Plum Creek Timber Company Inc. Q3 2007 Earnings Call Transcript

| About: Plum Creek (PCL)
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Plum Creek Timber Company Inc. (NYSE:PCL) Q3 2007 Earnings Call October 22, 2007 5:00 PM ET

Executives

John Hobbs - Director of IR

Rick R. Holley - President and CEO

David W. Lambert - Sr. VP and CFO

Analysts

Ross Gilardi - Merrill Lynch

Chip Dillon - Citigroup

Mark Weintraub - Buckingham Research

Steve Chercover - DA Davidson & Company

Christopher Chun - Deutsche Bank Securities

Peter Ruschmeier - Lehman Brothers

Operator

Good afternoon. My name is Robert, and I will be your conference operator today. At this time, I would like to welcome everyone to the Plum Creek's Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. [Operator Instructions].

Thank you. I would now like to turn the call over to Mr. John Hobbs, Plum Creek’s Director of Investor Relation Relations. Sir, you may begin your conference.

John Hobbs - Director of Investor Relations

Thank you, Robert. Good afternoon, ladies and gentlemen, and welcome to the third quarter 2007 conference call for Plum Creek. I am John Hobbs, Director 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 only. We ask that all other participants please follow up with any questions by calling me at 1-800-858-5347. I encourage you to visit our website at www.Plumcreek.com. There you will find our press release and supplemental financial statements for the third quarter of 2007.

Before we begin, I would like to take this time to remind everyone that certain of our statements today will be forward-looking involving known and unknown risks, uncertainties and other factors that may cause our actual results or performance to differ from those expressed or implied. These risks and factors are routinely detailed in our fillings with the Securities and Exchange Commission. Rick.

Rick R. Holley - President and Chief Executive Officer

Good afternoon. On October 4th we issued a press release indicating that our results for the third quarter would be approximately $0.11 per share below our earlier expectations. Three items impacted our results. First was the unusual active fire season in Western Montana. Wild fires damaged approximately 41,000 acres of our forests in the state, recorded a $4 million loss representing the book value of the trees that were damaged. As with all large fires, a portion of the timber within the perimeter of the fire is salvageable. Our salvage harvests have begun, and those trees that we will salvage will be taken to market as soon as we can get them there. We expect our salvage operations to be complete by next September.

The second item that impacted the quarter was the direct result of the extreme fire danger. We halted all timber operations for a period of about five weeks in Western Montana. As a result, our planned harvest in the northern segment was reduced by approximately 150,000 times which reduced our operating results, by an additional $4 million.

Finally, during the quarter, we had several land sales moved from the third quarter to the fourth quarter this year. This tiny difference accounted for the remainder of the change in our third quarter performance, as compared to our earlier expectations I shared with you.

David will review our third quarter results in more detail and discuss our outlook for the fourth quarter. Following our prepared remarks, we will open it up for your questions. David.

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

We reported net income of $0.34 per share for the third quarter. This includes the impact of a $4 million fire loss, which equates the $0.02 per share. Northern resources operating profit was $8 million, uncharacteristically low for the third quarter due to the severe fire season in Montana. The $4 million fire loss was recorded in this segment. As Rick mentioned, the fires also curtailed the harvesting activity in Western Montana. As a result, our saw log harvest increased only 30,000 times from the second quarter. Typically, we see a much larger seasonal increase in sawlog harvest from the second to the third quarter. Our average sawlog prices held at $76 per ton during the quarter.

In the Northeast and the Lake states hardwood sawlog markets have seen some weakness over the past nine months, particularly from mid-grade logs going into cabinetry and flooring applications. However, during the third quarter, hardwood sawlog prices in the Lake states stabilized and began to move up modestly. Wet weather and very low log inventories brought our hardwood sawlog customers back to the market. In the Northeast we continue to defer harvesting higher valued sawlogs, instead choosing to concentrate our harvest, our hardwood harvest on lower valued stands.

Demand from the pallet industry for these lower value trees remained very good. Late in the quarter, low log inventories began to put upward pressure on prices in the Northeast as customers sought to replenish inventory.

In Oregon, prices declined during the quarter and are now at levels reached late in 2006, and early 2007, as lumber mills in the region took significant downtime during the summer month. At the same time, log prices in Montana held steady. Overall we expect Northern sawlog prices to be down as much as $3 per ton during the fourth quarter, as weaker Oregon log prices are only partially offset by improving hardwood sawlog prices. We expect the Northern segment sawlog harvests to increase from low levels of the third quarter to approximately 1 million tons similar to last year's fourth quarter hire base. As expected, pulpwood prices in this segment declined $2 per ton as Northeast markets adjusted to lower demand in the region. Pulpwood prices in this segment are expected to hold firm at third quarter levels and harvest volume to be expected to be slightly lower than the third quarter’s level.

In our southern resources segment, third quarter operating profit was $39 million, down $2 million from the second quarter's performance, due primarily to a 4% reduction in our sawlog harvest, as we adjusted harvest levels on a market by market basis. Average prices for both sawlog and pulpwood held steady, moving along what we feel is the bottom of this market.

As always, each local timber market responds to its own unique supply and demand conditions. Within the south, western sawlog market prices have been more resilient than those in the south eastern markets. Lumber production curtailments have taken place throughout the south but a persistent drought in Florida, Georgia and the Carolinas has meant that timber accessibility is excellent and logs are readily available. So log prices have been greater pressure in the Southeast.

Over the course of the past year, as differences in the supply and demand balance in southern markets became more pronounced, we shifted our harvest, electing to harvest more in the western regions of the south and deferring harvests in the eastern regions. That said, overall sawlog prices were stable during the third quarter, and we expect them to remain stable during the fourth quarter. In some specific drought stricken markets, we believe there is an opportunity for meaningful price recovery when typical weather patterns return. As a result, in the fourth quarter, we plan to reduce sawlog harvest in these markets by approximately 200,000 tons from the third quarter levels.

Southern pulpwood markets continued to benefit from good demand from pulp and paper mills. Pulp and paper markets are relatively strong, and at the same time the supply of saw mill residuals, a source of raw materials for these mills have declined. Southern pulpwood markets were fairly stable over the past quarter with prices at attractive levels. In some spot markets, we have had the opportunity to capture values to rival those of small chip and sawlogs. We’ve responded to these markets over the past year by increasing our pulpwood harvest above the trend, to capture these attractive prices, particularly in the western regions of the South. Southern pulpwood markets are stable at attractive levels, and we expect our fourth quarter prices to be similar to the third quarter.

Turning to real estate, the real estate segment recorded revenue of $94 million and an operating profit of $61 million. As Rick mentioned earlier, several sales were delayed and are expected to close in the fourth quarter. As a result, our fourth sales are expected to be quite strong in excess of a $125 million.

We continue to be impressed with the per acre valuation we are receiving for these rural lands. They remain strong in all markets and represent attractive premiums to underlying timberland value. The majority of our revenues and cash flow from this segment are generated by the sale of un-entitled rural lands. During the third quarter the sale of these lands accounted for over 90% of the segments revenue. The sale of small non-strategic timberlands and conservation lands accounted for more than 33,000 acres sold during the quarter. We received $1,400 per acre for our small non-strategic lands, and more than $2,100 per acre for conservation lands. We sold 10, 400 acres of higher value recreation lands for nearly $3,700 per acre.

Development sales totaled 890 acres, and captured an average price of $8,400 per acre. The sales consisted of several retail lots sales and the sale of 748 acres of entitled but unimproved property in Southern Mississippi.

Our bias towards the low end of our 2007 real estate segment sales guidance range of $330 million to $350 million is another indirect impact of the fire season in Montana. A few buyers cited fire risk as consideration when postponing purchase decisions, and as a result we tempered our sales expectations in the region. Real estate land sales basis during the fourth quarter is projected to be approximately 25% of sales.

The manufacturing segment reported earnings of $2 million during the third quarter, similar to second quarter's result. Prices for all our product lines increased during the quarter but sales volumes were generally lower. We expect the segment to report breakeven results for the fourth quarter as higher raw material costs, notably residual wood fiber and resin costs, reduce MDF profits. Adding that all up, we expect to earn between $1.33 and $1.38 per share this year including the fire loss.

One item before I turn the call over to Rick for some summary comments. In looking at our income statement year-to-date SG&A expense is up $10 million over prior year. This is primarily due to fair value adjustments on stock-based incentive plans. 2007 expense was $8 million higher than in 2006. Rick.

Rick R. Holley - President and Chief Executive Officer

Plum Creek’s lands are assets with enduring value. We know these lands intimately and we understand their value to us, and to others. With the recent worries over credit availability it’s understandable that some are nervous about this aspect of our business. This isn’t to say that we haven’t lost sales. We have. But they’ve been limited and they haven’t had a significant impact on our ability to execute our plans in this segment.

Rural lands continue to be attractive and affordable for the cash recreation buyer. As we’ve grown in this segment we’ve been able to increase the number and diversity of properties we have on the market. This provides more opportunity for interested buyers to locate a property that matches their budget criteria and personal use goals. These buyers are the bread and butter of our real estate segment, and we continue to see interest from them for a wide variety of properties across our ownership.

Plum Creek has a tremendous asset base that spans 18 states. This distinguishing characteristic, our geographic diversity serves us well in the timber markets. But it also serves us well in the rural land market. As we’ve mentioned in our last call, we’re constantly adjusting to local market conditions. While sales in some regions held steady over the last year, other markets have showed some surprising strength. Mississippi would be one of those markets.

We continue to feel good about our long-term prospects for value creation in this segment. Our business plans are not dependent on the success of one market or one buyer demographic. We feel good about our ability to continue to deliver excellent results from this segment of our business in the coming year and beyond. We have a wide variety of properties that appeal to a wide variety of buyers in attractive rural land locations across the nation. Property values have been resilient and they continue to appreciate over time.

Capital allocation remains job one at Plum Creek. We constantly review all our options for increasing the per share value of the company. The large scale auction market for timberlands is becoming much more efficient market over the past decade. This made it increasingly difficult to find acquisitions that provide the opportunity to deliver excess returns to our shareholders. However, we continue to evaluate everything that comes on the market.

Over the past few years, we've found that there are still opportunities to acquire well-managed, productive lands at attractive values. It’s just more difficult than it used to be. During the third quarter, we found one such opportunity, and purchased a 33,000 acre property through a negotiated transaction with a private party. The purchase price was $80 million, or about $ 2400 per acre for attractive highly productive timberlands that fit nicely with our current ownership in the Coastal Oregon markets.

During the quarter we also found our own stock very attractively priced and repurchased approximately $91 million of stock at an average price of $31.94 per share. Our repurchase authorization remains in place and we have $20 million remaining in the current authorization.

Over the past 18 months, we repurchased more than $465 million or 12 million shares of the company's common stock, increasingly our shareholders' proportionate interest in the company by more than 6.5%. We will continue to review all our capital allocation alternatives including the share repurchase with one goal in mind of growing the per share value of the company.

Robert, we'll take questions now.

Question and Answer

Operator

[Operator Instructions].

Your first question comes from Gil Gleason [ph] with UBS.

Unidentified Analyst

Hi, thank you. I guess just looking at the landfill market, you're saying obviously, you're still confident on the rural market. Just one thing, looking at the margins in the quarter, they were a little bit higher than we would have expected. Was there anything going on with, obviously outside of the development property, to explain that particularly low basis [ph]?

Rick R. Holley - President and Chief Executive Officer

No, I think we just had a stronger quarter overall than what we had seen for the prior two quarters. And we are still getting good values on the type of property, nothing particular

Unidentified Analyst

Okay. And just from the forest fire loss in the quarter, just a few questions there.

Can you give any sense of what kind of a normal annual forest fire loss might be. Given how diverse you are, I’m sure you face some every year.

Rick R. Holley - President and Chief Executive Officer

Yes, this is Rick Holley, if you go back 10 years we have really had two years where it was anything more than a few 100 thousand dollars. And that was this year of course $4 million and also three years ago, in Montana as well, which was about $4 million. We had some fires in the Southeastern United States this year and the loss there was diminimus.

Unidentified Analyst

Okay. And I just to make sure I understood correctly you indicated some salvage operations you could recoup at least a little bit of the $4 million

Rick R. Holley - President and Chief Executive Officer

Yes, I mean the $4 million is our best guess at this time and our forest has been on the ground and we will go out with contractors and salvage as much of this wood, as quickly as we can. Oftentimes, trees when they get burned, the bark gets burned, and the interior, even though the tree is dead is still fine. We need to get those logs to market, and you will still get a very good value for them

Unidentified Analyst

Okay. So would you expect the salvage to be material or not really?

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

The $4 million estimate takes into account our estimate of the amount of wood that we will salvage.

Unidentified Analyst

Okay. And then I guess, just broadly speaking, more about the markets given the continued problems in the housing market in terms of the demand for your product, just any update on what your view is, what you are hearing from your customers and what you are seeing? Obviously you are deferring some harvest. But what you are seeing in terms of the competitors, both private and some of them are larger holders?

Rick R. Holley - President and Chief Executive Officer

Well, I think what we hear certainly from our customers is business, and those are lumber customers, business conditions are very difficult due to housing of course and due to continued large supply of wood coming out of Canada and the United States. And I am sure a lot of our customers are operating below cash breakeven. So they are having difficult times. That’s why I think lumber prices, when they get down into the $260, $270 or $280 range, they are kind of balancing along the bottom and that’s kind of where they are today. But it's tough out there.

Now the good thing for Plum Creek is just half of what we sell every year goes to our paper customers, and they are all enjoying reasonably good markets today and their businesses are doing much better. And what really helps that is the fact that we've seen saw mill curtailments and therefore less chips in the market, and therefore many of our paper customers have to buy more pulpwood to make up for the chips they can't buy in the open markets. So on one hand, some of our customers are struggling, on the other hand, some of them are doing quite well.

Unidentified Analyst

Okay, thank you.

Operator

Your next question comes from the line of Ross Gilardi with Merrill Lynch.

Ross Gilardi - Merrill Lynch

Good afternoon. Thank you. Just on the topic of rural land again, Rick, you had mentioned that you had seen a little bit softness in certain areas. Is that in any particular state or part of the country? And is it actually taking any longer for deals to close than it was before?

Rick R. Holley - President and Chief Executive Officer

We’ve seen for larger deals, where they were not cash buyers, clearly even in this last quarter, a couple deals fell out of that because people couldn’t get credit. So credit availability has affected larger transactions. The bread and butter of what we do are in the 20s and 40s and 80s and that sort of thing, our cash buyers has not been as issue.

I think as we said last quarter, the Georgia market we were concerned about because a lot of the international paper lands coming back on the market. And in parts of Georgia, it's still very good. In other parts, it tends to be lot of supply we pulled out of the market. Florida, for sales of 40s and 80s is fine, but the Florida development market is right now dead, and probably will be for a couple years. So if you look at our joint venture projects, we are going to get those projects entitled, get them ready, but we are not going to move in any dirt, our partner aren’t going to move any dirt until that market improves, which can be a couple of years away. So, but most of the other markets, Mississippi has been a very positive surprise. Montana has done reasonably well, although the fires and all the smoke they had summer, kind of pushed the people out of the market. So we’ll keep an eye on that one. But overall, it's still pretty good.

Ross Gilardi - Merrill Lynch

And any thoughts on 2008 just directionally versus 2007 in the real estate segment?

Rick R. Holley - President and Chief Executive Officer

Yes, I wouldn’t expect to see the guidance that we’ve given for 2007 I would expect our guidance for 2008 to be in similar area.

Ross Gilardi - Merrill Lynch

Okay. Thank you very much

Operator

Your next question comes from the line of Chip Dillon with Citigroup.

Chip Dillon - Citigroup

Yes, good afternoon. I think I miss the Southern pulpwood harvest plans in the fourth quarter versus the third?

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

Pulpwood volume in the fourth quarter should be stable with third quarter levels roughly.

Chip Dillon - Citigroup

Okay. And as you look at the, I guess as you start to look at numbers for next year, do you have any kind of preliminary look in terms kind of where you think the range of the real estate activity will be or at least some gauge as to how you think it will be versus this year?

Rick R. Holley - President and Chief Executive Officer

Well, Ross just asked a similar question, Chip, and we're going to give earnings guidance of course on our call in late January or early February. But at this time, given the markets that we’re in and how we see the business, and the buyers, and prices, we have no reason to believe that we shouldn’t see 2008 real estate sales level similar to 2007.

Chip Dillon - Citigroup

Okay. So I was off for a second when you said that. And would the mix probably change a little bit given the difficulty and with the development business these days?

Rick R. Holley - President and Chief Executive Officer

No, I mean, the development lands, which are not big part of our revenue in any given quarter so far I think you’ll still see some each quarter and that’s our internal development business where we are doing small projects in different rural parts in the United States. Where the development business is very difficult right now will be in northern Florida, coastal Florida, kind of coastal Georgia just because those markets got lot of products not moving right now. So, I think that will slow down and we are prepared for that. And again we will get those properties entitled and wait. But selling 40s and 80s and those kind of tracks around the country, even in Florida, that’s still a very good business and some prices are holding up very, very well

Chip Dillon - Citigroup

It's interesting you have got a competitor that has a lot more land in that area, Florida and Georgia, that you mentioned. Let me ask you just, you mentioned the basis of the real estate would be about 25% of the revenue in the fourth quarter. And again, I would imagine the sort of cash component of the cost that’s still running about what, 5% to 10% of the revenue dollar or top of that.

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

Yes, I mean we have some commission costs, in our employee costs and such. The basis is a non-cash charge.

Chip Dillon - Citigroup

Got you, I got you. And then I guess, just lastly, just philosophically, as we look at next year, if the demand for both trees, and it's hard to see this on the pulpwood side, but let's see the sawlog side, it may be a little worse than you expect and even some of the real estate activity, it would seem to make sense that you would just hold off, given that the assets are there and would be probably a lot more valuable down the road. If you did that, would you be comfortable, if you had to, in essence, borrow to pay the dividend given that you seem to be quite under leveraged.

Rick R. Holley - President and Chief Executive Officer

No, I don’t think… first of all, even if we brought harvest down further and again we brought them down in this year, as we deferred harvest, and just for using your line of logic, if we see weaker prices in certain markets, we will the defer more timber harvest. I mean, this is about value. But we still would generate enough cash flow to cover the dividend from operations, and would never see an instance where we should have to borrow to pay the dividend.

Unidentified Analyst

And then I guess, the last one is when you look at the Canadian dollar at $1.03 or $1.04, you can look at where, I mean forget the US dollar price you look at the lower prices in their terms, and given the huge share of our market, do you anticipate maybe the opposite actually seeing the sawlog demand down here go up, as it just would seem impossible for them up there to be able to sort of, to be cash breakeven under any scenario or is that not an accurate way to view the world for next six months or so?

Rick R. Holley - President and Chief Executive Officer

Well, Chip, I can't speak for the Canadian industry, but I, and we have been surprised, given low levels of prices for lumber that more production hasn’t gone offline.

Chip Dillon - Citigroup

And that would impact--?

Rick R. Holley - President and Chief Executive Officer

So the production level stayed up high.

Chip Dillon - Citigroup

And that would mainly impact you on the Northwest I would think, if they do start to come offline.

Rick R. Holley - President and Chief Executive Officer

Well, it will impact us possibly in the South too because a lot of our Southern customers compete with Canadian manufacturers as well.

Chip Dillon - Citigroup

And do you see there costs of… I believe the way most of those licenses work, there’s sort of a lag that as lumber goes down, that their price of logs go down and maybe that’s one reason they haven’t come off yet?

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

I mean that’s true that they adjust a little bit over time. We just think that they’re very sensitive to maintaining production levels and we’ll have to see if they rationalize their production and bring some efficiency to the market.

Chip Dillon - Citigroup

Okay, my last question and I really appreciate your forbearance. What is your latest read sort of on the pine beetle situation and I believe… could you just verify is it still mainly confined to BC and maybe, Alberta? And do you sort of sense there’s a crossover point out there and is it two years out, five years out where they’re going to go from … you’re going to see drastic productions in harvests up there because they will have kind of gotten past the over harvesting phase?

Rick R. Holley - President and Chief Executive Officer

Yes, from what we understand it’s over 1 million acres and it is slowly going from BC to Alberta as well in the forest there. And it’s having obviously much more significant impact on the industry than we probably would have thought a year ago. And the quality of the wood is deteriorating much faster than people expected both in check of the wood that comes out of there and also blue stains. So, it could impact the fiber supply situation fairly dramatically over the next five years, based on what we here from our friends up north.

Chip Dillon - Citigroup

Got you, thanks very much.

Operator

Your next question comes from the line of Mark Weintraub with Buckingham Research.

Mark Weintraub - Buckingham Research

Back last year in November, when we were talking about the development JVs, you talked about the goals of selling 5,000 plus acres per year starting in ’08. Does that get pushed back? I assume in kind of the flat type of scenario with similar mix, you’re expecting to push that back a little bit and realize the values a little later as opposed to sooner. Is that fair or does the mix include that?

Rick R. Holley - President and Chief Executive Officer

Yes, I think that’s fair, Mark. A lot of those joint ventures were in Georgia and Florida, there’s some others around the country in other places, but I think for planning purposes we’ll go ahead and get all those projects entitled. Where we don’t have joint venture partners, we’ll sign them up over the next year and get the properties ready. And as those markets come back in a couple of years we’ll be ready to go.

Mark Weintraub - Buckingham Research

And how much in the way of [inaudible] property you have at this juncture?

Unidentified Company Representative

Just one second [inaudible]

Mark Weintraub - Buckingham Research

And then as a follow-up, presumably as you mentioned you are going to continue to go forward and follow through on entitling properties pretty much the same way as you would under… would you… do you change your strategy in the weaker market conditions or do you go forward on the entitlements and you want to be there ready when things get better and if so what type of the [inaudible] entitlement, do you think is realistic to achieve in the next year or two years or whatever timeframe is relevant?

Unidentified Company Representative

We’ll get that number for [inaudible] between internal development and joint venture but we think it was a great opportunity as these markets have slowed. There is lot of entitlement capacity available and perhaps even a [inaudible] some of jurisdictions to entitle little quicker than it might otherwise. So we are going to put the [inaudible] around the country and [inaudible] new projects and titles as we can and therefore when the market does improve, we will be ready to go. You know as everybody knows entitlement such as time consuming process in any case, and somebody’s project would have taken this as two years, may be to entitle it [inaudible] sooner and be ready to go.

Mark Weintraub - Buckingham Research

And how at all [inaudible] gets the fact that your [inaudible] process on whether it would be bringing certain development belonging eternally versus [inaudible]; The environment out there make you more bias one way or the other?

Unidentified Company Representative

I don’t think so. You might see some internal development projects which is the one we mentioned today in the call [inaudible] and we sold the project unimproved and so you may see more of that happening, where you see somebody else wants to [inaudible] pairs of attractive price of entitled property and we will move it in and then I take it through a partner even ourselves at the development stage.

Mark Weintraub - Buckingham Research

Okay and then lastly. I assume there will be sales of non-core lands. Did that really expectations you laid out, that still holds pretty much, that hasn’t, did not affect it one at a 1000 [inaudible]?

Unidentified Company Representative

You know we got 2000 acres or so and ideas because it is non-strategic because the movement is quick because he can’t but as you can see in this quarter, we continue to get very attractive prices for [inaudible]. The average is 1400 acres in the third quarter. [inaudible] of going small and being patient [inaudible]

Mark Weintraub - Buckingham Research

Okay. Thank you.

Unidentified Company Representative

All right, we have about 22 projects that we were working on now but entitlement and they have about 7000 acres entitle.

Mark Weintraub - Buckingham Research

Great. Thank you.

Unidentified Company Representative

And two of our joint venture projects are fully entitled as well, one in Florida, one in Georgia.

Operator

Your next question comes from the line of Steve Chercover with DA Davidson.

Steve Chercover - DA Davidson & Company

Thanks, good afternoon. The first question, if I am not mistaken this is probably your first land acquisition in two years, the deal in Oregon. At what threshold do you think you've got to disclose it in the quarter?

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

We did a transaction of comparable side at the end of the fourth quarter of last quarter, and we've done some $10 million transactions as well. So we are kind of sprinkling them in, trying to focus on the negotiated deals where we can add value in this type of the market.

Rick R. Holley - President and Chief Executive Officer

Our threshold for disclosure, Steve, we feel is a $100 million in value.

Steve Chercover - DA Davidson & Company

Got you. And do you expect there is any HBU. You said that it is on the coast, or complementary to your coastal--?

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

Oregon has a lot of restrictions around developing lands and such, and this is highly productive land, it’s kind of similar site to our high quality coastal lands but it’s younger, it doesn’t have the same stockiness as our existing lands. But we think we got a very attractive value here.

Steve Chercover - DA Davidson & Company

Okay. And following up on Chip's questions, the beetle infestation, Rick did a good job describing the impact on the woods coming from Canada, have you seen any infestation in your land or even adjacent national forest land?

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

No.

Steve Chercover - DA Davidson & Company

None whatsoever, okay. And final question, the pending taxes on Russian log exports, have you seen any incremental values on your log exports, are you ramping up to take advantage of that situation?

Rick R. Holley - President and Chief Executive Officer

Well, we are not ramping up, but we do sell some of our logs out of Oregon and a little bit out of Washington that may find a way into Japan or China. And what we have seen since the Russian tax went in place is more interest from the Far East in buying logs in this market particularly Oregon. I suspect large sellers like Weyerhaeuser are probably seeing a positive impact from that.

Steve Chercover - DA Davidson & Company

So it’s non material to you yet?

Rick R. Holley - President and Chief Executive Officer

Not yet. But the key, Steve, is even if you don’t sell lot of logs in the export markets, we sell lot of logs in the local domestic market, and to the extent, some of that supply goes offshore, it just increases the value of what we're selling in the local markets. So we like that.

Steve Chercover - DA Davidson & Company

Understood. So it is actually tightening things up, so to speak.

Rick R. Holley - President and Chief Executive Officer

Yes, certainly when lumber markets get better, it'll even be tighter.

Steve Chercover - DA Davidson & Company

Great, thanks very much.

Operator

Your next question comes from the line of Christopher Chun with Deutsche Bank.

Christopher Chun - Deutsche Bank Securities

Yes, thanks. Were all of 900 acres in the development category down in Mississippi?

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

No, there was a couple tracks that were entitled, but unimproved that we sold. Then we had about 17 retail log sales that were Montana and Wisconsin. The acres in Mississippi was about 748 of the 890 acres and another 150 acres that were sold on a retail basis.

Christopher Chun - Deutsche Bank Securities

Right. Can you give us a break down of what the per acre price was on the retail lots versus the land in Mississippi

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

The land in Mississippi, the average for the group was 840 acres and the land on the Mississippi was about 7300, so it was higher for the retail lots.

Christopher Chun - Deutsche Bank Securities

Right, and can you tell us a little more about exactly where in Mississippi this was

Rick R. Holley - President and Chief Executive Officer

Johannesburg [ph], in central, kind of in the south central Mississippi.

Christopher Chun - Deutsche Bank Securities

Okay. And then what about on the recreational land. You continue to get a very nice price in my opinion and then you were able to ramp up the volume a little bit as well. Can you talk a little bit about what parts of the country the sales were.

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

I mean they were throughout the nation. And I think that’s the benefit of having the diversity. We are seeing strong markets in the Gulf South. Those markets have actually improved this year relative to last year. And we are still seeing the pace of sales in areas like the Southeast, on par with last year as far as total acreage sold. And so I think we have built our engine and it is kind of delivering in all of these markets, giving us this growth.

Christopher Chun - Deutsche Bank Securities

Right, okay. And then on the Oregon acquisition, can you talk about what tree species that land is stocked with predominantly?

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

It is predominantly Douglas fir with a little bit of white wood but it's all soft wood predominantly.

Christopher Chun - Deutsche Bank Securities

Okay. And then getting back to the fire damage in Montana, $4 million on 40,000 acres only works about to a $100 per acre. But I think you said that that was just the book value of the damage.

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

Yes.

Christopher Chun - Deutsche Bank Securities

Would it be materially different to look at it from a market value perspective in terms of how much the damage was?

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

The economic damage would be greater. It would be about $15 million

Christopher Chun - Deutsche Bank Securities

Okay. And then would that number include the mitigation through prospective salvage operations

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

Yes

Christopher Chun - Deutsche Bank Securities

Okay. And then in terms of CapEx, can you talk about, not counting acquisitions of course, what you feel like you need on annual bases?

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

I think we spend maybe about $90 million a year, about half of it discretionary.

Rick R. Holley - President and Chief Executive Officer

This year through three quarters we're at $60 million and our guesstimate for the year is about $90 million, of course.

Christopher Chun - Deutsche Bank Securities

Okay. And Rick, you talked about how you really repurchased a substantial amount of stock recently. Was it at 6.5% outstanding over the last year?

Rick R. Holley - President and Chief Executive Officer

That’s correct.

Christopher Chun - Deutsche Bank Securities

Can you talk about where you feel like you are in that process, are you pretty much finished, or do you feel like you have more to go?

Rick R. Holley - President and Chief Executive Officer

Well, as we look at reinvestment opportunities, we found the cheapest way to buy trees and land assets is to buy Plum Creek stock and we like it, even at the current level. So, we hope to continue to buy stock back, if that’s an attractive use of our capital.

Christopher Chun - Deutsche Bank Securities

Okay, great. Thanks a lot, guys.

Operator

Your next question comes from the line Peter Ruschmeier with Lehman Brothers

Peter Ruschmeier - Lehman Brothers

Thanks, good afternoon. Couple of questions on the Oregon acquisition, can you comment on the stocking levels of those lands, perhaps relative to what you have in Oregon.

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

Yes, as I indicated, they are excellent site lands, just like our existing ownership and the stocking levels are stronger… sorry… it’s a little bit weaker stock than our existing, just because it's a younger age and that reflects some of the prices. You have heard a lot of strong values in Oregon in the $3,500, $4,000 an acre and the $2,400 an acre price reflects the stocking being a little bit lower than our ownership at this point.

Peter Ruschmeier - Lehman Brothers

Okay. And Rick, you mentioned that large track sales, being more efficient, of late, you certainly had a lot of practice I guess with those given the transactions over the last five or 10 years. And I am curious, if you can comment, with lot of C corps having resold large tracks of timber, millions of acres, how you see this unfolding going forward because in peers, we no longer have those types of acres for sale. Does this provide an opportunity for you to accelerate some of your non-strategic sales?

Rick R. Holley - President and Chief Executive Officer

We think so, Pete. As we've got lot of those non-strategic assets on the market today, we are going to keep looking at opportunities to raise capital through sale of less strategic assets for Plum Creek and redeploying that capital and do assets like we just bought in Oregon our buying our stock back. And there is not a lot of large C corps with timberland holdings left. Those lands have all moved to tMOs and others and they have like 10 years or 15 year holes and those lands will come back in the market at certain points in time. And we have got a good balance sheet for right assets. So we hope to continue to be a buyer of accretive timberlands. We like the asset a lot obviously.

Peter Ruschmeier - Lehman Brothers

Okay, and given that the tMOs have stepped in since they've mostly been fairly recently in the last five or six years, do you expect a churn or do you not expect a churn of those new buyers. In other words, do you expect them be rapid flippers do you expect them to stick to historic trend of holding out for 10 or 15 years.

Rick R. Holley - President and Chief Executive Officer

I think, they are going to stick to the historic trends. They are not flippers, but some of these large tMOs bought some of these assets eight and ten years ago as well. And from time to time we do see them sell some of this back into the market. So, we look at every deal that comes in the market and we have plans that something's accretive to shareholder value, we would be all over it.

Peter Ruschmeier - Lehman Brothers

Okay, sounds good. Any update, Rick, I'm curious if you could share what you may be taking up in Washington on timber tax bill. Is there anything timely on that? Are there any sticking points? Is there anything we should be thinking about, as it relate to timber tax bill. It seems to be this issue that’s just constantly in the back burner.

Rick R. Holley - President and Chief Executive Officer

Well, the timber tax bill, and it was called TREE, it may be called something else now is, it's got some really REIT friendly stuff in it, so we're certainly interested in its passage. Like anything, in the Congress that doesn’t have any money, I think getting any kind of tax relief is going to be challenging. But, I think this has better than 50-50 chance of getting through the Congress before the end of the year.

Peter Ruschmeier - Lehman Brothers

Okay. And just lastly, if I could, you have always done a good job exploring other revenue opportunities, whether it be mineral rights, aggregates other types of revenue streams. Can you elaborate on what you are seeing in those areas, and whether there's anything coming down, down the road that you see an opportunity to monetize ore act on?

Rick R. Holley - President and Chief Executive Officer

Yes you know we have talk about it before I think you know the real huge opportunity for land over channels $10 billion is going to be you know miles [inaudible] so you [inaudible] and there are some subtainent [ph] congress [ph] right now some taxes percentage to make how that happened so you know you look out three to five years in future very well there is going to be a lot more opportunity and the use of biomass for energy production be wood power be at burning and generation plans over to make so [inaudible] and you know that very well put some upward price pressure on poak [ph] in sorting about 9 million to 10 million ton of poak [ph] wood year that could think for us. Other bio fuel spinning over timeline .

Unidentified analyst

[inaudible] great , thanks very much.

Operator

You next question comes form line, George Staphos from Bank Of America

George Staphos - Bank Of America

Thanks everyone. Good afternoon. Maybe just going on Chip’s question on cellulosic ethanol, has your view change at all on what the incremental investment might be for trends do effect the cellulosic over next three to five years, and whether you would need any kind of partner or would have been largely just commercializing which you’re already doing today on the forest fuel guys?

Unidentified Company Speaker

Yes, I mean, the idea George (ph) is find the ways to efficiently accumulate biofuels, basically biomass of the forestry reform we generate about 5 million tons of this stuff a year which currently gets we’re seeing a value. So we are working with contractors another supplying way to do that, but we are not going to make a direct investment in this business, we are going to participate is get together with other who will build these cellulosic ethanol plants or wood power plants, hopefully in our backyard and provide fiber to them long-term basis, so that they have a source of fuel raw material and therefore sanitize and we build these plants. So hope to participate and just hire raw material ways.

Unidentified Analyst

Okay. And what do you think in next (inaudible) of course on that other than relative to the discussion moving from mid to longer term three to five year opportunity to something along the line you do have a partner where you’re seeing more facility is being built in your backyard, what else you’ll be looking for?

Unidentified Company Speaker

Well, we spent a lot of time with potential partner in which when we come back on November 14, we’ll talk more about in New York. But importantly there is in farm bill right now in Congress there is a senate for cellulosic ethanol on so much a gallon basis and I think that’s an important thing, because this people who build these plants there are like a $150 million a copy.

Unidentified Analyst

Yes.

Unidentified Company Speaker

And we really need those kind of Federal and Safe senate at least on a temporary basis to kind get going and then… and help develop that market which is pretty mature, ethanol in immature market generally, I mean, we are hear about corn but it’s still very small, small markets. So I think it’s going to take some of that for the U.S. government to jump and started and we are in everyone’s face it’s in this business.

Unidentified Analyst

Okay. Getting in call, I’ll ask my last question in the sequence, first of realizing there have been some obvious headwinds in terms of real estate sales and we’ve had a couple of quarters now we’re in timing factor that have delayed the revenues that you would have expected, what level of confidence do you have in fact on the fourth quarter revenue of a $125 million? And then secondly, what effect if any did you see on demand from the BC (ph) strike which obviously just concluded in the quarter? Thanks guys.

Unidentified Company Speaker

George we’ve looked our book of business for the fourth quarter and we are pretty confident in what we see here, I mean, there are always could be a sales left for two and some else come in but we feel good about the fourth quarter real estate. But we didn’t see a material impact from the BC’s strike from pricing and such I know its good look and like, it’s over but…

Unidentified Company Representative

And we didn’t see a material impact from the B.C. strike from pricing and such and I know it looks like it’s over but I don’t really see incremental supply pressures from that being resolved.

Mark

Alright, one last quick one; I know going into the quarter you thought Northern [inaudible] price would be off a little bit, it ended up being stable. Was that just a function of reduced harvesting and reduced supply as a result?

Rick R. Holley – President & Chief Executive Officer

Largely, just trying to manage this Mark. The hardwood log prices started bottoming out and firming in the third quarter and that helped.

Mark

Okay thanks guys.

Operator

Your next question comes from the line of Tyler Hold with [inaudible].

Tyler Holt

Hi and all of my questions have been answered thank you.

Operator

Your next question comes from [technical problem]. Okay your next question comes from the line of [inaudible].

Laura

Hi, Rick.

Rick R. Holley – President & Chief Executive Officer

Hi, Laura.

Laura

Rick what’s the status of [inaudible] lake up in Maine? And are there any other projects that have kind of been in suspension like that and have you seen any more properties come on the market even these small properties that you’ve been acquisitioning?

Rick R. Holley – President & Chief Executive Officer

Well the status of the [inaudible] lake project in Maine is… is we hope to have our hearings in Maine with the land use regulatory commission in December. So, 60 days from now. And we presume that if those go well that the project likely will be approved in the spring of ’08. You know it’s been delayed a little longer than we like but you know I think we have a better product than we had before and we’ve had a number of potential development partners looking at some of this and you know there is a fair amount of excitement around Maine generally so, I think that’s positive.

There is no other properties that we have that are being suspended. I mean we have some joint venture properties in Florida that we’re very excited about. Some of our gems and that market is just going to be off for a couple of years and we’ll get them entitled and ready to go and we’ll take it into market at the proper time but you know they’re not being suspended.

You know one of the things we’re doing is looking around the country at opportunities because we do have good capital and we understand the market place well. Whether there is an opportunity for us to participate in smaller land acquisitions that have some very high values that we can buy at you know $0.50 and $1.00 and that sort of thing you know. It something we will continue to look at given our market presence across the nation.

Laura

Okay, thank you.

Rick R. Holley – President & Chief Executive Officer

Thank you, Laura.

Operator

We have a follow up question from the line of Chip Dillon with Citi.

Chip Dillon - Citigroup

Thank you, I was just wondering was there any reason if you… let’s say there’s a privately owned timber land track for sale that is owned inside of a [inaudible] corporation, I guess-- You know privately there must be those out there is there any reason that you can’t as a rate buy that and maintain your tax status.

Unidentified Office Representative.

No, there is no reason whatsoever, in fact many of our private negotiated transactions were from people in [inaudible] and [inaudible] that sought of things so that’s not an issue whatsoever.

Unidentified Office Representative.

And it still can be stock [inaudible] to them ?

Unidentified Office Representative.

Yes.

Unidentified Office Representative.

Okay and then on the other hand is there any reason, I mean this is a purely theoretical , but is there any reason why a rate could not participate in a reverse more stress if you would have agreed with a partner with a larger retainity?

Unidentified Office Representative.

No, yeah, the only requirement, the need is to be smaller than whatever they are acquiring like we were in the case of the timberland merger in 2001 but there is no reason why they couldn’t do that.

Unidentified Office Representative.

Got you. Thanks.

Operator

And again my dear gentleman if you would like to ask a question, it’s star one on your telephone key pad. Your next question comes from Richard Telly with APM [inaudible].

Richard

I just have a quick question, could you just clarify on the selling resources, I think you mentioned that you are going reduce your [inaudible] log harvest by 200000, is that in that in the South east or is that going to be made up I guess in the western part of South where things are good or should we just expect overall volumes and the southern resource be down.

Unidentified Office Representative.

Overall volumes in the south will be down but that’s been our biased issue, we have seen stronger values in the south west so if we shift it a higher proportion of our southern harvest where the markets are stronger.

Richard

But you are not going to ramp it up to the extent off set any production in the eastern part?

Unidentified Office Representative.

Now we are going to see a net reduction of 200 tons with most of it coming from the South East.

Richard.

Okay, that’s all I needed.

Unidentified Office Representative.

Well thank you everyone and we hop to see you in New York on November 14th and we will certainly talk every body next quarter. Thanks for your time today.

Operator.

And that concludes today’s Plum Creeks third quarter earnings conference call. You may now disconnect.

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