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Potlatchdeltic Corp
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Good morning. My name is Lindsey, and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic Fourth Quarter 2018 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. Jerry Richards, Vice President and Chief Financial Officer, for opening remarks. Sir, you may begin.
Thank you, Lindsey, and good morning to everyone on the call. Welcome to PotlatchDeltic's investor call and webcast covering our fourth quarter 2018 earnings. With me in the room are Mike Covey, Chairman and Chief Executive Officer; and Eric Cremers, President and Chief Operating Officer.
This call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides, and in our filings with the SEC concerning the risks associated with these forward-looking statements. Also, please note that a reconciliation of non-GAAP measures can be found on our Web site at www.potlatchdeltic.com.
I'll now turn the call over to Mike for some comments, and then I will cover our fourth quarter results and our outlook.
Thank you, Jerry, and good morning. As the timber REIT with the most leverage-to-lumber prices, we certainly felt the impact of the 30% to 50% decline in lumber prices, since the June 2018 peak. Fourth results in our wood products and Idaho resource businesses fell sequentially, however the overall business segment diversity and our wide geographic footprint were helpful in Q4, and we expect that they will provide stable and predictable results in 2019. Our real estate segment executed some key HBU and commercial transactions in Arkansas, and the southern resource business is seeing improved log prices across the south due in part to an unusually wet winter.
As we look at 2019, we remain optimistic that lumber prices will continue a slow, steady increase as the building season begins in earnest later in Q1. Lumber customers tell us that their inventories are low, and they remain cautious about buying. We expect housing starts will be modestly higher in 2019, while repair and remodel markets remain strong as measured by our business with the big-box stores. While we've seen a recent rally in pulpwood prices in the south, we expect those to moderate as winter weather ends. We do not anticipate a meaningful increase in southern yellow pine sawlog prices; although there are isolated markets in each state where we operate that are tightening somewhat, principally due to new mill startups.
We expect to close on the previously announced sale of our Eldorado Arkansas MDF business to Roseburg Forest Products later this month. After paying taxes and assigning $29 million of revenue bonds, net proceeds are estimated to be approximately $43 million. We started 2019 with $77 million in cash. One of our key initiatives in 2018 was reducing debt, our pension liability, and interest expense. The last leg of those initiatives was completed last week with the refinancing of $150 million of debt that was set to mature in November of this year. This refinancing reduces our annual interest expense run rate by over $5 million, and Jerry will provide more details on this initiative in his comments.
After effectively raising the dividend again in December 2018 to an annual payout of $108 million or $1.60 per share, we are comfortable with our dividend payout ratio. Total cash returned to shareholders in 2018 was $147 million, including the cash portion of the special distribution paid in connection with converting Deltic to a REIT. With our cash balance expected to be in excess of $100 million after closing the MDF sale, we have ample flexibility to grow the company. Given that accretive timberland acquisitions remain difficult to find, we will continue to be patient, and we will only pursue strategic or bolt-on acquisitions that add value, not just acres.
We did not execute any share repurchases in the fourth quarter because of the pending MDF sale that was announced December 21, 2018, resulted in us being in a blackout window for the whole quarter. Our trading window reopens February 7th. Our stock continues to trade at a significant discount to our net asset value. We merged with Deltic just 11 months ago and we've made significant strides to integrate the two companies thanks to the hard work and dedication of many key employees. With our integration work nearly complete, we have exceeded our financial targets, and the transaction was clearly cat accretive in year one. With the disposition of the MDF mill the remaining portfolio of timberland, mills, and real estate is an excellent [technical difficulty] we expect 2019 to be another strong year.
I will now turn it over to Jerry to discuss the quarter and our outlook, and then we'll take questions.
Thanks, Mike. I will start with page four of the slides. Adjusted EBITDA was $36.4 million in the fourth quarter, compared to $101.8 million in the third quarter. The sequential decline in EBITDA reflects the drop in lumber prices in the second-half of 2018 and lower harvest volume. Unseasonably wet weather also affected our southern resource and our real estate businesses. To put the weather in perspective, rainfall in Little Rock, Arkansas was over 50% higher than average in the fourth quarter. I'll now review each of our operating segments and provide more color on the fourth quarter results.
Information for our Resource segment is displayed on slides five through seven. This segment's adjusted EBITDA was $29.8 million in the fourth quarter, compared to $58.7 million in the third quarter. We harvested 388,000 tons of sawlogs in the north in the fourth quarter. This is down seasonally from the 500,000 tons that were harvested in the third quarter. Northern sawlog prices were 32% lower on a per ton basis in the fourth quarter compared to the third quarter. The full effect of the second-half drop in lumber prices on our results was not reflected until the fourth quarter due to the lag associated with our index sawlog volume. Turning to the south, we harvested 912,000 tons in the quarter. This was down 66,000 tons compared to the third quarter. Unseasonably wet weather continued to hamper operations in the fourth quarter.
Our southern sawlog prices were 8% lower this quarter primarily due to a seasonal decline in hardwood sawlog harvest activity. Southern pine sawlog prices were up slightly quarter-over-quarter due to a shortage caused by the wet weather. Log and haul costs were $2.4 million lower in the fourth quarter compared to the third quarter. This was mostly due to the net decrease in harvest volumes. I will now shift to Wood Products, which is covered on slides eight and nine.
The segment's adjusted EBITDA was $3.6 million compared to $46.5 million in the third quarter. Our average lumber prices decreased 24%, from $486 per 1,000 board feet in the third quarter to $367 per 1,000 board feet in the fourth quarter. Lumber shipments decreased 20 million board feet to 265 million board feet in the fourth quarter. We shipped just over one million board feet of lumber for the year. I'll now cover our Real Estate segment on slides 10, and 11.
Real Estate's adjusted EBITDA increased $5.2 million in the fourth quarter. Commercial land sales Chenal contributed $4.5 million of the increase in the quarter. Chenal lot sales were lower than planned as unseasonably wet weather delayed lot completion.
Shifting to financial items, which are summarized on slide 12, we ended the quarter with $76.6 million of cash. We distributed $44.4 million of cash to shareholders as part of the $222 million special distribution, on November 15th. The remainder of the distribution was in the form of 4.8 million shares of stock. The special distribution completed the conversion of Deltic's timer operations to REIT status. We also raised a regular dividend payout, 7.7%, beginning with the regular quarterly dividend paid in December. Our regular dividend payout has increased over 75% on an annul basis, going from $61 million just prior to announcing the Deltic merger in 2017, to $108 million. Our dividend payout ratio was 80% in 2018. Excluding Deltic merger costs and accelerated cash contributions to our pension plan, the payout ratio was 54%.
As Mike mentioned, we completed the refinance of our $150 million senior notes last week. This debt had a 7.5% coupon and was scheduled to mature in November of this year. The new term loan matures in January of 2029, and has a fixed rate of 4.56%. This reduces our interest expense $4.4 million on an annual basis. We expect the first annual farm credit patronage payment related to this debt to reduce interest expense a further $1 million beginning in the first quarter of 2020. Mike also mentioned that sale of the Deltic MDF mill is scheduled to close later this month. The buyer has agreed to assume $29 million of industrial revenue bonds related to the mill. We expect to net approximately $43 million of cash after paying taxes on the transaction.
Capital expenditures were $18.3 million in the fourth quarter, and $52.3 million for the full-year excluding acquisitions. Note that these amounts include real estate development expenditures which flow through cash from operations in our cash flow statement. We expect that capital expenditures will be in the range of $65 million to $70 million for 2019. We're planning to spend just under $40 million of capital in our wood products business this year. The increase relative to the $27 million that we spent in wood products in 2018 is primarily related to high-return projects in our saw mills, including two kiln projects.
I'll now provide some high level outlook comments. Note that the legacy Deltic operations will be included for the full-year as opposed to 10 months in 2018. The details are presented on slide 13. We're planning to harvest just over 6 million tons in our Resource segment this year, with approximately 70% of the volume in the south. Harvest volumes in the south are expected to be seasonally lower in the first quarter compared to the fourth quarter. In addition, there will be fewer hardwood sawlogs in the mix which will weigh on our average southern sawlog price in the first quarter relative to the fourth quarter. Our average lumber price thus far in the first quarter is almost the same as the average price we realized in the fourth quarter. The trend is positive as our current spot lumber prices are approximately 7% higher.
Though it's early in the year, we expect lumber prices to move even higher as we get into the spring and summer building months. As a reminder, a $10 per 1,000 board foot change in price represents about $12 million in EBITDA on an annual basis. Our index northern sawlog prices are not expected to benefit from the recent improvement in lumber prices in the first quarter given that it can take up to six weeks to reset index log prices. Northern sawlog prices will be negatively affected by denser logs. We expect to ship 1.1 billion board feet of lumber this year. We're also planning to sell approximately 20,000 rural acres and 150 residential lots in 2019. We completed our initial stratification analysis of the legacy Deltic timberlands and have indentified approximately 57,000 acres of rural property sales opportunities. Our 10-K will be filed later this month and will include an update of the rural acres that we have identified for future sales.
I also wanted to highlight that our interest expense will be lower than normal in the first quarter because that is when we receive our annual patronage payment from the farm credit banks. We estimate that interest expense will be $5 million in the first quarter, and just under $9 million per quarter for the rest of 2019. 2018 has been a very busy year. The increased size of our company provided the platform to generate just under $300 million of adjusted EBITDA. While we expect adjusted EBITDA to be lower in 2019, we have a strong balance sheet that provides the flexibility to grow shareholder value. We're excited about PotlatchDeltic's prospects.
So, that concludes our prepared remarks. Lindsey, I'd now like to open the call to Q&A.
[Operator Instructions] Our first question comes from the line of John Babcock with Bank of America Merrill Lynch. Your line is now open.
Hey, good morning, Mike, Jerry. Just want to start out I was wondering if you could talk a little bit about the health of the lumber market. Obviously we've heard a fair bit of downtime announcements in the west. Wondering how conditions are out there and also if you could talk about U.S. south, and just the market as a whole. Thanks.
We'll let Eric cover that. Eric?
Yes, good morning. Yes, we saw a precipitous decline in lumber prices in the second-half of last year, as you're well aware. Our lumber prices, if you look at them on a monthly basis, they actually bottomed back in November of last year. They've been climbing steadily higher ever since, on average about $10 per month. So our outlook is for about roughly 5% higher prices in Q1 compared to Q4. And we expect further gains on the order of 15% or so as you get out to Q2. Market demand is still plenty healthy. There's new construction taking place, repair/remodel markets are just fine, commercial/industrial is just fine. So, final takeaway is there. It's an issue of getting dealers to pull the trigger and buy more lumber to fill up their inventories. So generally, we are optimistic on the outlook for lumber.
And how would you describe inventory levels right now relative to kind of a normal 1Q?
Oh, I would say they're very lean. The way our sales group describes it to us is we've actually got our customers calling us up saying, hey, I placed an order for lumber the other day, I need to know where it's at, because I've got a job site that's looking for it. So inventories are very lean in the system. A lot of those dealers got burned with really high priced inventories last year. And so they're coming into this year with the mindset of keeping inventories fairly low.
Okay. That's great. And then also obviously with the upcoming divestiture of the MDF business, could you give some sense as to the impact on EBITDA from that?
Yes, well, what I would say is our MDF business, it -- on a percentage sales basis, it was actually less profitable than what it was compared to our lumber business and you can go back and look at what the EBITDA that was generated back when Deltic owned it, it was on the order of $10 million or so per year. So that would give you a sense for what the impact is going to be.
Okay. That's great. And then just going back to the CapEx comment there, I mean, it is a little bit from last year, could you just talk about some of the projects that you're looking at for this upcoming year?
Yes, we've got a number of projects, you know, this is a good time to be investing in lumber mills, particularly in the south. So we've got six big projects underway for the year all with IRRs. The lowest one is 17%, it's for two continuous kilns and a worn sawmill all the way up to 44% return project for a new green stacker at our Waldo sawmill. And all these projects are in an effort to lower cost improve production, improve product quality, that sort of thing and they're pretty well-defined projects with recognizable benefits. So this will be an outsized year for us in CapEx in our wood products business.
Okay, thanks for the details. That's all I have.
Our next question comes from the line of Collin Mings with Raymond James. Your line is now open.
Thanks. Hey, good morning guys.
Good morning.
Good morning.
First, just in the prepared remarks you touched on why you weren't able to repurchase any shares during 4Q, just as though the repurchase window opens here later this week, can you just expand on how you're thinking about your cash balance and leverage metrics and where repurchase kind of fit into that just given that the cash generation in 2019 is not likely to be what it was in 2018 for the company just given where we are in terms of product pricing?
So Collin, good morning, this is Jerry. So in terms of metrics and flexibility, as Mike mentioned in his comments with the MDF sale cash will be probably over $100 million so balance sheet is in great shape, credit metrics are in great shape. So there's all kinds of flexibility and all of the capital allocation levers are open to us. When we think about share repurchases, I mean certainly, we continue to trade at a pretty significant discount to NAV, and that's certainly one of the tools in the toolkit that we continue to consider with our board.
Okay. Switching gears to the real estate front, just in the prepared remarks again, referenced -- I want to say 57,000 acres that were identified as part of another review associated with the Delta transaction, just any sense of how we should think about the timeline to monetize that or any sort of fluctuations over the next couple of years by bringing some of that Timberlands or those -- or rather some of that land to market?
No, I don't know about providing a specific timeline, Collin, what I would tell you is that we are excited about having discovered those 57,000 acres. We knew during due diligence there would be a meaningful opportunity with Deltic real estate as it had not been a focus of Deltic pre-merger. In 2018, our real estate team did 13 real estate transactions off of Deltic ground for a total of about almost $8 million. We're seeing plenty of demand for different tracks, and they range from very small to very large. And so we expect that business to be a bit lumpy going forward given the nature of that business. So it's hard to see how that's going to play out on a per-acre, per-year kind of basis, but I would tell you that we're genuinely excited about the opportunity.
Okay, no, that's helpful color there. And then just going back to kind of the log price environment, just recognizing a lot of the -- appreciate the detail on the Northern logs being indexed -- a lot of them being indexed to what's happening in lumber pricing, but can you just update us on what's happening as far as the cedar log markets? I know that had been kind of a source of strength for you guys over the last couple of years, maybe just update us, specifically, what you're seeing there.
Yes, like northern mix sawlog prices, we're seeing a decline in cedar prices. There were a couple of cedar mills over on the west side that closed down back in 2017, Murray's River Mills that pushed that production, we think, over to the inland region. So in the 2018 kind of timeframe, we saw unprecedented demand and pricing for cedar sawlogs in the region. Consequently, those mills filled up their log decks with really high price cedar $1,500, $1,600 a 1,000 kind of logs and they're sitting with pretty high inventories today. So we have seen cedar roll over due to those high log decks and they rolled over commensurate with what other Northern mix sawlogs have done.
Okay, very helpful. Just one last one for me, and I'll turn it over. Just with upcoming WTO hearings just regarding the softwood lumber dispute, just any kind of updated thoughts on kind of that dispute and kind of trade relations at this juncture?
Well, Collin, Mike here. The NAFT and WTO hearing processes which are continuing concurrently are part of a long process to try to bring closure to this long-running trade dispute. We expect that process to take one to two years at least. In the meantime, there's really no meaningful change in posture between the two countries. Canada continues to have roughly 30% market share here, exporting about 50% of their production to the United States. And the tariff situation that's in place continues to function, and I think the U.S. Lumber Coalition of which we are a part of continuous to think a long-term solution is based on a quota. And I think the two sides remain quite a bit of…
All right. I really appreciate all the color this morning guys, I'll turn it over.
Thanks.
Thanks.
Our next question comes from Ketan Mamtora from BMO Capital Markets. Your line is now open.
Thank you. The first question, are you guys seeing any signs of the lumber projects in the South being throttled back maybe slowed with the sharp pullback that we've seen in lumber prices in back half of last year, and with housing activity not being as robust, are you seeing any signs of that at all?
No, there's really been -- to our knowledge dealing with the vendors that supply sawmill machinery of which we're a customer on a number of the large projects that Eric mentioned, we've heard of nobody canceling orders or delaying projects. And you know, I think that the headlines on housing and so on, I think, tend to sometimes overlook how robust the repair and remodel market is which still accounts for 40% of lumber consumption, and that market is good and growing.
And in housing starts, we think are going to be quite stable at approximately 1.3 million units. The Single-family share continues to grow, which uses more wood than the multifamily share. And while all this has happened under a price environment that's been very weak, I still think that companies that are making long-term investments in the business are committed to that and we've seen no projects canceled.
Yes, and don't forget you still got $40 logs in the South.
Yes, that's true. Thanks for the color, and then turning to Deltic acquisition, obviously, you all made really good progress on the synergies. Can you highlight or talk about kind of informational opportunities there, additional levers that you all can pull looking into '19 and over the next two or three years?
Yes, so Ketan, we've made really, really good progress getting after those synergies in the merger. You know, we identified roughly $50 million of cat synergies during due diligence, and we executed on those and got those implemented by Q3 last year. We challenged our teams to come up with incremental synergies as we did our budgeting for 2019 and we believe there's another $4 million to $5 million of cost savings opportunities that are out there for us. There's more log and haul optimization work that we can do. We're just now going to start selling FSE Premium pulpwood down in Arkansas.
We certified two of our three districts FSE wood down there. So that's worth a little bit of a premium to us. There are going to be silviculture cost savings opportunities in 2019 that we couldn't get in 2018, because the year was already underway when we closed our merger. Our added scale was going to allow us to bring down costs for seedlings and site prep and whatnot and then finally, there's still more merchandising log merchandizing work that we can do. Deltic, in our view, didn't have their log sales fully optimized. In some cases we're selling chip and sawlogs for pulpwood. We're going to sort out that chip and saw and get that premium. So we think there's another $4 million to $5 million of synergies to go yet.
Got it, that's very helpful, and then staying with Deltic, what kind of production levels or operating rates you all are seeing at the sawmills that you all acquired, I'm trying to get a sense of what the ramp-up looks like, because I know production was going to go up. So I'm just curious where you guys stand with that?
So where do we stand in growing their production, is that your question?
Yes.
Yes, so we grew both the Ola and Waldo sawmill production volumes last year, and we're going to continue to grow them again in 2019. We're going to finish doing some work -- capital projects, both at Waldo and at Ola that have improved not only production volumes but also product grade.
Both mills…
Sorry, go ahead.
Just added color, both mills are operating at full capacity, running two shifts a day, year round, plus overtime at both locations. So we've got excellent margins at both facilities, and with added kiln capacity improvements, we'll continue to make as much lumber as we can.
That's very helpful. And final question before I turn over, have you all any update on the Sun Paper project in Arkansas, any update you all have heard there?
No, there's been no update that we can provide.
Got it, that's very helpful. I really appreciate all the color and good luck in 2019.
Thank you.
Thanks.
Our next question comes from Chip Dillon with Vertical Research. Your line is now open.
Yes. Could you just talk a little bit about -- good afternoon -- about your capital spending beyond this year and what a more normal level would be?
Yes, so Chip, this is Jerry, good morning. So as Eric talked, we are stepping up CapEx in wood products in 2019 you know, more normal level and probably more in that call at the mid 40 range, so $45 million or so. And that would include reforestation…
Okay, that's -- got you. And then getting back to CapEx, you did identify the mills with the kilns and I apologize I just -- where you're putting the kilns in, are those legacy Deltic mills and are these similar projects to the ones you did in your own mills, say, four, five years ago?
Well, the projects that we have underway in 2019 are actually for our own mills. We're going to put in two continuous kilns at our Warren sawmill that we think are going to lower labor costs, increase production, provide maintenance savings and increase grade yield. And then we're in the process of trying to get a kiln permitted out at our St. Mary's sawmill and we are in discussions with the EPA about that permit for that kiln. Those kilns both at St. Mary's and at Warren will allow us to expand production volumes.
About how much roughly?
Well, at St. Mary's it depends on what you're talking about, the baseline, but I'd say roughly 20 million feet at St. Mary's and probably 20 million feet at Warren.
Okay. And then one last question, what is the state of the Timberland market, I mean, it seems like things in a lot of different areas kind of froze up a little bit late last year and there is a lot of uncertainty between what the right pricing should be, what the right cap rates are, what the financing costs are and of course you just gave us a great example of saving a lot on interest which is terrific. What would you say the situation is out there and do you think that opportunities are going to show up in 2019?
Chip, it's Mike. If you strip away the two big transactions in 2018, which were the PotlatchDeltic merger and the cattle sale in from calipers, I think about 2 million acres traded hands last year in rough numbers. I think increasingly we're seeing the land stratified between kind of Class A, Class B, and Class C kinds of property based on the quality of the markets, the growth rates of the plantations depending on where they're at and so forth. And so, we've seen high quality Timberland continues to trade for approximately $2,000 an acre more and the lower quality stuff tends to be around $1,000 an acre and everything in between.
We had a really interesting transaction just in our backyard in Idaho. Just in the last month Molpus Woodlands group, one of the large team most sold about 32,000 acres to the state of Idaho, who owns a lot of Timberland in Idaho as a public entity and although the headline items were -- the headline price was reported about $1,300 an acre. And what wasn't disclosed was that the Molpus reserve the rights to harvest timber on that land, which were worth approximately another $600 an acre. So all in Molpus sold that property for approximately $1900 in acres in areas we can tell which we think is a pretty good pretty good benchmark for our Idaho property.
So I think for to kind of put a summary on it I think there's still a number of investors out there who are looking for quality Timberland not only the team knows but they new to increase partnership that warehouse are sold in Plum Creek and put together as well as companies like ours that we continue to look for accretive bolt-on acquisitions and we think there will be successful in finding a couple of this year and just to add to what my god and a chip just add to what Mike was saying in that ideal transaction that you know that Molpus sold ground in Idaho, Idaho for Ideal reference to 3.5% discount rate for their acquisitions.
That's helpful and just one more real fast with the Delta deal, what percentage of your harvest whether you want to look at revenues or EBITDA have roughly think about it are now tied to Idaho and therefore index to lumber and then if you could tell us how much again sort of integration level should we think about on a net basis in terms of how much you harvest and how much you need to feed your wood product system especially with the MBF now gone?
Well, the first question how much of our harvest is going to be Idaho index to sawlogs, versus the South what I tell you is that we're going to harvest about 6 million tons, 6 to 6.1 in 2019 and of that $1.8 million tons is going to be Idaho. So what is that roughly a third maybe a little bit less 30%, 28%, somewhere in there.
Yes. And then maybe to add to that Chip, and then, 70% of that Idaho solid volume is index. So overall based on overall harvest it's probably around 20%.
Okay, that's helpful. And then in terms of the integration?
The integration in terms of internal usage versus external?
Yes.
Well, it varies a lot by region. So in the south, we harvest now sawlogs 2.1 to point 2 million tons per year more or less, and our mills consume about two and a half million tons per year but not all of our internal production goes to our own Mills it's roughly I don't know 40% internal and 60% external something like that and it varies from mill to mill and it varies year-to-year.
But we continue to be a Netlog buyer in the south.
We are definitely a Netlog buyer in the south by couple hundred thousand tons.
And in the north?
Well, in the north, it's going to vary a lot in Minnesota. It's probably 90% external, 10% internal logs at our Gwinn Michigan mill. It's we have no Timberland there. So that's 100% external and our St. Mary's mill and it might be 60% internal and 40% external.
Okay, thank you.
You are welcome.
Our next question comes from Steve Chercover with Davidson. Your line is now open.
Thanks. Good morning, everyone.
Good morning.
Good morning.
So, my first one, the sale of the MDF planet seems like a terrific transaction for you guys. And I'm just wondering, are you able to do a 1031 like kind of exchange, if there were sawmill assets available in the region, or is it just available for the land?
Yes, Steve, short answer is it's just available for land, so that is not an option.
Okay, but you know given how lumber markets have come back to earth, and I think Ketan asked questions along these lines, has anyone in the south or anywhere else decided that maybe they want to delay their plans or even exit the business are there any opportunities in lumber that would be attracted to you besides your own debottlenecking?
We haven't. Certainly, in the south as Eric mentioned with blogs that are approximately $40 a ton, they're still attractive margins across the U.S. south and we've seen nobody really scale back development plans. There's a sawmill or two here in there that end up being sold. But we're not aware of anything. The margin pressure really does come in the North West where logged prices have been relatively high and lumber prices have collapsed, but again, we're not aware of anybody cutting back or planning to sell facilities.
Okay, and it's kind of leave the session. So some of my questions are answered, but with respect to your payout ratio, I think you said you were closer to 54% after the one time was associated with Deltic or excluded. Is that right?
That is correct. Steve. So, just to walk through that, the payout ratio with kind of all the cash items in was 80%. But when I exclude the 20 million of merger costs related to Deltic, and we also did we accelerated 44 million of pension contributions. Once you pull those kind of abnormal things out. That's how you get to the 54%.
So it looks even with lower lumber pricing that you guys have probably got the best dividend coverage of the timber REITS and can you maybe just remind us how you establish your payout? You know, what are the guidelines for Molpus?
Well, we do think we have a really solid payout ratio using last year's metrics adjusted, as Jerry said, was just over 50%. Now we've raised the dividend twice in the last two years, effectively 7.7% in December, because we kept the -- the share count went up, but we kept the payout ratio same. So we had a, an effective 7.7% dividend increase last year. And when we announced the merger with Deltic, in October of 2017, we raised the dividend about 7% at that time. So we've had a couple of pretty nice increases. We continue to think that there's other ways to return capital to shareholders. And one of those obviously is a repurchase program and we talked about the fact we were blocked out which was unfortunate because we felt our shares traded at a pretty deep discount in the last couple months.
I hear you, thanks for taking my questions.
Our next question comes from the line of Paul Quinn with RBC Capital Markets. Your line is now open.
Yes, thanks for much. Good morning guys.
Good morning.
Good morning.
Can you describe the lumber inventories in the channel, it's pretty low and we seen a noticeable pick up in price in the last two weeks or so how far do you think it's going to go?
Are you talking about lumber pricing Paul?
Yes.
Yes, I you know as I mentioned earlier, I think, our outlook for Q1 pricing is kind of in the 5% range over Q4, which it's not too dissimilar from what FCA or what receivers think and same kind of zip code and then we think we've got about a 15% lift in Q2 over Q1. Again, due to those really low inventories that are in the system and we're -- we plotted out our price projection by month for the year and we're tracking very closely to what we expected, so we're optimistic about what the spring building season is going to bring.
Okay, that's helpful, specific to Q2 guide maybe you can give us some color on just a log price adjustment for the Idaho timber sales?
I'm not sure I understood your question, Paul, but we just went over the weight issue.
No, it's not for the weight that I finally understood the weight after a number of years of a model for -- you know it's more on the lumber price adjustment. So as lumber prices move up, how does that affect log prices? What's a lag should we think of that as a six-week leg? And --
Yes, yes, that's the right way to think of it's a six-week lag. So, we had roughly 32% drop Q4 versus Q3, 5% or 6% of that was probably due to the weight issue. The remainder was due to the lumber issue. Q1 is going to see another decline due to the lag in lumber price issue, and another 5% or so for the weight issue, so we can see Q1 Northern sawlog prices off somewhere between 5% and 10%.
Okay. And then if we -- yes, okay.
Then we'll see a nice pickup in Q2 as lumber prices are turning around.
Right, okay. And then, in terms of plywood market issues, has there been any change at all in that market over the last year?
I would say it's gotten a little weaker like just about every market did towards the end of last year, you think about our industrial markets for plywood. These are boat manufacturing or we manufacturing furniture frame, those are those are big discretionary purchases as interest rates went up as housing, softened demand for boats, Arby's furniture all kind of went down together. So the business got soft in Q4 and here into Q1.
Okay. And then just lastly just on real-estate data I see the 150 live guidance for sales and 2019. That's up significantly from '18 what's driving it?
Well, the real issue there is we got hit with some real unfortunate weather in Q4 in Arkansas, Jerry referenced it in his remarks and we could not get are lots built in time to get them sold. Chenal Valley is very heavy a lot sales in Q3, and Q4. That's the normal timing of the cycle down there. And since we couldn't get our last produced for sale and Q4 we missed the window. So the real the real opportunity is going to be for us to execute on getting those lots developed earlier in the year in 2019 and get them sold in 2019. That's a real driver.
All right. That's all I had, best of luck guys.
Thanks.
At this time, I'm showing there are no more questions. I'll now turn it back over to Jerry Richards.
Thank you, Lindsey, and we certainly appreciate everyone's interest in PotlatchDeltic, and for participating on a call. I'll be available the rest of the day to answer follow-up questions, and that concludes our Q4 2018 earnings call.
This concludes today's conference call. You may now disconnect.