third quarter, down $2 million from the second quarter's performance. Plywood and Medium Density Fiberboard sales volumes declined 7% and 11%, respectively, with stable prices. Lumber profits moderated as well with a 7% decline in pricing on relatively stable volumes.

Our Manufacturing segment continues to perform extremely well in difficult markets thanks to its focus on specialty and industrial end-use customers. We expect the fourth quarter to be profitable for Manufacturing, but we do expect performance to decline somewhat from the third quarter's results.

Interest expense should be flat at $20 million during the fourth quarter, and we expect no significant impact from the tax line on our fourth quarter results. In all, we expect our fourth quarter income to be between $0.37 and $0.42 per share, and expect to report full year earnings between $1.18 and $1.23 per share.

I'll now turn the call over to Rick.

Rick R. Holley

Thank you, David. Effective disciplined capital allocation is our most important tool we have to protect and maximize long-term shareholder value. During the past quarter, we allocated nearly $100 million to acquire timberland and repurchase our stock. Both actions are consistent with our goal of increasing the long-term value of Plum Creek on a per share basis.

We completed the previously discussed 50,000-acre timberland transaction from Forestar for approximately $75 million. These industrial timberlands are located just west of Atlanta and are an extension of our presence in that region. The stands tend to be a little older than average Southern timberlands. Over time, we will be able to boost the productivity of these properties using our existing Southern silvicultural practices. In addition, over the long term, there could be some HBU or recreational opportunities given the proximity of these lands to Atlanta. But we purchased this property based on its timber economics, and it will provide an attractive investment return on that basis alone.

As you saw in our press release, we repurchased nearly $25 million of our shares during the quarter, an average price of just under $35 per share. We find our shares represent a compelling value at these price levels.

I recently had the opportunity to visit China to observe the use of North American wood in that country, and also met with a number of customers and user of timber and lumber that is shipped there. The incremental Chinese demand has made a significant impact on the West Coast timber markets over the past 18 months. After visiting China and having spent some time with long-term participants in the market, I came away convinced that the Chinese presence in the North American timber markets are here to stay.

However, exports to China cannot maintain the pace of growth we've witnessed over the past 18 months. U.S. port infrastructure and Chinese economic growth do have limits. The Chinese market presence from one period to the next will ebb and flow, just as it does with other commodities and other resources. But I believe their presence, the Chinese presence, is being established permanently in North America, and that's good news for long-term value of timber and timberlands in North America.

We're excited about the cash flow growth opportunities from our non-timber assets. As you've heard me say many times, when owning timberlands, timber's only a part of the total value equation embedded in the asset. The land itself has value as a growth of our Real Estate segment over the past decade has demonstrated.

However, there's a third leg on this value stool. That is our non-timber resources. Subsurface assets such as natural gas, construction materials, industrial minerals, as well as service rights of way. This business has tripled its contribution to our bottom line over the past decade largely from the collection of royalties as these assets are developed and brought to market by third parties. The business has grown from approximately $8 million of operating income in 2002 to approximately $23 million in 2010. Along the way, we quietly built expertise in the ownership and management of a variety of subsurface assets.

We will continue to grow this royalty business over time, owning and managing non-timber resources and collecting royalty streams from third-party developers and operators. This growth will come from assets that we own today, some of which are in the process of being permitted and developed.

A portion of our ownership has benefited from the development of new oil and natural gas. Over the last year, we leased approximately 64,000 acres for shale oil exploration in Louisiana, which have potential once developed to make a meaningful contribution to the growth of this segment.

We're also evaluating the growth opportunity for new construction material assets where they can be acquired with attractive return profiles. We recently acquired $12 million of operating aggregate reserves that is cash accretive and will provide an attractive total return over the life of those reserves. We continue to work hard to uncover and deliver all the value embedded in the assets that we own and manage.

The volatility of world equity markets has been remarkable during the past quarter, and clearly, there are risks to global economic growth. We're aware of the risks and uncertainty in the months ahead. I believe conditions in our business will improve.

In the meantime, our day-to-day operating decisions are guided by our overriding goal of protecting and maximizing the long-term value of our asset base. Our capital allocation decisions are guided by this same goal as well. We ask ourselves, "Does this decision protect and maximize the long-term value of Plum Creek?" And we ask that question on everything that we do.

A diverse timberland portfolio, conservative balance sheet and excellent access to capital ensure that we have the operational and financial flexibility to continue to make decisions that protect and grow the long-term value of the company. We are excited by the prospects for our company. We have a growing harvest profile that alone will drive future increases in cash flow from our core timber business. This combined with a cyclical recovery in sawlog prices and structural changes in North American timber markets bode well for the long-term value of the company.

Now we'll be happy to answer your questions. Christine?

Question-and-Answer Session

Operator

[Operator Instructions] And your first question is from the line of Gail Glazerman with UBS.

Gail S. Glazerman - UBS Investment Bank, Research Division

Just staying on the non-timber assets. Is there any more color you can give on that shale acreage in Louisiana? Has it been tested? And when would you expect to see real benefits if it's been proven?

Rick R. Holley

Well, I think we've already seen some real benefits because we've got an upfront bonus payment of a little over $20 million. $16 million of it came in this year 2011, and $4 million came in to the end of last year. And then we have some pretty attractive royalty rates as those assets are developed over time. But clearly for an oil and gas company to pay that kind of bonus payment upfront means that they think it has a lot of potential.

David W. Lambert

The real opportunity will be the long-term royalty rates, and so they're encouraged to drill the wells and make the discoveries and turn it into a producing asset. Those bonus payments are amortized into earnings over a 3- to 5-year period.

Gail S. Glazerman - UBS Investment Bank, Research Division

Okay. That's helpful. Rick, can you give a tiny bit more color on what you're seeing out in China? I mean, are the issues and the weakness that you're seeing now more reflective of just demand, or is it just kind of log jams throughout the supply chain at this point?

Rick R. Holley

I think it's 3 things. First of all, they just came out of their wet season, so their building activity is just picking up a bit. And inventories are backed up a little bit in the system because of the infrastructure. I mean, it ramped up fairly dramatically, their purchases of logs and lumber from North America over the last 1.5 years. I mean, they'll do probably 4 -- close to 4 billion board feet of lumber out of Canada this year, it would appear. So I think part of it is just the inventory system. The other thing, which you've all read about and I saw while I was there, is the building activity has been just unbelievable throughout China. And I think the government is trying to slow it down a bit for the next 2 years. But I think that least the numbers I saw and everyone I talked to, they think over the next 15 to 20 years, their GDP is going to be in excess of 7% and their needs for wood in particular because of the need for housing, affordable housing in the country, is going to continue to grow. And as you know, historically, most of the wood or at least a big piece of it came out of Russia and New Zealand. And clearly, getting more wood out of Russia is somewhat constrained due to infrastructure, and there's no more wood they can get out of New Zealand because they're kind of cutting at their highest levels. So as their needs grow, they have to come to North America. So I came away feeling very, very positive about the future prospects for continuing business relationship with the Chinese.

Gail S. Glazerman - UBS Investment Bank, Research Division

Okay. But is it fair to say in 2012 given what you're seeing right now, it could be down?

Rick R. Holley

Yes, I think that construction activity in China over the next 2 years would be a little slower than it was the last 2 years but still going to be at pretty good levels. But I think it will be down, just what I sensed from the people I talked to there.

Gail S. Glazerman - UBS Investment Bank, Research Division

Okay. And just one last question. I know it's early but speaking on 2012 demand trends, can you give any thoughts into what you're thinking about 2012 at this point? Are you looking for a cover[ph]? Do you think you could increase harvest next year?

Rick R. Holley

Well, it really depends on the pricing we see. We're in the process of doing our budgeting here, and we're kind of looking at a 700,000 housing start number and you guys -- your guess is good as mine whether we'll see that. But if we start to see 700,000 or 750,000, 800,000 housing starts over the next 2 years, clearly, given the demand from other areas of the world, emerging markets such as China and the pine beetle issue in Canada, I think you're going to start to see sawlog prices move and we'll bring back some of the harvest that we deferred.

Operator

And your next question is from the line of George Staphos with Bank of America.

George L. Staphos - BofA Merrill Lynch, Research Division

I guess first question I had, versus our forecast, your Southern harvest was about 200,000 tons ahead of what we were modeling. A lot of that was in pulpwood, and that's fine. You mentioned that these markets remain pretty solid. Rick, how sustainable do you think the pulpwood markets are right now? And given what -- it seems to be relatively moderate, maybe to slightly declining demand in paper and board as we look out the next couple of quarters. That's been the recent trend in the data.

David W. Lambert

You see some peaking in the pulp and paper markets, but that demand is still relatively strong. They're running at extremely high operating rates compared to the lumber and plywood space, so we still continue to get better relative values there. So our harvest has emphasized that.

George L. Staphos - BofA Merrill Lynch, Research Division

David, on the same front, I mean, do you think that we'll see appreciable change in demand? I guess the answer is no given your outlook, but let me rephrase it. How worried are you at all about downtime in the saw mills and wood products conversion market as it relates, again, back to other pulpwood or sawlogs for that matter?

David W. Lambert

We're kind of at a recessionary trough and have been there for a couple of years. We don't really see much further downside risk from a demand perspective. We wish we could say we see immediate turnaround, but we're not concerned about really a further step down at this point.

George L. Staphos - BofA Merrill Lynch, Research Division

Okay. Can you put a bit more detail on the nonstrategics at all that you're expecting for the fourth quarter, realizing that Real Estate revenues aren't necessarily linear or projectable from one quarter or next? But was it in line with your expectations going into the year end? And again, what's behind that?

Rick R. Holley

Yes, this sale, the $60 million transaction that we mentioned in the call was a third party coming to us inquiring about the purchase of the lands that we had that were not for sale. So these were, in essence, Core Timberlands in that category for us. And as you'll see when we have our next earnings call, because we're not at liberty to say it yet, they're at very attractive prices. And really, the price that we're getting factors in a full recovery, so we're pretty well compelled to at least act on that opportunity.

George L. Staphos - BofA Merrill Lynch, Research Division

Okay. Last question, bigger picture and I'll turn it over, maybe segueing off of that, Rick. As we look at some of the recent private transactions, maybe the ones that we'll see between you and the third party here, we can understand why you'd want to buy back stock based on what's the embedded timberland pricing in your valuation right now. However, does there come a point when, again, the lack of recovery in housing maybe prevent you from buying back stock? And if so, when might that happen?

Rick R. Holley

Well, we've managed this company, as I said on the call, we can continue to be very conservative with our balance sheet, investment grade credit rating while we maintain a lot of liquidity and a lot of flexibility. So again, depending on how long that uncertainty lasts in the marketplace, the general economy will dictate where we pull the trigger, whether we look to just conserve capital, whether we look to act on a timberland transaction such as the Forestar acquisition or to buy our stock back. And some might ask, "Geez, you only buy $25 million of the stock back, and we've seen some compelling prices. Why didn't you buy more?" And I think because the volatility we saw in the market and some of that market uncertainty is why we only bought what we did back. So we'll continue to do it very opportunistically.

George L. Staphos - BofA Merrill Lynch, Research Division

But at this level of housing, I'll turn it over here, you would still be buying stock back next year if you have the opportunity from a share price standpoint. Would that be fair?

Rick R. Holley

Yes, I think so.

Operator

Your next question is from the line of Mark Wilde with Deutsche Bank.

Mark Wilde - Deutsche Bank AG, Research Division

Dave, maybe a question for you just to kind of start out. Looking at your guidance for the full year today versus where it was 3 months ago, it's essentially unchanged, maybe $0.01 or $0.02 lower. Yet your timberland guidance is up by about $20 million or $25 million -- your Real Estate, I'm sorry, your Real Estate guidance is up by about $20 million or $25 million for the full year, suggesting you're picking up about $0.13 there. Where has your view changed in your other businesses such that Real Estate went up and guidance is pretty much unchanged?

David W. Lambert

I think from earlier in the year, we did see a softer sawlog prices in the south than we had anticipated. The weather phenomena and the general non-recovery in the economy has hurt the performance of that segment.

Mark Wilde - Deutsche Bank AG, Research Division

Okay. All right. Second question, did I get those numbers on that Wisconsin sale correct? You got $500 an acre for just the conservation rights, and you still got the ability to manage that land for timber?

David W. Lambert

Yes. It was just below $500 an acre, and this was the Phase 2 of a conservation deal. We did a similar transaction last year and got about another $5 million in the same wood basket. We've done these from time to time, and we still get to operate the lands for its full timber productivity and they're attractive transactions.

Mark Wilde - Deutsche Bank AG, Research Division

Is there something unusual or distinct about where those particular properties are that make them very environmentally sensitive or anything? Because if you go back 10 or 15 years ago, you could buy timberland up there for less than $500, and now you're selling the conservation rights for about the same price.

David W. Lambert

We did a lot of transactions there where we bought it bulk at $500 an acre. And when we sell higher and better use lands in Wisconsin, we're typically garnering $1,200, $1,500 an acre, not as big a headline price as some regions. But relative to its timber land value, a very attractive uplift. In cases like this, they had a big water flowage that works through. There was an area of conservation interest. And rather than have it be sold for some other purpose, that's where the conservation dollars come in. And rather than capturing it through an HBU type of value, we get to do this and then continue to manage it for long-term timber productivity.

Mark Wilde - Deutsche Bank AG, Research Division

Did that money come from the state, or they come from a private group?

David W. Lambert

I'd have to double check on that one, Mark.

Rick R. Holley

It came from both the state and Federal government.

Mark Wilde - Deutsche Bank AG, Research Division

Okay. Now one other question, Rick, just going to the Forestar acquisition. As I recall, when Temple sold the stuff that they call pure timberland, they got about $1,600 an acre for that. The stuff that they had put in Forestar they called sort of land that had real estate potential. Yet you just bought some of the real estate potential land for $1,500 an acre. What should we take away from that?

Rick R. Holley

Well, I think, Mark, in fairness to even them, things have changed a lot over the last 2 or 3 years. If you look at some of those areas particularly in Georgia around Atlanta where there was -- growth was incredible. I think anybody that saw Atlanta within 20, 30 miles of Atlanta would say this has got huge upside potential for development in a fairly near term. I think now the view is the near-term for development there is 10 or 15 years off for many of these lands. So what 3 years ago they saw maybe as a higher value near-term opportunity. Today, they obviously don't see that way. That's why we valued it, basically, on timber economics. And maybe some time as that market comes back and grows, there'll be some other value attributes there. But we found it very attractive to us from a timber management standpoint, and that's not really their core business anymore. So it worked -- it was a win-win for both parties.

Mark Wilde - Deutsche Bank AG, Research Division

Okay. I guess the one other question I had was, you've got some debt maturities coming up, I think, in fourth quarter and then in second quarter. Can you just talk briefly about how you expect to handle those?

David W. Lambert

Well, what we really have coming due is our $350 million line of credit maturing in June of next year -- term loan, sorry. And it's very attractively priced at LIBOR plus 37 basis points right now. And so we've talked to all our bank group and something that we could easily refinance. But quite frankly, given its attractive pricing, we're probably going to carry that much closer to maturity rather than take it out today.

Operator

Your next question is from the line of Joshua Barber with Stifel, Nicolaus.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

I was wondering if you could talk about the capital allocation decisions, with you guys buying the timberland versus buying back stock. I know you did a little bit of both during the quarter. But how do you guys think about it internally? Certainly, with your share price, where it is today? And the second part of that question is, how do you -- it looks like you funded the acquisition through your credit line rather than out of cash. And do you expect that to change over time?

Rick R. Holley

Capital allocation, Josh, as we've said, we sit down and look at whether it's an acquisition. In this case of timberlands, whether it's buying our stock back, whether it's other investments that we have. What the highest return, highest net present value wins. In the case of buying our stock back, obviously, given what we believe the values that have a very high return and likewise, the opportunity to acquire these quality timberlands in Georgia and Alabama had a very high, above cost of capital return for us given their maturities and good cash flows as well. So both of them competed very effectively, and we had the capital and we felt it was a good use of capital to do both transactions. As far as using our line of credit to fund the timber acquisition, David will comment on that.

David W. Lambert

Yes, we did debt finance that incremental acquisition. Our share repurchases, we paid for with pulling down cash off the balance sheet. But I think we have a strong balance sheet, and we have the flexibility to do some incremental acquisitions using our line of credit.

Rick R. Holley

And one thing you might appreciate, whether we pull it down from cash or off our line of credit, at any point in time, we don't have cash sitting on the balance sheet here of any size. We always keep the -- at the end of the quarter, we do. But clearly, today we would not. We would have had the cash balance to be near 0 and then the line of credit would be mostly undrawn.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And in regards to the Georgia-Pacific mills that were curtailed or that are being curtailed, do you guys have any agreements in place with either of those mills?

Rick R. Holley

We don't have any agreements anymore, but the mills are in Crossett, Arkansas and we do sell a couple hundred thousand tons a year to those mills. And we've diverted that volume to other customers or in some case, its sawlog volume, which in this marketplace we're just going to leave on the stump and not harvest at this time. But we've already made plans and diverted it elsewhere.

Operator

Our next question is from the line of Chip Dillon with Vertical Research.

Chip A. Dillon - Vertical Research Partners Inc.

First question is on the harvest. You mentioned you expect about 15.5 million tons this year. Could you just review for us based on your footprint with the Forestar land, et cetera, sort of where you see that progressing over time, if and as we get a recovery in housing and we get to something close to normal harvest levels?

David W. Lambert

Chip, I think we've articulated this in kind of our Investor Day. We see a strong harvest profile. We saw our harvest growing more in the 21 million ton range over time. We've been deferring harvest on a near-term basis. So as the economy improves, we will bring back a portion of our harvest that we've deferred. And so it's not just the growth of the harvest that we're going to have, but it's also the mix. Our mix today is leaning towards the pulpwood side. And so as we kind of fast forward, we're going to be bringing to market a more normal harvest mix with a higher percentage of sawlogs.

Chip A. Dillon - Vertical Research Partners Inc.

Of course, got you. Especially in the South, I would imagine.

David W. Lambert

Yes.

Rick R. Holley

Yes, the majority of the growth go from today, 15.5 million tons to 21 million tons over the next 10 years or so. The majority of that differential is coming in the South.

Chip A. Dillon - Vertical Research Partners Inc.

Got you. And then could you just tell us where you stand on the buyback authorization and if you -- I don't know if it's getting low, if you plan to go to the board to increase it?

Rick R. Holley

Yes, we had reauthorized a number of months ago at $200 million, and this was the first purchase off that $200 million authorization. So we still have $175 million available.

Chip A. Dillon - Vertical Research Partners Inc.

Okay. And then not to get too much in the weeds, but David, I noticed on the cash flow statement, there was a $35 million used in something called like-kind exchange funds, I guess, through the first half that reversed in the third quarter. And if you could just talk about -- a little bit about what that is, maybe those funds were used to pay for the Forestar lands. And are there any left, and should we see that be a factor on the cash flow statement in the near term going forward?

David W. Lambert

For tax planning, we use like-kind exchanges from time to time. And so they had been escrowed there at the second quarter, and that was a use of working capital. Those turned in the third quarter and were released. I don't think they were specifically applied to the Forestar just released from that. We did do kind of end up doing a like-kind exchange, but that did kind of reverse that.

Chip A. Dillon - Vertical Research Partners Inc.

And do those -- and I guess that exists as a...

David W. Lambert

We don't have any further 1031 accounts at this point in time with money being held in those.

Chip A. Dillon - Vertical Research Partners Inc.

Got you. And normally, when you do hold money in those, it's part of cash and cash equivalents, right?

David W. Lambert

No, it's not.

Chip A. Dillon - Vertical Research Partners Inc.

Okay. Where would it be?

David W. Lambert

It would show up on our balance sheet under account for like-kind exchanges. You should have been able to see that. I don't have the second quarter balance sheet right in front of me, but...

Operator

Your next question is from Steve Chercover with D.A. Davidson.

Steven Chercover - D.A. Davidson & Co., Research Division

Just one quick question, which kind of harkens back to your travels to China. Do you believe that they might ever be direct investors in U.S. timberlands kind of analogous to how they've bought into the oil sands in Canada and iron ore in Brazil?

Rick R. Holley

If I had to venture a guess, I would say they will be. They've made some timberland investments as you're probably aware in New Zealand, and they've looked at timberland investments elsewhere. Their country is about the same size as United States, and they don't have a lot of timberlands there. And they've thought about planting, but they have other uses for the land, that is, at least, good agricultural land that's growing food crops. But I could see a time where you see them making investments either direct or indirectly in timber assets here in North America.

Operator

Your next question is from Anthony Pettinari with Citi.

Anthony Pettinari - Citigroup Inc, Research Division

When we look at the Northern segment, can you say what percentage of your Northern Resources sales were exports in the quarter? And then maybe just following up on the China question in a different way, given the demand you're anticipating there, as we think about 2012, is there kind of a level you'd expect in terms of exports as a percentage of sales?

Rick R. Holley

Yes, as David said, there's probably going to be, and they're going to calculate right here while I'm answering this question, about 15% of our volume out of Oregon, out of our sales volume. And the market slowed a bit, but it's probably going to be 10% to 15% of our sales volume out of Oregon, again, in 2012. Now what percent of our revenue that is in the Northern Resources segment is...

David W. Lambert

Yes, in the third quarter, I can't tell if that's what your question was, the export sales for the segment in the third quarter accounted for about 4.5% of our sawlogs. So if you look at on a total basis, it would have been closer to 2% if you included the pulpwood.

Rick R. Holley

Of volume our revenue?

David W. Lambert

Of volume.

Anthony Pettinari - Citigroup Inc, Research Division

Okay. Okay. I can get the revenue from that. And then with regards to Southern sawlog prices, I mean, I guess the most recent Timber Mart-South prices haven't been this low since the '90s. Is this purely a function of weak housing demand and the weather that you referenced in the release? Or are you seeing anything else, maybe less disciplined selling behavior or distressed sellers or any kind of inventory effect that's maybe bringing more supply to market?

Rick R. Holley

No, it's really the weak market and the unusually dry weather. And I think if we saw some moisture, some wet, kind of an extended wet weather season here through the winter, I think you're going to see prices come up even though demand, the underlying demand still is not that good. So it's really weather and the marketplace, and there's no other factors, at least at this point in time, that we've seen.

Operator

Our next question is from Mark Weintraub with Buckingham Research.

Mark A. Weintraub - Buckingham Research Group, Inc.

Two quick questions. One, last quarter, I think you had noted you thought there might be $3 billion to $6 billion of capital on the sidelines looking to get invested in timberlands. Has that view changed at all? Does it directionally feel like it's going higher or lower? And second, just clarifying -- if you'd just answer that first, that would be great.

Rick R. Holley

I think it's -- I would say it's roughly the same. It's certainly not gotten any lower, and we continue to still have the same conversations with the same people still saying, "I've got $1 billion allocated to me. I have discretion over that kind of stuff." So I think the number is probably still in that range.

Mark A. Weintraub - Buckingham Research Group, Inc.

And then second, on the development side of things, obviously, it's been very quiet. Are you still going forward entitling properties, or is everything pretty much on hold?

Rick R. Holley

No, we're spending a lot of time on the entitlement front, particularly on some of the high-end markets like Florida, for instance. We have a lot of land near Gainesville, Florida where the University of Florida is. We have a project there that we're kind of working on, on kind of a very preliminary stage on. Right now, everybody's pretty open to let you come in and work on entitlements and that sort of thing, and so now is the time to do it. So we're still continuing to focus on, again, the higher value, more near-term opportunities.

Mark A. Weintraub - Buckingham Research Group, Inc.

And maybe the question is premature, but do you have a sense yet on the timeline of when you might be getting some of these properties entitled?

Rick R. Holley

I think some of them have been entitled at various stages. The real question is even though it's entitled, when might you see a joint venture or a development partner come in and start doing some activities. And I think it's fair to say until this economy gets going, is you're looking to 5 years minimum out before you see much of that activity.

Operator

Your next question is from George Staphos with Bank of America.

George L. Staphos - BofA Merrill Lynch, Research Division

Two quick questions maybe to finish up. In the North, if we do see a deceleration or decline in export sales from obviously very, very good levels and we see continued good trends within hardwood in the Lake States, in the north, should we expect therefore your margin or mix to change much? Would it be a mix shift to the lower -- to lower margins because of the trend?

Rick R. Holley

I think, George, it's fair to say with this geographic and species diversity, if we can, a lot of it depends on contractors and that sort of thing. We have markets that remain very, very good pricing wise like the Northern hardwoods markets or even the markets in Oregon. We will try to move more volume there, and we'll continue to be very stingy with volume in weaker markets like the South. But even the South, there's parts of the South, it's really different geographies. You got Georgia is different than Louisiana, which is different than Mississippi. So there's even spot markets in the South or local markets, which from time to time are pretty good. But we're going to kind of go in and out of the markets and really look for the value where we can find it.

George L. Staphos - BofA Merrill Lynch, Research Division

Fair point. You've always done that. I guess, maybe the last question to segue off of that, especially in the South, you've obviously been deferring sawlog harvest. It's the right thing to do. Does there come a time in the horizon, whether it's 3 years out or 5 years out, where you can no longer defer the harvest because, again, the logs have gotten too large from a processing or equipment handling standpoint? Or can you defer really indefinitely? How should we think about that?

Rick R. Holley

Yes, it's really the former not the latter. You can't -- we would not want to do this indefinitely because, especially in the South anymore, you can get a log to a size that there's nobody going to buy it because no one's cutting those large sawlogs anymore. So maybe it's a 3 to 5 years, but it's not -- you would not wait 10 years.

George L. Staphos - BofA Merrill Lynch, Research Division

So somewhere in the 3 to 5-year timeframe is what you think about then?

Rick R. Holley

Absolutely. You look at the harvest side and you look at the marketplace, if you don't see a turning, you go ahead and harvest the wood and get the land replanted and get it back in productivity. From a net present value standpoint, you want to do that anyway.

Operator

Your next question is from the line of Chip Dillon with Vertical Research.

Chip A. Dillon - Vertical Research Partners Inc.

Just update us on your acres. I know if you look at the yearend number and you subtract what you sold and you add what you've bought, I'm getting 6.675 million. Could you either verify or correct me on that?

Rick R. Holley

We'll calculate it right now.

Chip A. Dillon - Vertical Research Partners Inc.

And maybe while you're doing that, I just had one quick second question more for you, Rick, and that is obviously, you found the opportunity with Forestar and we've seen certainly a pickup in activity in transactions in the last quarter. It seems like if -- maybe I'm not correct about Forestar, but it seems like the other deals were all negotiations. And I find it interesting that you're seeing more for sale but you're not seeing auctions. I didn't know if you had any thought about that, and if you think you'll see more come up for sale that might be an opportunity for at least you all in the next 6 to 12 months.

Rick R. Holley

Yes, of the transactions, and there haven't been that many but the ones that had been in the marketplace, there's been 2 negotiated transactions. Clearly, ours with Forestar and Rayonier's with Mopus [ph]. And the others that have been in the marketplace, although they were more quietly done, were auctions because we are part of them. I mean, we've looked at a lot of these other transactions that had been undertaken, and others were still willing to pay more than we could pay to get a cost of capital return. So there were 5 transactions, 2 are negotiated, 3 were auctions. I think generally, people want to do an auction just because you get more people at the table, especially given all the capital in the marketplace today.

David W. Lambert

Chip, we were at 6.67 million acres at the end of the quarter.

Operator

Our final question is from the line of Mark Wilde with Deutsche Bank.

Mark Wilde - Deutsche Bank AG, Research Division

Yes, just a few cleanup questions. Rick, we've heard kind of off and on about maybe some export volumes starting to move up out of the Southeast South-Central part of the country. Have you seen any of that in any real significant way?

Rick R. Holley

Well, there is some volume, and we're certainly a part of that. And that volume, we hope, would go to China and India and even some to the Middle East to kind of Turkey and some of those countries there in log form. Historically, some of that's gone there in lumber form. But some of that's going out. It's a fairly small volume, but at least the infrastructure is starting to get built. There's a number of issues with selling yellow pine logs to China, but that's some things that we're working on.

Mark Wilde - Deutsche Bank AG, Research Division

Okay. Also, just curious up in the Lake States where there's a lot of coated paper capacity and other things that seems to be getting hit a little harder by kind of rationalization and closures. Is that having any real effect on the market? And what do you see if you look out 3 to 5 years?

Rick R. Holley

It's not having any effect on the market, but clearly, NewPage has filed for bankruptcy. But what we focus on is not who just owns the mills, which is important clearly, but the commodity and how -- and where these mills are from a capital standpoint, whether they're world-class mills or not. And Southeast is a very large customer, very well capitalized, in good shape in Maine. And the NewPage mill, whether they own it or somebody else owns it, that mill will operate. So we feel pretty good about the customer, meaning that the mill itself in that region of operating. But over time, some of these other areas of the world, which have lower cost, lower labor costs, regulatory cost, are going to be tough competitors for anybody in the paper business unless you're making containerboard or tissues.

Mark Wilde - Deutsche Bank AG, Research Division

Okay. And then the last question, you had just mentioned when you went over to China both kind of the inventory and then the tighter credit issues. And I wondered specifically with reference to credit whether you think that's having impacts on any of the brokers or the importers of logs or lumber over China right now, or just indirect through the real estate market.

Rick R. Holley

Yes, you hear about it, you read about it, but I didn't sense that. Again, we're working with some very large companies out of Japan that are working as intermediaries and also some larger Chinese companies there. So credit with them and letters of credit, all that stuff is not an issue whatsoever. But you do read a lot about the real estate bubble, and there were a lot of buildings up that I didn't see any furniture in. So I do think this a bit of a real estate bubble they're going to have to deal with in the near term. But again, the growth in their economy, their need for affordable housing is just unbelievable. And the government is going to pull the levers they need to pull to create that housing for their population. So I think you'll see a lot of growth there. You read about it, you hear it, you go see it. It is really quite amazing.

Thanks, everybody, and we'll talk to you in next quarter, and have a good holiday. Bye.

Operator

Thank you. This does conclude today's conference call. You may now disconnect.

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