Potlatchdeltic Corp

NASDAQ:PCH

Earnings Call Transcript 2022-Q4

[Operator]

Good morning. My name is Devon, and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic Fourth Quarter 2022 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]

I would like to now turn the call over to Mr. Jerry Richards, Vice President and Chief Financial Officer, for opening remarks. Sir, you may proceed.

[Jerry Richards, Vice President & Chief Financial Officer]

Thank you, Devon. Good morning, and welcome to PotlatchDeltic's fourth quarter 2022 earnings conference call. Joining me on the call is Eric Cremers, PotlatchDeltic's President and Chief Executive 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 regarding the risks associated with these forward-looking statements.

Also, please note that a reconciliation of non-GAAP measures can be found on our website at www.potlatchdeltic.com.

I'll now turn the call over to Eric for some comments, and then I'll review our fourth quarter results and our 2023 outlook.

[Eric Cremers, President & Chief Executive Officer]

Well, thank you, Jerry.

We reported total adjusted EBITDDA of $574 million for 2022 after the market closed yesterday. That is the company's second highest EBITDDA on record and it marks our third straight year of strong financial performance. Cumulative EBITDDA generated by our leverage to lumber strategy over that three-year period was $1.6 billion.

Our Wood Products segment contributed $291 million of adjusted EBITDDA in 2022 and $861 million over the last three years. We shipped just over 1 billion board feet of lumber in 2022, and we had another strong year in terms of safety performance.

As discussed on last quarter's call, we successfully completed the rebuild of our Ola, Arkansas sawmill, and restarted the large log line on schedule in the third quarter. While the start-up phase has taken a bit longer than we had hoped relative to our stretch goal, the mill is on track to reach its 150 million board feet annual capacity on a run rate basis by the end of the quarter. As a reminder, Ola's rebuild also significantly lowers the mill's cash processing costs and improves its log recovery.

In 2022, we also announced a $131 million project to modernize and expand our Waldo, Arkansas sawmill. The project will increase the mill's annual capacity by 85 million board feet and significantly reduce cash processing costs. Activity will be focused on site prep in 2023, with equipment delivery and installation to come next year. The existing mill will continue to operate during the project with just three weeks of downtime expected in 2024 to tie in the new equipment. Project completion is expected by the end of 2024.

Our Timberland segment generated adjusted EBITDDA of $249 million in 2022, which was just below the record the segment set in 2021. We harvested 6.5 million tons, which exceeded our planned harvest primarily due to the addition of CatchMark's timberlands in mid-September.

Speaking of CatchMark, we had an excellent year on the M&A front. CatchMark added nearly 350,000 acres of high-quality timberlands and some of the strongest log markets in the U.S. South. Separately, we also acquired 46,000 acres of well-stocked timberlands in Mississippi and Arkansas and three bolt-on timberland transactions. Overall, we added nearly 400,000 acres of attractive timberlands in the U.S. South to our portfolio in 2022.

Our Real Estate segment also had a strong year, contributing adjusted EBITDDA of $73 million. On the rural side of the business, we sold 20,000 acres at nearly $2,400 an acre. Those sales included what we believe is the industry's first solar deal, comprising 1,760 acres for $13 million or $7,500 per acre. Real estate has built a backlog of over $100 million of future potential solar deals. We expect that figure will increase as the team finishes stratifying CatchMark's acres in 2023.

Our team also made good progress on potential carbon credit and carbon capture projects in 2022. While it will take time for these efforts to pay off, we are optimistic about growth tied to providing natural climate solutions, and we believe these efforts will result in higher returns as well as higher timberland values.

On the development side of our real estate business, we sold 181 lots at an average price of $112,000 per lot in our Chenal Valley master-planned community in Little Rock. We also closed commercial sales every quarter in 2022, resulting in over $13 million of revenue at an average price of $290,000 per acre.

Turning to housing. U.S. sentiment deteriorated quickly in 2022. While a significant decline in affordability has clearly caused the U.S. housing construction market to slow, we continue to believe that the backdrop is favorable over the long term. This is based on a fundamental shortage of housing stock due largely to the combination of underbuilding after the great financial crisis and favorable demographics in the form of Millennials.

It is also apparent that the Fed's historic pace of interest rate increases has slowed the economy and is causing inflation rate to decline. Many economists are predicting that the Fed could shift into an easing cycle as soon as the middle of 2023. In fact, markets are pricing in this expectation; the mortgage rates have dropped over 100 basis points recently.

Acknowledging it will take time, we continue to expect the U.S. housing starts will return to levels above the long-term average of 1.5 million units per year once homes become more affordable. In the meantime, the number of housing units under construction remains elevated at 1.7 million units in December. We expect that the elevated level of housing units under construction will support lumber demand during the Spring building season.

In addition, home buyers and builders are responding to affordability issues. For example, remote work opened the possibility to move to less costly parts of the country for a lot of people. Builder concessions or a shift in product mix to smaller homes or fewer amenities are other examples that are occurring. Lower mortgage rates and improved consumer confidence are the key remaining ingredients needed to get housing construction back on track.

Shifting to repair and remodel, which is the largest market segment for lumber demand, the underlying fundamentals continue to be favorable for a variety of reasons. Existing U.S. housing stock remains the oldest in the history of the statistic at 42 years on average. This is important because older homes are significantly smaller than new homes on average and older homes typically need more repairs. Higher mortgage rates mean that people are much more likely to stay in their existing homes.

Remodeling is a very attractive option for homeowners given strong levels of home equity across the U.S., a job market that remains strong, and the fact that consumer balance sheets remain in good shape. In addition, higher interest rates usually have less of an effect than other factors on repair and remodel demand.

Pundits expect repair and remodel spending to continue to grow this year. Harvard's leading indicator of remodeling activity report forecast R&R spending growth will remain positive and be 2.6% higher year-over-year in the fourth quarter of this year. This sentiment is supported by our home center customer takeaway, which remains strong.

We continue to be optimistic about lumber demand in the R&R market segment. The Random Lengths' composite lumber price reached a bottom recently and has increased three weeks in a row to $412 per 1,000 board feet. Lumber futures are trading at $100 premium to cash prices. We expect lumber prices will continue to improve from current levels as supply chain stocks up for the spring building season.

Moving to capital allocation. We returned $263 million of cash to shareholders in 2022. That amount included a $76 million special dividend, which was driven by our strong results in the first half of the year. We remain committed to growing our regular dividend sustainably. The key to doing so is by increasing our stable cash flows through accretive acquisitions, such as the CatchMark merger and the bolt-on timberland transactions that we completed in 2022. We increased our regular dividend 2.3% in December. Our regular dividend payout represented 43% of our cash available for distribution in 2022.

We also remain committed to repurchasing our shares only when they trade at a significant discount as part of our overall focus on growing shareholder value over time. To that end, our Board approved a new $200 million share repurchase program in August. We bought back $55 million of stock during the year at an average price of $45 per share, which is well below our estimated NAV.

Our opportunistic approach also applies to our borrowing costs. In 2022, we utilized interest rate swaps from 2020 to reduce our weighted average borrowing cost by 80 basis points in a year in which the Fed increased interest rates by over 4 percentage points. Our weighted average borrowing costs are now 2.4%, the lowest of the timber REITs.

At the end of the year, we had $344 million of cash on the balance sheet and liquidity of nearly $650 million. Our leverage remains low and our financial strength provides a solid platform to continue growing shareholder value.

Shifting gears, our environmental, social and governance reporting team had a very busy year in 2022. We published our third annual ESG report in May, our first carbon and climate report in September, and we launched our ESG website in Q4. We were also named to Newsweek's list of Most Responsible Companies for the second year in a row. Finally, we announced our commitment to greenhouse gas reduction goals at the end of the year. PotlatchDeltic has a strong ESG story and we are committed to do our part to mitigate climate change and continue our legacy responsibility across the ESG spectrum.

In summary, 2022 was another great year for PotlatchDeltic. That is a real tribute to our employees who had a lot on their plate. Their dedication and hard work allowed us to complete the CatchMark merger, three bolt-on timberland acquisitions and the older rebuild and startup, all while delivering excellent financial results. Our strong balance sheet, liquidity and strategy provide a solid platform to continue increasing shareholder value.

I will now turn it over to Jerry to discuss our fourth quarter results and our 2023 outlook.

[Jerry Richards, Vice President & Chief Financial Officer]

Thank you, Eric.

Starting with Page 5 of the slide. Adjusted EBITDDA was $52 million in the fourth quarter compared to $101 million in the third quarter. The quarter-over-quarter decline in EBITDDA was primarily due to lower lumber prices, lower index sawlog prices and seasonally lower harvest volumes.

I'll now review each of our operating segments and provide more color on our fourth quarter results. Information for our Timberlands segment is displayed on Slides 6 through 8. The segment's adjusted EBITDDA decreased from $65 million in the third quarter to $51 million in the fourth quarter.

Our sawlog harvest in the North was 456,000 tons in the fourth quarter, which is flat compared to the third quarter. As we discussed on last quarter's call, our harvest volume fell short of plan in the third quarter, primarily due to log-and-haul contractor availability issues. Our Northern team did a good job securing additional contractors and increasing the harvest in the fourth quarter, which reduced the harvest shortfall for the year.

Northern sawlog prices were 18% lower on a per ton basis in the fourth quarter compared to the third quarter. The decline in sawlog prices primarily reflects lower prices for index sawlogs.

In the South, we harvested 1.4 million tons in the fourth quarter. The fourth quarter was the first full quarter of operations on CatchMark's timberlands since we closed the merger in September. Solid execution and flexibility by our Southern Timberlands team were key to achieving that result.

Our Southern sawlog prices were 3% higher in the fourth quarter compared to the third quarter. The increase was driven by a full quarter of volume in CatchMark's stronger southern markets, which was more -- which more than offset a seasonally lower mix of hardwood sawlogs. High sawlog prices in our legacy wood baskets were 2% higher in the fourth quarter than in the third quarter.

Moving to Wood Products on Slides 9 and 10. Adjusted EBITDDA declined from $31 million in the third quarter to $2 million in the fourth quarter. Our average lumber price realization decreased nearly $100 per 1,000 board feet or 17% in the quarter. By comparison, the Random Lengths Framing Lumber Composite Price was 23% lower in the fourth quarter than the third quarter. As a reminder, the lag we experienced between booking and shipping orders is not captured by the composite, which is closer to a real-time indication of price.

Our average lumber price realizations per 1,000 board feet were $487 in October, $480 in November and $450 in December. Lumber shipments decreased 7 million board feet from 265 million board feet in the third quarter to 258 million board feet in the fourth quarter. Our planned shipments in the fourth quarter were lower than expected, primarily due to a slower ramp-up at Ola than planned. As Eric mentioned, the team is making good progress at Ola, and we are on track to reach our full production run rate by the end of the first quarter.

Shifting to Real Estate on Slides 11 and 12. The segment's adjusted EBITDDA was $7 million in the fourth quarter compared to $14 million in the third quarter. EBITDDA generated by rural sales declined sequentially due to the sale of fewer acres at a lower average price in the fourth quarter. This was expected as both our and CatchMark's rural land sales were heavily weighted to the first half of the year in 2022.

EBITDDA generated by our Chenal Valley master-planned community also declined sequentially. We closed the sale of 24 residential lots in the fourth quarter compared to 48 lots in the third quarter. We also sold fewer commercial real estate acres in the fourth quarter. Having said that, we have closed at least one commercial sale every quarter this year for an average price of $290,000 per acre.

Turning to financial items, which are summarized on Slide 13. Our total liquidity was $643 million. This amount includes $344 million of cash as well as availability on our undrawn revolver. We refinanced the $40 million of debt that matured in December. We had previously logged the refinance rate, which reduced our interest rate on this debt approximately 100 basis points and lowered our annual interest cost by approximately $400,000.

Overall, we used interest rate swaps to reduce the weighted average borrowing cost on our outstanding debt to 2.4% this year. Including the refinance of CatchMark's debt in the third quarter, our annual interest cost run rate has declined nearly $9 million.

We repurchased $50 million of our shares in the fourth quarter at an average price of $46 per share. We also paid a $76 million special dividend in December.

Capital expenditures were $20 million in the fourth quarter. That amount includes real estate development expenditures, which are included in cash from operations in our cash flow statement and it excludes timberland acquisitions.

As Eric mentioned, we were the successful bidders on three bolt-on timberland acquisitions in Mississippi and Arkansas earlier this year for $101 million in the aggregate. We used cash to close all three transactions, including $14 million to close the last of the three transactions early in the fourth quarter.

Integration of CatchMark continues to go well, and we have now achieved cash synergies of $19 million on a run rate basis. We remain on track to achieve cash synergies of $21 million versus the $16 million target that we communicated when we announced the transaction at the end of May.

I'll now provide some high-level outlook comments, the details are presented on Slide 14. We plan to harvest approximately 7.7 million tons in our Timberlands segment in 2023. Harvest volumes in the North are planned to be seasonally lower in the first quarter at a level comparable to the first quarter of 2022. We expect Northern sawlog prices to decline about 30% in the first quarter compared to the fourth quarter. In the South, we plan to harvest approximately 1.5 million tons in the first quarter. We expect our Southern sawlog prices to decrease modestly assuming customer log inventories remain full.

We plan to ship 1.1 billion board feet of lumber in 2023. In the first quarter, we plan to ship 255 million to 265 million board feet of lumber. The effect of seasonally lower cut rates in our Northern sawmills and a planned maintenance outage in our Warren, Arkansas sawmill are expected to offset increased production at our Ola, Arkansas sawmill in the first quarter.

Our average lumber price thus far in the first quarter is approximately 14% lower than our fourth quarter average lumber price. This is based on approximately 125 million board feet of lumber. Our lumber prices have been increasing recently and our spot price is currently about 8% lower than our fourth quarter average lumber price. As a reminder, a $10 per 1,000 board foot change in lumber price equals approximately $12 million of consolidated EBITDDA for us on an annual basis.

Shifting to Real Estate. We expect to sell approximately 18,000 acres of rural land and 150 Chenal Valley residential lots in 2023. Additional real estate details are provided on the slide.

We estimate that interest expense will be approximately $2 million in the first quarter and $9 million to $10 million per quarter for the second, third and fourth quarters of 2023. Interest expense is lower in the first quarter than the other quarters because that is when we receive our annual patronage payments from the Farm Credit banks. Also, interest income on our balance -- cash balance has increased due to higher short-term interest rates.

Turning to capital expenditures. We are planning to spend $135 million to $145 million in 2023, excluding any potential acquisitions. That estimate includes $74 million for the Waldo, Arkansas sawmill modernization expansion that we announced last June.

Overall, we expect our total adjusted EBITDDA will be lower in the first quarter due to lower lumber and index sawlog prices. Having said that, we believe that lumber prices reached the bottom in January, and we are optimistic the recent improvement will continue. We're well positioned to continue growing shareholder value over the long term.

That concludes our prepared remarks. Devon, now I'd like to open the call to Q&A.

[Operator]

[Operator Instructions] Our first question comes from Mark Weintraub with Seaport Global.

[Mark Weintraub, Seaport Global]

Thank you. In terms of the share repurchase, so you still got $150 million left on the $200 million authorization. How should we think about the type of pace you'd likely execute, recognizing you said that you're only going to do it when the stock is at the discount, but clearly, it has been? But, at the same time, obviously, your cash generation at least in the first part of the year is going to be a bunch lower. So, kind of how should we think about it? You do have the -- you do still have quite a bit of cash on the balance sheet and, obviously, the untapped revolver.

[Eric Cremers, President & Chief Executive Officer]

Yes. Good question, Mark. Buying back shares opportunistically when our stock trades at a large discount to NAV, like it does today, that remains a very important part of our capital allocation strategy. But needless to say, there is a lot of uncertainty in the markets right now. We continue to believe that share repurchases are an attractive use of our capital, and we're going to constantly balance that against other capital option -- options. But at the end of the day, there really isn't a price for moving aggressively with share repurchases.

And we think our cautious approach to capital allocation has served us very well in the past. Most companies get share repurchases wrong. So, I don't think I can give you a definitive answer on the pace other than we're going to be constantly evaluating where our stock is at relative to NAV and other valuation metrics against these other capital allocation alternatives that we have. And those alternatives, they come and go over time. So, it's very hard to predict how the pace is going to play out.

[Mark Weintraub, Seaport Global]

And maybe just as a quick follow-up. Is there a certain level of cash that you want to retain on the balance sheet that -- can you kind of help us guide on what your thought process might be?

[Jerry Richards, Vice President & Chief Financial Officer]

Yes. So that's a good follow-on question, Mark. So, in terms of level of cash, I mean, historically, I thought about $100 million is kind of a base level we like to hold. And then, on top of that, as a reminder, we have $74 million that we're going to spend on the Waldo project this year. So, something approaching $200 million would be kind of the baseline.

[Mark Weintraub, Seaport Global]

Okay. That's helpful. I'll turn it over.

[Operator]

Our next question comes from Paul Quinn with RBC Capital Markets.

[Paul Quinn, RBC Capital Markets]

Hey, thanks very much. Just a question on -- Eric that you mentioned under harvest in the North in 2022. Just wondering how material that is and whether you're going to make up that volume in '23?

[Jerry Richards, Vice President & Chief Financial Officer]

Yes. Actually, I'll take that one, Paul. This is Jerry. So, in terms of the under harvest, that's primarily pulpwood and ton wood. So, there's a couple of things going on. One, we've seen pricing for pulpwood for the last few years have been pretty weak in the region. And for us, historically, that's a low-margin part of our business. So, when it doesn't pay to hold the wood out, we don't.

And then, the other thing we've had, certainly, it was an issue in Q3 is contractor availability. So, our team did a really good job of: one, securing more contract availability in Q4; but they certainly prioritized shipping sawlogs over pulpwood and ton wood. So, at the end of the day, happy to report that 265 million board feet was the plan for the year and they hit that for the year. So, I think going forward, I don't know if that pulpwood and ton wood gets made up. So, I think it's -- I think that's in the [rear-view mirror] (ph).

[Paul Quinn, RBC Capital Markets]

Okay. And then, just on the Wood Products side, just knowing that you've got the plywood asset, but I'm not sure how well it rained in the quarter, but were your lumber operations breakeven and were they affected by the slower-than-expected ramp-up at Ola?

[Eric Cremers, President & Chief Executive Officer]

Well, they were definitely affected by the slower ramp-up at Ola. We missed our production and shipment targets at Ola in the quarter, simply because we're not where we want to be from a cut rate standpoint. From an earnings standpoint, we made money in Wood Products in the fourth quarter, a couple of million dollars.

Plywood was definitely under some pressure in Q4, that's to be expected. But a good chunk of our plywood mix competes with OSB and commodity housing-type applications. And some of it's more industrial high-end applications. That part of the business is surprisingly is holding up reasonably well. But the other side, the non-repair side of our plywood business was under some pressure in Q4.

[Paul Quinn, RBC Capital Markets]

Okay. And then, thanks for the detail on lumber prices by month. I'm just wondering, we had a big announcement by Canfor up in Canada last week and just wondering how much prices jumped down in Idaho as a result of that announcement. Was that material at all?

[Eric Cremers, President & Chief Executive Officer]

Oh, yes, that was definitely material. And then, you raised a good point, which is our Southern prices weren't really impacted by the Canfor announcement. It was really all about Idaho lumber prices, [indiscernible] in particular. Yes, we saw a jump in the $30, $40, $50 a 1,000 kind of range, almost immediately from when that announcement was made.

[Paul Quinn, RBC Capital Markets]

And I suspect you're anticipating further capacity closures in B.C. in '23 here?

[Eric Cremers, President & Chief Executive Officer]

Yes. So, so far, we've seen, I don't know, roughly 2 billion board feet of either permanent shutdowns or curtailments over the last 12 months. We continue to hear -- we don't operate up in B.C., as you know, but we continue to hear that B.C. is relatively high cost. And so, with these lower prices, I hear a lot of chatter about mills curtailing or closing. And yes, I think there's an expectation that there could be more curtailments or closures, but that's really up to those producers in that region.

[Paul Quinn, RBC Capital Markets]

Okay. And then just lastly, with the lower lumber pricing environment, has that freed up some of the timberland opportunities, i.e., is there more deals in the marketplace, or do you anticipate that in '23?

[Eric Cremers, President & Chief Executive Officer]

Yes. The timberland M&A market right now, Paul, it's pretty quiet. We're coming off a really active 2022, so I guess it's no surprise the market is going to have a little bit of a pause here. But with housing starts pulling back and with lumber prices pulling back, I'm guessing that sellers are choosing to wait until there are some signs of a recovery in housing starts and lumber demand to bring properties to market. Also, we suspect sellers might be holding back as carbon potential is becoming a bigger and bigger deal. But so far, it looks like it's going to be a pretty quiet year on the timberland M&A front.

[Paul Quinn, RBC Capital Markets]

All right. That's all I had. Thanks, guys. That's all I had.

[Eric Cremers, President & Chief Executive Officer]

Thanks.

[Jerry Richards, Vice President & Chief Financial Officer]

Thanks, Paul.

[Operator]

Our next question comes from Ketan Mamtora with BMO Capital Markets.

[Unidentified Analyst]

Hi, good morning. This is [Roshni] (ph) on behalf of Ketan at BMO. Just to start off with -- back of Paul's question here, can you talk a little bit about what you're seeing in terms of lumber demand and channel inventory trends? Have you seen a change in the last recent weeks about the curtailment announcements?

[Eric Cremers, President & Chief Executive Officer]

Well, we're not quite yet to the spring building season yet, so we haven't really seen firm uptick in demand. I think what -- dealers have been running with relatively low inventories all along and people are wondering how far prices are going to drop. So, they've been holding off from buying.

I think we have seen a little bit of a pickup in demand here lately. People are starting to think, okay, prices have reached the bottom. They're probably not going to go any lower. So, it's time to step up buying. How that translates into end user demand, it's really hard for me to say is we don't really sell to direct users.

I will say that on the R&R side, we sell to a number of home centers. And that side of our business has stayed remarkably strong. We're really happy with the R&R segment right now. And so, we're feeling good about that segment.

There's no doubt housing starts are coming down this year relative to last year. That's going to hurt overall lumber demand. But as we look out into 2024, we think the Fed is going to be cutting rates later this year, and we think starts will be back added again as we get out to 2024.

We have started to see a few positive signs in housing. The homebuilder confidence has moved up off the lows. I've seen mortgage rates come down 100 basis points or so, and I've read articles about homebuilders buying down mortgage rates. Some -- I think I read somewhere that one of the builders is offering a 5% mortgage rate to try to entice buyers.

So, it's not like it's a complete disaster out there like it was after the great financial crisis. But it's -- we're not yet to the spring building season.

[Unidentified Analyst]

Thanks for that color. And then, can you tell us what's the right way to think about decline in log prices in Idaho in Q1 is? How do you think about that?

[Jerry Richards, Vice President & Chief Financial Officer]

Yes, it's a great question. I mean, certainly, in Idaho and when you talk log costs, that's certainly the logs that we're buying ourselves to manufacture lumber and plywood. No question as lumber pricing has come down and we index the price of those logs, we're going to see some early. That's probably around the $3 million or so number for the first quarter, and then, additional relief, which could be significant, actually, as the year plays out.

[Unidentified Analyst]

Okay. Thank you. And then, could you also talk about your log cost benefit in Wood Products? Like, just when you see Idaho [falling] (ph) sawlogs and stuff, primarily in Idaho, are you seeing anything on the Southern side as well?

[Eric Cremers, President & Chief Executive Officer]

No. Our Southern prices, they're actually up a little bit in the fourth quarter. They may be down a little bit in the first quarter, but not much. One of the benefits of having a timber business in the south is log prices tend to be relatively stable. So, we're not seeing any real decline in the South.

[Unidentified Analyst]

Okay. And then just last one for me. How much is left of Deltic's real estate development in the Chenal Valley, both in residential and commercial?

[Jerry Richards, Vice President & Chief Financial Officer]

Yes. That's a great question. I mean -- and I'll start with the high-level stats just to frame the context. So that's a 4,800-acre master-planned community. It's been since the late 1980s is when Deltic started that project. And a little over 5,000 total residential lots, about 1,400 remain. And then, we also have about 300 acres of commercial real estate that's available for sale as well.

[Unidentified Analyst]

Okay. Thank you. I'll jump back in the queue. Thanks.

[Eric Cremers, President & Chief Executive Officer]

Thanks.

[Operator]

Our next question comes from George Staphos with Bank of America.

[George Staphos, Bank of America]

Hi, guys. Good morning. Thanks for the details.

[Eric Cremers, President & Chief Executive Officer]

Good morning.

[George Staphos, Bank of America]

With Ola, you mentioned that it was coming up the curve a little bit more slowly than perhaps you'd wanted. Was that, Jerry or Eric, sort of running to demand owing to the market? Or was it true learning curve issues as you're coming up the curve with Ola? And why was the cut rate not where you wanted it to be?

[Eric Cremers, President & Chief Executive Officer]

Yes, George, good question. No, it clearly was not related to the demand. Starting up a mill it's not just an on-off switch. When we started Ola up back in late September, early October, our cut rate was around 13,000, 14,000 feet an hour. As we sit here today, last night on the night shift, we ran 31,000 board feet per hour. So, we've over doubled production volumes now since when we first turned the mill on.

We're still not to where we want to be. We want to get to 40,000 an hour. That's our goal. That's our target. That's where we think we're going to be at the end of the quarter. This is two steps forward, one step back when you start up a lumber mill like this. We had residuals handling issues at the very start. We had vibration issues that we had to deal with. And we had alignment issues. Right now, we're grappling with optimization software control issues. But we're bird-dogging those issues. And like I said, two steps forward, one step back, and we're moving up the ramp-up curve and we think we'll be there by the end of the quarter.

[George Staphos, Bank of America]

It's a lot harder probably than putting numbers in the spreadsheet. So, we'll give you credit and appreciate it.

[Eric Cremers, President & Chief Executive Officer]

Thank you.

[George Staphos, Bank of America]

CapEx is guided a little bit higher than we were at and I think the Street, and obviously, you have Waldo. But is there anything else in there that we should be at least tracking progress on or asking about over the course of the year that you would point out?

[Jerry Richards, Vice President & Chief Financial Officer]

Yes, I'll start with a high level, and Eric may want to add something from a Wood Products standpoint. But you nailed it. I mean overall, $135 million to $145 million spend includes $74 million of Waldo. The rest of it, I would say, is kind of normal biz. It's planting trees in our Timberlands business. I mean, it's a little up a little bit because we now have more acres and higher harvest. That would be part of it.

Real Estate, it's a little bit of timing, and that's conscious. We always stay a step ahead of demand. So, we kind of slowed down development a little bit at the end of 2022. And right now, we're planning to potentially pick that back up -- pace back up a little bit.

And then, you think about Wood Products, there's a certain level of maintenance, but there's also discretionary projects there as well. And the discretionary, we try to always think about a return greater than 15% for those discretionary projects.

[George Staphos, Bank of America]

Thanks, Jerry. Last question for me, and this is probably more for us than for you folks. But aside from British Columbia, are there any other markets where you think the cost curve is such that capacity is going to be strained and we could see potential -- at least we should be watching for potential curtailments or shutdowns?

[Eric Cremers, President & Chief Executive Officer]

Yes, George, I think the Pacific Northwest, the West side is vulnerable here. Those mills are competing for logs with export market logs. And they -- the price of logs on the West side -- mills have to make a profit if they're going to stay open. But I think the West side is vulnerable in large part because harvesting volume that's available to mills has been coming down. Standing timber inventories have been coming down over the past several years. We had a bunch of fires. There's been conservation measures that have been taken. So, I think there's the potential for further reductions over on the West side. It will be nothing like what's happened up in B.C., but that's probably the next most vulnerable region in North America.

[George Staphos, Bank of America]

Okay. Thanks. That's all I got. I'll turn it over. Thank you, guys.

[Operator]

Our final question comes from Mike Roxland with Truist Securities.

[Mike Roxland, Truist Securities]

Thanks, Eric and Jerry. Appreciate taking my questions. Just first one, anything from a cost perspective that affected Wood Products in the quarter? You did mention, obviously, the slow rate at Ola. So, I'm just wondering if there's anything else, because the margins seem to be, on an EBITDDA basis, relatively pretty weak. And I'm just wondering if there's anything outside of price and Ola that affected that margin.

[Eric Cremers, President & Chief Executive Officer]

Well, we're in a relatively inflationary environment, Mike. So, I -- that's part of it. I can't think of any one thing in particular that jumped out at us in the fourth quarter. Certainly, having Ola run at its run rate of 40 an hour would help leverage the cost structure, but I can't think of anything else that really hurt us in the fourth quarter in particular.

[Mike Roxland, Truist Securities]

Okay. Got it. Appreciate it, Eric. Just one last question on repair and remodel. You made the comment that home center customer takeaways remain strong, which is [indiscernible] fairly well, which is -- it's great. But typically, if you look back historically, there's been a few quarter lag between a decline in housing single-family starts and a decline in repair and remodel. So, any sense that you're going -- I understand that you're seeing right now still strong takeaway, but if you look out couple of weeks, do you see that abating at all? Do you see takeaway from home centers and deals especially declining?

And the reason I'm asking is, not only do you see it -- not only does all typically lag starts, but the consumer itself has weakened. You look at rising unemployment, you look at type of wage growth. And you also look at the fact that R&R has been relatively elevated in the last couple of years, particularly given work from home. So, I'm just trying to get a sense of whether -- what you're seeing right now with home center takeaway is something that you expect to persist and if there are signs of any cracks.

[Eric Cremers, President & Chief Executive Officer]

Yes. I don't see any signs of any cracks. I do think you're right. I do think it will slow. But by slowing, I still think I would point to growth even out to the fourth quarter. There's the other side of the coin here, which is, yes, you're right, during COVID, people sit around the house and do home repair projects. But the other side of it is, we were in a really high-priced lumber market environment over the past couple of years. And as those prices have come down, anybody that was deferring a home repair project, now is the time for them to pull the trigger on -- because you've got low lumber prices.

There's a whole bunch of other issues that are out there that are favorable. You still got these really high levels of home equity. You've got -- there's not much inventory for sale that's out there. There's -- so people are stuck in their homes. And so, if you're stuck in your home -- yes, unemployment has ticked up, but it's still a 3.5%. There's still a lot of cash floating out there. So, there are so many other more favorable factors at play here that I don't see it slowing down. Maybe at the end of the year, the rate of growth will slow, but I don't see it turning negative, I'll put it that way.

[Mike Roxland, Truist Securities]

Thank you very much. Good luck in the quarter.

[Eric Cremers, President & Chief Executive Officer]

Thanks.

[Jerry Richards, Vice President & Chief Financial Officer]

Thanks.

[Operator]

At this time, I'm showing there are no more questions. I'll now turn the call back over to Jerry Richards.

[Jerry Richards, Vice President & Chief Financial Officer]

All right. Thank you, Devon. And thank you, everybody, for your questions and your interest in PotlatchDeltic. That concludes our call.