Image source: The Motley Fool.
Potlatch Corp (Holding Co)Â (PCH -0.27%)
Q4Â 2018 Earnings Conference Call
Feb. 05, 2019, 12:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
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.
Jerald W. Richards -- Vice President and Chief Financial Officer
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 website 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.
Michael J. Covey -- Chairman and Chief Executive Officer
Thank you, Jerry. And good morning. As the timber REIT was the most leveraged to lumber prices, we certainly felt the impact of the 30% to 50% decline in lumber prices since the June 2018 peak.
Fourth quarter 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 to 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 remained 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 start-ups.
We expect to close on the previously announced sale of our El Dorado 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 7. 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 CAD accretive in year one.
With the disposition of the MDF mill, the remaining portfolio of timberland, mills and real estate is in excellent (inaudible 0:05:30.9). 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.
Jerald W. Richards -- Vice President and Chief Financial Officer
Thanks, Mike.
I will start with page 4 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 5 through 7. The 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 of 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 our 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 sawlogs 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 8 and 9. 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 thousand board feet in the third quarter, to $367 per thousand board feet in the fourth quarter.
Lumber shipments decreased $20 million board feet to $265 million board feet in the fourth quarter. We've shipped just over $1 billion 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 in Chenal contributed $4.5 million of the increase in the quarter. Chenal lot sales were lower than planned as unseasonably wet weather delayed low 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 timber operations to REIT status.
We also raised a regular dividend payout, 7.7%, beginning with the regular quarterly dividend paid in December. A regular dividend payout has increased over 75% on an annual 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 the 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 on our cash flow statement. We expect the 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 sawmills, 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 tonnes 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, $10 per 1000 board feet 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 are 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 identified approximately 57,000 acres of rural property sales opportunities. Our 10-K will be filed later this month and we 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.
Questions and Answers:
Operator
(Operator Instructions). Our first question comes from the line of John Babcock with Bank of America Merrill Lynch. Your line is now open.
John Babcock -- Bank of America Merrill Lynch -- Analyst
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 your South. Just the market as a whole. Thanks.
Michael J. Covey -- Chairman and Chief Executive Officer
Well, Eric -- cover that, Eric?
Eric J. Cremers -- President and Chief Operating Officer
Yeah, good morning. Yeah, 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're optimistic on the outlook for lumber.
John Babcock -- Bank of America Merrill Lynch -- Analyst
And how would you describe inventory levels right now relative to kind of a normal 1Q?
Eric J. Cremers -- President and Chief Operating Officer
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 is 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. So, they're coming into this year with the mindset of keeping inventories fairly low.
John Babcock -- Bank of America Merrill Lynch -- Analyst
That's great. And then also, as we -- obviously, with the upcoming divestiture of the MDF business, could you give some sense as to the impact on EBITDA from that?
Jerald W. Richards -- Vice President and Chief Financial Officer
Yeah. Well, what I would say is our MBS business, on a percent of sales basis, it was actually less profitable than what it was -- 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 gives you a sense for what the impact is going to be.
John Babcock -- Bank of America Merrill Lynch -- Analyst
That's great. And then, just kind of going back to the CapEx comment there. It is up a little bit from last year. Could you just talk about some of the projects that you're looking at for this upcoming year?
Jerald W. Richards -- Vice President and Chief Financial Officer
Yeah, we've got a number of projects. This is a good time to be investing in lumber mills, particularly in the south. So, we've got six big projects under way for the year all with IRRs. The lowest one is 17%. That's for two continuous kilns at our Warren 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 are pretty well-defined projects with recognizable benefits. So, this will be an outsized year for us in CapEx in our wood products business.
John Babcock -- Bank of America Merrill Lynch -- Analyst
Thanks for details. That's all I have.
Operator
Our next question comes from the line of Collin Mings with Raymond James. Your line is now open.
Collin Mings -- Raymond James -- Analyst
Thanks. Hey, good morning, guys.
Michael J. Covey -- Chairman and Chief Executive Officer
Good morning.
Collin Mings -- Raymond James -- Analyst
First, just in the prepared remarks, you touched on why you weren't able to repurchase any shares during 4Q. Just as 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 share repurchase kind of fit into that, just given 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?
Jerald W. Richards -- Vice President and Chief Financial Officer
So, Colin, 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's 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, 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'll continue to consider with our board.
Collin Mings -- Raymond James -- Analyst
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 kind of the review associated with the Deltic 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 that -- some of that Timberland -- or rather some of that land to market?
Eric J. Cremers -- President and Chief Operating Officer
No, I don't know about providing a specific timeline, Colin. 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 Delta ground for a total of about almost $8 million. We are 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, giving 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.
Collin Mings -- Raymond James -- Analyst
Okay. No, that's helpful color there. And then, just going back to kind of the log price environment, just recognizing 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 a 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.
Eric J. Cremers -- President and Chief Operating Officer
Yeah, 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, Marys River mills. That pushed that production, we think, over to the inland region. So, in the 2018 kind of timeframe, we saw unprecedented demand in pricing for Cedar sawlogs in the region. Consequently, those mills filled up their log decks with really high priced cedar, 1500, 1600 bucks, 1000 kind of logs. And they're sitting with pretty high inventories today. So, we have seen cedar rollover due to those high log decks and they've rolled over commensurate with what other Northern mixed sawlogs have done.
Collin Mings -- Raymond James -- Analyst
Okay, very helpful. Just one last one from me and I'll turn it over to. Just with the 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?
Michael J. Covey -- Chairman and Chief Executive Officer
Well, Collin, Mike here. The NAFTA and WTO hearing processes, which are continuing concurrently, are a 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 a 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. I think the US lumber coalition of which we're a part -- of which we are a part of continues to think that a long-term solution is based on a quota, and I think that the two sides remain quite a bit --
Collin Mings -- Raymond James -- Analyst
All right, I really appreciate all the color this morning, guys. I'll turn it over.
Michael J. Covey -- Chairman and Chief Executive Officer
Thanks.
Operator
And the next question comes from Ketan Mamtora with BMO Capital Markets. Your line is now open.
Ketan Mamtora -- BMO Capital Markets -- Analyst
Thank you. 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?
Michael J. Covey -- Chairman and Chief Executive Officer
No, there's really been -- to our knowledge, dealing with the vendors that supply our 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. I think 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 housing starts, we think, we're 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 investing -- making long-term investments in the business are committed to that and we've seen no no projects canceled.
Eric J. Cremers -- President and Chief Operating Officer
And, Ketan, don't forget, you've still got $40 logs in the south.
Ketan Mamtora -- BMO Capital Markets -- Analyst
Yeah. 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 incremental opportunities there, additional levers that you all can pull, looking into '19 and over the next two or three years?
Jerald W. Richards -- Vice President and Chief Financial Officer
Yeah. So, Ketan, we've made really, really good progress, getting after those synergies in the merger. We identified roughly $50 million of CAD synergies during due diligence and we executed on those and get 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 is another $4 million to $5 million of cost savings opportunities that are out there for us. There's more a log and haul optimization work that we can do. We're just now going to start selling FSC premium pulpwood down in Arkansas. We certified two of our three districts, the FSC wood down there. So, that's worth a little bit of a premium to us. They're going to be silviculture cost savings opportunities in 2019 that we couldn't get in 2018 because the year was already under way when we closed our merger. Our added scale is going to allow us to bring down costs for seedlings and site prep and whatnot.
And then, finally, there's still more log merchandising work that we can do. Deltic, in our view, didn't have their log sales fully optimized. In some cases, we're selling ship and sawlogs for pulpwood. We're going to sort out that chip and saw and get that premium. So, we think there's another $45 million of synergies to go yet.
Ketan Mamtora -- BMO Capital Markets -- Analyst
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.
Michael J. Covey -- Chairman and Chief Executive Officer
So, where do we stand in growing their production? Is that your question?
Ketan Mamtora -- BMO Capital Markets -- Analyst
Yeah, yeah.
Eric J. Cremers -- President and Chief Operating Officer
Yeah. So, we grew both 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 in Ola that improved not only production volumes, but also product grade.
Michael J. Covey -- Chairman and Chief Executive Officer
Both mills are up.
Ketan Mamtora -- BMO Capital Markets -- Analyst
(Multiple Speakers). Sorry, go ahead.
Michael J. Covey -- Chairman and Chief Executive Officer
Just added color, both mills are operating at full capacity, running two shifts a day year around, plus overtime at both locations. So, we've got excellent margins at both facilities. And with added kiln capacity, the improvements, we'll continue to make as much lumber as we can.
Ketan Mamtora -- BMO Capital Markets -- Analyst
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?
Michael J. Covey -- Chairman and Chief Executive Officer
No, there has been no update that we can provide.
Ketan Mamtora -- BMO Capital Markets -- Analyst
Got it. That's very helpful. I really appreciate all the color. And good luck in 2019.
Michael J. Covey -- Chairman and Chief Executive Officer
Thanks.
Operator
Our next question comes from Chuck Dillon with Vertical Research. Your line is now open.
Chuck Dillon -- Vertical Research -- Analyst
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?
Jerald W. Richards -- Vice President and Chief Financial Officer
Yeah. So, Chuck, this is Jerry. Good morning. So, as Eric talked, we are stepping up CapEx in wood products in 2019. A more normal level, probably more in that, call it, the mid 40 range, so $45 million or so. And that would include reforestation.
Chuck Dillon -- Vertical Research -- Analyst
Got you. And then, getting back to CapEx, you did identify the mills, the kilns -- and apologize, I just -- are those where you putting -- are those legacy Deltic mills and are these similar projects to the ones you did in your own mills, say four, five years ago?
Eric J. Cremers -- President and Chief Operating Officer
Well, the projects that we have under way 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 great yield. And then, we're in the process of trying to get a kiln permitted out at our St Marys sawmill and we are in discussions with the EPA about that permit for that kiln. Those kilns, both at Saint Marys will allow us to expand production volumes.
Chuck Dillon -- Vertical Research -- Analyst
And by how much roughly?
Eric J. Cremers -- President and Chief Operating Officer
Well, it's St. Marys. Depends on what you're talking about the baseline. But I'd say roughly 20 million feet at St. Marys and probably 20 million feet at Warren.
Chuck Dillon -- Vertical Research -- Analyst
Okay. And then one last question. What is sort of the state of the timber land market? It seems like things in a lot of different areas kind of froze up a little bit late last year and there's a big -- a lot of uncertainty to see what's 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?
Michael J. Covey -- Chairman and Chief Executive Officer
Chip, it's Mike. If you strip away the two big transactions in 2018, which were the Potlatch/Deltic merger and the Caddo sale from CalPERS -- I think about 2 million acres traded hands last year in rough numbers. I think, increasingly, we are seeing the land stratify 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 or more. 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 TIMOs, 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 -- although the headline price was reported about $1,300 an acre, what wasn't disclosed was that the Molpus reserved 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 $1,900 an acre, as near as we can tell, which we think is a 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 a quality timberland, not only the TIMOs, but the new Twin Creeks partnership that Weyerhaeuser sold and Plum Creek had put together, as well as the companies like ours that we continue to look for accretive bolt-on acquisitions. And we think that we will be successful in finding a couple this year.
Eric J. Cremers -- President and Chief Operating Officer
And just to add to what Mike got in -- Chip, just to add to what Mike was saying in that IDL transaction that Molpus sold ground in Idaho for -- IDL referenced a 3.5% discount rate for their acquisitions.
Chuck Dillon -- Vertical Research -- Analyst
That's helpful. And just on more real fast. With the Deltic deal, what percentage of your harvest, whether you want to look at revenues or EBITDA, roughly think about it, are now tied to Idaho and therefore indexed to lumber? And then, if you could tell us, how much again sort of integration levels should we think about on a net basis in terms of how much you harvest and how much you need to feed your wood products system, especially with the MDF mill gone?
Eric J. Cremers -- President and Chief Operating Officer
Well, your first question, how much of our harvest is going to be Idaho indexed to sawlogs versus the South, what I'd tell you is that we're going to harvest about 6 million tons, 6 to 6.1 tons 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.
Michael J. Covey -- Chairman and Chief Executive Officer
Yeah. And then, maybe to add to that, Chip, and then 70% of that Idaho sawlog volume is indexed. So, overall, based on overall harvest, it's probably around 20%.
Chuck Dillon -- Vertical Research -- Analyst
That's helpful. And then in terms of the integration?
Eric J. Cremers -- President and Chief Operating Officer
The integration in terms internal usage versus external?
Chuck Dillon -- Vertical Research -- Analyst
Yes.
Eric J. Cremers -- President and Chief Operating Officer
It varies a lot by region. So, in the South, we harvest now sawlogs, 2.1 million to 2.2 million tons per year more or less, and our mills consume about 2.5 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.
Michael J. Covey -- Chairman and Chief Executive Officer
We continue to be a net log buyer in the South.
Eric J. Cremers -- President and Chief Operating Officer
We're definitely a net log buyer in the South by couple of hundred thousand tons.
Chuck Dillon -- Vertical Research -- Analyst
And in the North?
Eric J. Cremers -- President and Chief Operating Officer
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, we have no timberland there, so that's 100% external. And our St Marys mill, it might be 60% internal and 40% external.
Chuck Dillon -- Vertical Research -- Analyst
Okay, thank you.
Michael J. Covey -- Chairman and Chief Executive Officer
You are welcome.
Operator
Our next question comes from Steven Chercover with Davidson. Your line is now open.
Steven Chercover -- Davidson -- Analyst
Thanks. Good morning, everyone.
Jerald W. Richards -- Vice President and Chief Financial Officer
Good morning.
Steven Chercover -- Davidson -- Analyst
So, my first one, the sale of the MDF plant seems like a terrific transaction for you guys. And I'm just wondering, are you able to do a 1031 like kind exchange if there were sawmill assets available in the region or is it just available for land?
Jerald W. Richards -- Vice President and Chief Financial Officer
Yeah. Steve, short answer is, it's just available for land. So, that is not an option.
Steven Chercover -- Davidson -- Analyst
Okay. But given how lumber markets have come back to Earth -- and I think Ketan asked questions along these lines -- have 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 attractive to you besides your own debottlenecking?
Michael J. Covey -- Chairman and Chief Executive Officer
Certainly, in the South, as Eric mentioned, with logs at approximately $40 a ton, there'a still attractive margins across the US South. We've seen nobody really scale back the development plans. There's a sawmill or two here and there that end up being sold. But we not aware of anything. The margin pressure really has come in the Northwest, where log prices have been relatively high and our lumber prices have collapsed. But, again, we're not aware of anybody cutting back or planning to sell facilities.
Steven Chercover -- Davidson -- Analyst
Okay. And it's kind of late in 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 timers associated with Deltic are excluded. Is that right?
Jerald W. Richards -- Vice President and Chief Financial Officer
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 cost 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%.
Steven Chercover -- Davidson -- Analyst
So, it looks even with lower lumber pricing that you guys have probably got the best dividend coverage of the timber REITs. And could you maybe just remind us how you establish your payout, what are the guidelines or mileposts?
Michael J. Covey -- Chairman and Chief Executive Officer
Well, we do think we have a really solid payout ratio using last year's metrics adjusted. As Jerry said, it was just over 50%. We've raised the dividend twice in the last two years. Effectively 7.7% in December because we kept -- the share count went up, but we kept the payout ratio same. So, we had 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 of months.
Steven Chercover -- Davidson -- Analyst
I hear you. Thanks for taking my questions.
Operator
Our next question comes from the line of Paul Quinn with RBC Capital Markets. Your line is now open.
Paul Quinn -- RBC Capital -- Analyst
Yeah. Thanks very much. Morning, guys.
Jerald W. Richards -- Vice President and Chief Financial Officer
Good morning.
Paul Quinn -- RBC Capital -- Analyst
Hey, you described lumber inventories in the channel is pretty low and we've seen a noticable pickup in price in the last two weeks or so. How far do you think it's going to go?
Eric J. Cremers -- President and Chief Operating Officer
Are you talking about lumber pricing, Paul?
Paul Quinn -- RBC Capital -- Analyst
Yeah.
Eric J. Cremers -- President and Chief Operating Officer
Yeah. As I mentioned earlier, I think our outlook for Q1 pricing is kind of in the 5% range over Q4, which is not too dissimilar from what FEA or what RICI (ph) is thinking, 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've 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.
Paul Quinn -- RBC Capital -- Analyst
Okay, that's helpful, especially the Q2 guide. Maybe you can give us some color on just the log price adjustment for the Idaho timber sale?
Eric J. Cremers -- President and Chief Operating Officer
I'm not sure I understood your questions, Paul. Adjusted for the weight issue?
Paul Quinn -- RBC Capital -- Analyst
No, it's not for the weight. I've finally understood the weight after a number of years of modeling it out. It's more on the lumber price adjustment. So, as lumber prices move up, how does that affect log prices, what's the lag, should we think of that as a six-week lag.
Eric J. Cremers -- President and Chief Operating Officer
That's the right way to think of it. It's a 6-week lag. So, we had a 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 could see Q1 Northern sawlog prices off somewhere between 5% and 10%.
Paul Quinn -- RBC Capital -- Analyst
Okay. And then, if we --
Eric J. Cremers -- President and Chief Operating Officer
Then we'll see a nice pickup in Q2 as lumber prices are turning around.
Paul Quinn -- RBC Capital -- Analyst
Right. Okay. And then, in terms of plywood markets, has there been any change at all in that market over the last year?
Eric J. Cremers -- President and Chief Operating Officer
I would say it's gotten a little weaker, like just about every market did toward the end of last year. You think about our industrial markets for plywood. These are boat manufacturing, RV manufacturing, furniture frame. Those are big discretionary purchases. As interest rates went up, as housing softened, demand for boats, RVs, furniture all kind of went down together. So, the business, got soft Q4 and here into Q1.
Paul Quinn -- RBC Capital -- Analyst
Okay. And then, just lastly, just on real estate, I see that 150 lot guidance for sales in 2019. That's up significantly from '18. What's driving that?
Eric J. Cremers -- President and Chief Operating Officer
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 our lots built in time to get them sold. Chenal Valley is very heavy to lot sales in Q3 and Q4. That's the normal timing of the cycle down there. And since we couldn't get our lots produced for sale in Q4, we missed the window. So, 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 the real driver.
Paul Quinn -- RBC Capital -- Analyst
All right, that's all I had. Thanks a lot, guys.
Jerald W. Richards -- Vice President and Chief Financial Officer
Thanks.
Operator
At this time, I'm showing there are no more questions, I'll now turn it back over to Jerry Richards.
Jerald W. Richards -- Vice President and Chief Financial Officer
Thank you, Lindsey. And we certainly appreciate everyone's interest in PotlatchDeltic and for participating on the call. I'll be available the rest of the day to answer follow-up questions. And that concludes our Q4 2018 earnings call.
Operator
This concludes today's conference call. You may now disconnect.
Duration: 42 minutes
Call participants:
Jerald W. Richards -- Vice President and Chief Financial Officer
Michael J. Covey -- Chairman and Chief Executive Officer
John Babcock -- Bank of America Merrill Lynch -- Analyst
Eric J. Cremers -- President and Chief Operating Officer
Collin Mings -- Raymond James -- Analyst
Ketan Mamtora -- BMO Capital Markets -- Analyst
Chuck Dillon -- Vertical Research -- Analyst
Steven Chercover -- Davidson -- Analyst
Paul Quinn -- RBC Capital -- Analyst
Transcript powered by AlphaStreet
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
