PotlatchDeltic Corporation (NASDAQ:PCH) Q4 2021 Earnings Conference Call February 1, 2021 12:00 PM ET
Company Participants
Eric Cremers – President and CEO
Jerry Richards – VP and CFO
Conference Call Participants
Kurt Yinger – D.A. Davidson
Paul Quinn – RBC Capital Markets
Ketan Mamtora – BMO Capital Markets
John Babcock – Bank of America
Operator
Good morning. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic Fourth Quarter 2021 Conference Call. All lines have been placed on mute to prevent any background noise. 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 proceed.
Jerry Richards
Thank you Emma. Good morning everyone. And welcome to PotlatchDeltic fourth quarter 2021 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 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 Eric for some comments, and then, I will cover our third quarter results and our outlook.
Eric Cremers
Thank you, Jerry, starting with our results, full year adjusted EBITDA of $653 million shattered the record we set just last year. That performance is a tribute to and would not be possible without the performance resilience, flexibility, and continued focus of our employees in year two of the pandemic.
Our Wood Products segment general rated a record $394 million of adjusted EBITDA 2021. to put that in context, Wood Productss earn more in 2021 than the entire Company did in 2020 and consolidated 2020 EBITDA was a Company record at the time.
On the operational front, we shipped just over 1 billion board, feet of lumber. We completed virtually all of our capital projects on time and under budget and our employee’s safety performance was outstanding. Key safety milestones achieved during the year included two year anniversaries without recordable injuries at our Bemidji and our Waldo sawmills. Three months during the year, where all of our mills were incident free and also a record low injury severity rate for the year.
Still. We were disappointed about the fire at our Ola, Arkansas sawmill in 2021. Thankfully nobody was injured and property damage and lost profits are covered by insurance. Restarting, a large logline at Ola in the third quarter of 2022, is the top Company priority.
Furthermore, once the mill restarts, it will have significantly lower cash processing costs and higher production volume than before. Our Timberland segment generated record adjusted EBITDA of $263 million in 2021, despite our harvest volume falling short of our $6 million ton plan.
Indexed, Idaho sawlog prices hit record levels during the year, which more than offset the effect of Ola related harvest deferrals in the south, and a decline in low margin pulpwood shipments in Idaho. Our real estate segment generated adjusted EBITDA of $48 million in 2021 on the rural side of the business, we sold approximately 18,000 at just over $2,100 per acre.
Our rural sales team continues to do an excellent job identifying opportunities that create value. On the development side of our real estate business, we sold 159 residential lots in our Chenal valley master plan community in little rock, and we completed a commercial sale during the year.
Lot sales are off to a strong start in 2022, which is a tribute to our team’s focus on creating inventory to meet strong residential lot demand. Turning to capital allocation, we distributed $388 million of to shareholders in 2021 equal to 90% of our cash available for distribution for the year. We paid a $4 per share special dividend in December.
We also increased the regular dividend 7.3% in the fourth quarter to a dollar 76 per share on an annual basis. We remain committed to growing the regular dividend sustainably. The large fourth quarter dividend increase reflects both bullishness in our business and the successful completion of accretive Timberland acquisitions.
Speaking of Timberland acquisitions, we closed four bolt-on deals in the south in the fourth quarter for an aggregate consideration of $131 million. The largest transaction was a tax free merger with rural land and Timber Company whereby we acquired just over 51,000 acres of high quality, well stocked Timberlands in Southern Arkansas and Northern Louisiana for 1.96 million shares in the assumption of $6.6 million of debt.
The rural Timberlands are a highly attractive addition to our portfolio. Average stocking levels of approximately 90 tons per acre, and an average Timber age greater than 40 years are both well above the norm.
Typical metrics for Southern Timberlands are roughly 45 tons per acre, and an average age of Timber of 14 to 15 years, assuming a 30 year growing cycle and even age management. We expect to realize average annual EBITDA of $8.5 million over the first 10 years of ownership providing an appealing cash yield.
We had the liquidity of nearly $600 million at the end of 2021 after paying the special dividend. Our leverage also remains the lowest of the Timber reeds, despite our large special dividend. Our financial strength provides a solid platform for continued growth, as we consider additional accretive acquisitions and investments in our existing mills.
I will now provide some thoughts on our expectations for 2022. DC transportation challenges, and COVID absenteeism stressed, a supply chain that has had difficulty consistently meeting lumber demand over the last two years. As a result, lumber prices increased back above a thousand dollars per thousand board feet as reported by random lengths.
We do not believe prices at this level are sustainable and we expect lumber prices to moderate as we move through 2022. Having said that we continue to believe average lumber prices for the full year will be structurally higher than long term averages due to exceptional lumber demand and tight supply housing fundamentals remain robust.
U.S housing starts increase to 1.7 million units on a seasonally adjusted basis. And building permits were nearly 1.9 million units in December. Both statistics were notable milestones and represent a strong finish to a strong year. A shortage of homes in the large millennial demographic cohort, continue to underpin our view, that housing should be set up for a multiyear boom.
We are monitoring rising mortgage rates, given their effect on housing affordability, home buyers and builders have levers to offset affordability issues caused by higher rates migration to less costly housing markets given the durability of remote work builder concessions and smaller houses or examples of factors that may mitigate the effect of higher mortgage rates.
Interestingly, Fred Mac released a forecast just last week, predicting that the single family housing market will remain stable in 2022. They expect that higher mortgage rates will moderate the pace of home price increases and that the entry level home segment will remain tight due to a shortage of homes for sale.
We expect continued growth in the repair and remodel segment in 2022. In the last week, we receipt published an expectation that R&R spend will increase 3% in 2022. And the Harvard joint center for housing study is predicting 17% growth. Factors supporting growth in the repair and remodel segment include high levels of home equity, that work from home trend and the age of us housing stock, which is now 42 years on average.
Regarding environmental, social and governance reporting, we plan to publish our third annual ESG report in May. We are also developing a full ESG section of our website and we plan to publish a carbon and climate report in September.
PotlatchDeltic has a strong ESG story and we are committed to do our part to mitigate climate change and continue our legacy of responsibility across the ESG spectrum. To wrap up my comments, PotlatchDeltic is very well positioned to take advantage of favorable industry fundamentals and our strong balance sheet and liquidity provide a high degree of flexibility as we seek to maximize shareholder value.
I will now turn it over to Jerry to discuss fourth quarter results and our outlook.
Jerry Richards
Thank you, Eric start starting with page four of the slides adjusted EBITDA decreased from $107 million in the third quarter to $76 million in the fourth quarter, the decline largely reflects the effect of lower indexed. Idaho sawlog prices and seasonally lower harvest volumes in the fourth quarter.
I’ll now review each of our operating segments and provide more on the fourth quarter results. Information for our Timberland segment is displayed on slides five through seven. The segments adjusted EBITDA was $42 million in the fourth quarter compared to $76 million. In the third quarter, we harvested 349,000 tons of sawlogs in the north in the fourth quarter. This is down seasonally from the 462,000 tons that we harvested in the third quarter.
Northern sawlog prices were 28% lower on a per ton basis in the fourth quarter, compared to the third quarter, the decrease in solid log prices reflects lower prices for indexed and Cedar sawlogs as well as seasonally heavier logs. Because our index prices reset on a one month lag the higher lumber prices that occurred in December won’t be reflected in our sawlog prices until the first quarter.
In the south, we harvested just under 1.1 million tons in the fourth quarter. This volume was 4% higher than the third quarter as our Southern Timberland team worked hard, minimize the amount of our harvest shortfall for the year.
Our Southern sawlog prices were 2% lower in the fourth quarter compared to the third quarter. As discussed on last quarter’s call, we expected pine sawlog prices to moderate once conditions dried out and sawlog mill or sawlog mill — sawlog inventories return to more normal levels. Sorry.
Turning to what products on slides eight and nine adjusted EBITDA was $37 million in the fourth quarter compared to $27 million in the third quarter. Our average lumber price realization increased 6% from $533 per thousand board feet in the third quarter to $563 per thousand board feet in the fourth quarter.
Our price increases comparable to the random lengths, framing lumber composite on a percentage basis, when the composite is shifted to account for the length of our order files. Our lumber prices increased each month during the fourth quarter, our average lumber price realizations per a thousand board feet were $487 in October $570 in November and $639 in December. Lumber shipments decreased from 265 million board feet in the third quarter to 243 million board feet in the fourth quarter.
COVID absenteeism was a drag on production. Our plywood business performed exceptionally well in 2021 and delivered record profitability. The negative residuals and panels variants on page eight of the slides, primarily for decline in plywood prices after peaking at an all-time high in the third quarter.
Moving to real estate on slides, 10 and 11, the segments adjusted EBITDA was $10 million in the fourth quarter of slightly from $9 million in the third quarter. Higher rural land sales closings slightly exceeded fewer residential lot sales in our Chenal valley master plan community in little rock Arkansas.
Shifting to financial items, which are summarized on slide 12. Our total liquidity remains strong at nearly $600 million. This amount includes $296 million of cash, as well as availability on our undrawn revolver. Speaking of a revolver in December, we extended its maturity to February 14, 2027. We also reduced the size of the facility to $300 million, given our strong balance sheet and plentiful available capital.
We refinanced $40 million of debt scheduled to mature in December of 2021, reducing our annual interests spends approximately $700,000. We also repaid the $6.6 million of debt, we assumed in the Loutre merger in December and $3 million of medium term notes at maturity in January.
We did not repurchase any shares during the fourth quarter. As a reminder, we have a 10b5-1 plan in place. This reflects our ability and commitment to repurchase our shares at attractive prices. Capital expenditures were $19.6 million in the fourth quarter.
Note that the amount I just mentioned includes real estate development expenditures, which are included in cash from operations and our cash flow statement and excludes the Timberland acquisitions that Eric discussed. We also recorded a favorable income tax adjustment of approximately $5 million in the fourth quarter, mostly to reflect lower state income taxes.
I will now some high level outlook comments. The details are presented on slide 13. We expect to harvest about 6.1 million tons in our Timberland segment in 2022, with approximately 70% of the volume in the south, we expect our annual harvest volume run rate will increase to 6.2 to 6.4 million tons, after our Ola Arkansas sawmill startup curve is behind us sometime in 2023.
Harvest volumes in the north are planned to be comparable in the first quarter, relative to the fourth quarter, we expect Northern sawlog prices to increase significantly in the first quarter, reflecting higher lumber index prices, harvest volumes and sawlog prices in the south are expected to decrease seasonally in the first quarter. The sawlog price decline is due primarily to seasonally, fewer hardwood sawlog in the mix.
We plan to ship just over 1 billion board feet of lumber in 2022. In the first quarter, we plan to ship 230 to 240 million board feet lumber. Our estimates reflect uncertainty associated with pandemic related absenteeism. Our average lumber price thus far in the first quarter, including orders booked, but not yet shipped is approximately 70% higher than our average fourth quarter lumber price.
Our current lumber prices are approximately 90 on higher than our average fourth quarter price. As a reminder, a $10 per thousand board foot change in lumber price equals approximately $12 million of consolidated EBITDA for us on an annual basis.
Shifting to real estate, we expect to sell approximately 13,500 acres of rural land and approximately 160 valley residential lots in 2022 additional real estate details are provided on the slide. We estimate that interest expense will be $3 million in the first quarter and just over $8 million per quarter for the second, third and fourth quarters of 2022.
Interest expenses lower in the first quarter, because that when we receive our annual patronage payment from the farm credit banks. Our total capital expenditures are planned to be in the range of $70 million to $75 million in 2022, excluding acquisitions. That estimate includes approximately 15 million to rebuild OLA, which we expect will be reimbursed by insurance.
Overall, we expect to start 2022 with a very strong first quarter. We anticipate total adjusted EBITDA for the first quarter will be a bit more than double fourth quarters level due, primarily to higher lumber and index all log prices. We remain bullish on industry fundamentals to fight rising interest rates, our integrated operating model and leverage the lumber prices are aligned with those fundamentals and we are a well positioned to continue growing shareholder value.
That concludes our prepared remarks. Emma, I’d now like to open the call to Q&A.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question today comes from Kurt Yinger with D.A. Davidson. Your line is now open.
Kurt Yinger
Great, thanks and good morning, Eric and Jerry. I just wanted to morning, I wanted to start off on plywood. Jerry, you touched on, the negative impact from lower prices kind of flushing through there, realizing what you’re making is a bit different than commodity is, is there anything we should be mindful of as we think about price potentially recovering there? Like we’ve seen kind of on the commodity side?
Eric Cremers
Yeah. Kurt. So, our plywood prices did decline in the fourth quarter considerably interestingly enough, it was about a one quarter lag to what happened to, to lumber prices. If you think about lumber prices, Q2 to Q3, there was a pretty be significant drop in that quarter. Our plywood prices held up in Q3 largely because our order files were pretty long. And as we got into to Q4 prices reset is demands softened a little bit. I don’t, I think the worst of it is behind us. And our expectation is things are going to be relatively flat from here as we look out through through 2022.
Kurt Yinger
Got it, Okay. That’s helpful. And then, you talked about kind of the longer term outlook in terms of end market trends, but hoping you could just talk a little bit about what you’re seeing in terms of order trends on the lumber side, from the big box retailers anyway, to think about that in terms of how it’s trending versus last year and any concerns around inventory levels in that channel or indications of maybe sticker, stock shock, starting to slow consumption at all?
Eric Cremers
Yeah. Kurt. So, R&R it pause last year Q2 and two Q3, prices got up to 1600 bucks, a thousand, and then the market rebounded in Q4. We, we expect as we set in our opening remarks, we expect growth in R&R to continue.
For us home centered takeaway, it picked up during Q4. And it’s still a solid business for us here in Q1. There’s lots of reasons why know our activity is going to stay strong. we’ve talked about it, limited supply, new homes, people want to expand living space, include outdoor areas, record home equity levels, strong labor market. median age of houses is 42 years. All these, all these factors are going to work together to help support the R&R business.
What I would tell you specific to our, and I don’t want to get too down into weeds for competitive reasons, but I would tell you that our home center demand today is currently outpacing our expectations.
And we think that’s driven both by the DIY as well as the pro contractor segments of R&R. So the way I’d characterize it is we, we have a program with the home centers to deliver a certain volume of lumber each week, each quarter. And what I would tell you is that they’ve come to us and they have asked for incremental lumber supply here or early in 2022.
And they’re obviously gearing up for the, the spring summer R&R season. So from our point of view the R&R market, the home center market, it’s very strong.
Kurt Yinger
Got it. Okay. Well that, that’s good to hear. And then just lastly, on, I guess the three other Bolt-on Southern Timber land transactions that you touched on, any color there, you could give us in terms of acreage and I guess geography and, and, and valuation?
Eric Cremers
Well, yeah, so, so they’re, they’re relatively small. They were all down in the south. they were, well, three of them, two of them were in two of them were in Arkansas and one of them was over in in Mississippi. They were in the gosh, $2,000 an acre kind of range on average, very attractive well stock tracks and our average real IRR over the course of the year, which would include those four deals in Q4 was around 5.4%, which is well above our, our cost of capital for our Timberland’s business.
So, we were, we’re quite enthusiastic, several of those deals, by the way, we’re kind of one off negotiated transactions and if you look at our track record, that’s kind of how we like to acquire Timberland.
We don’t like the big, highly competitive, broad auctions. All the excess returns tend to bit away. We, we like finding these little nichey one-off deals where the competitive bidding intensity is relatively low and that’s, that’s what we got in the fourth quarter.
Operator
Your next question comes from the line of Paul Quinn with RBC Capital Markets. Your line is now open.
Paul Quinn
Yeah. Thanks very much. good morning guys. Just, just wanted to get some more information on the Ola fire and the insurance proceeds, or, what the extent the insurance covers is there any business interruption, insurance, and then when do you expect the mill to be back up and what’s a new product capacity of the mill?
Jerry Richards
Yeah. So I’ll take the first part of that, Paul, in terms of insurance coverage. So insurance coverage is good. we have coverage of both the property damage, as well as business interruption with a minor deductible around a million dollars for the deductible. And what we have over time is, is a bit of a mismatch at, in terms of one week incur expenses or capital expenditures.
Certainly we had business interruption or, or losses last year. And we got to go through the business interruption piece of that coverage, but what come out very well financially at the end of the day and the comments you heard CapEx to rebuild [indiscernible] is about $15 million this year 2022 and that’s fully covered by insurance.
We’ve already kind of taken our lumps for the, for the small deductible, and we’re in the process of sorting through the business interruption. So, throughout the year, you’ll probably, we continue to see, some noise both on the positive at this point, perspective in terms of recoveries. And we’ll continue to call that out as a special item as, as it occurs. And then, I’ll pass it over to Eric for the second part of the question.
Eric Cremers
Yeah. So good morning, Paul. So, in terms of startup, we’re going to take delivery of that new large log line kind of in the July, August timeframe. We’re having regular interaction with the vendor and the equipment is on track and, demolition has been completed at the site and there’s, there’s structural steel going in as we speak.
So we’re, confident in that July, August kind of a timeframe. So what I, what I tell you is that when we get done with, getting through, hiccups that inevitably come from starting up a, a piece of equipment like this, the mill is going to be really competitive. We think recovery is going to be roughly 10% improved over the pre-fire Ola.
We think our processing costs are going to be about 15% lower than the, the pre-fire Ola. And we’re going to get about 25 million feet of incremental. So up in 150 million foot per year kind of range. So we think the Mill’s competitiveness is, is, is really going to going to improve kind of once it’s once it’s up and running.
Paul Quinn
Okay. And then just just over on real estate, I mean, just look at, at lots sales values in Q versus the outlook. What, what, what why do, why the expectation of higher pricing on the lot sales? Are they better? Lots is the market moving up significantly?
Jerry Richards
It’s a great question, Paul, and, actually it’s a combination of both to be honest with you, but, the primary answer is, I’ll start with this piece of it, is really mix usually is the primary factor. So, there were a lot of more entry level type home, lots, that were sold in the fourth quarter. And what we have in the mix for the first quarter is more of the, premium lots, if you will. And that can, what we do is we release a, kind of a community by community. So know you can see that mixed swing quarter of a quarter. We also did increase prices around 10% last year and continue to increase prices for lots, just because demand has been so strong.
I guess the other interesting, as I’m talking about strong demand for lots’ when you look at, we released or made 130 lots available in the second half of last year, all of those sold and or, are under contract and just last week we released 26 lots in another community. again, some of these nicer more premium lots that are referred to as to, why the price is higher, all 26 are now spoken for. So we, our team, quite honestly can’t develop lots fast enough and demand has just been extraordinarily strong in that project.
Eric Cremers
Yeah. And on, on that, on that note, Paul, we had expected of those 26 lots, we had expected 14 of them to sell. And instead as Jerry said, all 26 went, so that gives you any indication about, how the builders are thinking about 2022. I think that’s a really good real time indication.
Paul Quinn
Okay. That’s that’s great. And then just over on the Timberland side expectation for, for acquisitions in ’22, do you see any change at all on the marketplace and are you still focused on, on the south?
Eric Cremers
Yeah, I would, we, I, we’d love to find something to do, up in the inland region, Paul it’s just very little comes to market here. So we’re almost forced to go look to the south for growth. the south is big, it’s deep it’s liquid. That’s kind of where the, the Timberland M&A game is, is played these days. And what I would say is there are a number of deals that are, that are in the pipeline.
And I would tell you that it’s unbelievably competitive right now. Chasing, chasing Timberland deals discount rates or at rock bottom levels. People are being very aggressive, both, both REITs as well as TMOs. So we’ll, we’ll see if things change, but it’s a really competitive market right now for, for Timberland.
Paul Quinn
So the expectation for higher interest rates through, hikes in the fed haven’t really come back to, to hire discount rates at this point yet?
Eric Cremers
No, I don’t. I don’t think so. And the other way to look at it, there’s a lot of talk about people, investing in real assets these days. Timberland historically has been a pretty good inflation hedge. And if you believe in wood baskets, starting to tighten you can offset interest rate increases with increased log prices to offset those potentially higher discount rates.
So people, when they buy Timberland, they really buy it for the long-term, not for what’s happening to interest rates today or tomorrow or next year, even it’s really a long-term play. But I’ll, I’ll tell you that it’s more competitive than ever.
Paul Quinn
Okay. Maybe one bonus question, because you brought it up just, just on tightening Timber markets, especially in the south. Do you expect those, so those sawlog prices to move up materially anytime soon, or what’s your expectation of, of price increases your through your sawmill office?
Jerry Richards
Yeah, it’s a great question, Paul, and you look at our Southern sawlog price realizations last year, 2021 is up 4% compared to 2020. So, certainly wet weather and log shortages that mills play played a role. I think it’s still a bit early in our mind as to whether, there’s kind of a broader tensioning that that’s occurring.
We do see that, in the future and think we’re on the right trend and path as, as mill capacity continues to get added or expanded in, in the U.S. south now having set that, we are forecasting next year 2022 versus 2021 that solid pricing probably moves up another 2%. So, we’re quite optimistic. but it’s, it’s hard to say, beyond kind of local wood baskets and mix, whether, like I said, things have turned in the south, which is really the broader question you’re asking. Right?
Operator
Your next question comes from the line of Ketan Mamtora with BMO Capital Markets. Your line is now open.
Ketan Mamtora
Thank you. And good afternoon. First question, I was just curious kind of, we’ve seen this big rally in lumber says, at a time usually where, demand is seasonally slow. So what do you think sort of are the two or three sort of key drivers? Is it more driven by sort of the absenteeism that you’re seeing at the mills inability to really produce — produced lumber or is it, that demand actually has continued to remain strong in all, all the different sort of end markets?
Eric Cremers
Yeah. Ketan, the way I would characterize it is, it’s a function of both really, we’ve seen demand remain pretty strong here, despite the fact that we’re in the, in the winter months R&R remain strong housing starts figures have been pretty strong, so demand has been strong. And then, so if you look at the supply society equation, certain certainly COVID has impacted production and shipment volumes.
We think it costs us 10 million feet of shipments in the fourth quarter. We think it’s going to cost us another 5 million feet here in Q1. It’s an issue the whole industry is, is, is grappling with. And when you combine that with, the issues that DC has had with the flooding and then all the transportation issues up there trying to get lumber out to DC down to the U.S where, they BC is 15 to 20% of, of North American supply.
I think that is, that has helped conspire to raise prices as well. But, I think you got to think about this in terms of the diminishing amount of spare capacity that’s in the lumber producing industry. If you take a look at the longer term and I mean, longer term, just like a five year trend, we’ve seen North American capacity grow roughly 2 billion board feet, despite all this talk you hear about all these new mills and all these expansions, you add it all up.
Net you’ve seen rough, roughly 3 million feet come out to Canada. And you’ve seen, four or 5 billion, billion feet here in the U.S. But over that same five year stretch you’ve seen North American consumption grow by roughly 8 billion board feet. So capacity utilization is getting tighter and tighter in the industry.
Eric Cremers
And anytime there’s a hiccup in the supply chain, whether it’s DC floods or it’s, COVID absenteeism, it’s going to force prices higher. So I, I think, this is just a, a situation the industry finds itself in after, a decade of underbuilding in the U.S., there wasn’t a whole lot of free cash flow floating around the industry for people to go invest in their mills. And so now we’re left with, demand is, is coming in really strong and there just isn’t the supply to meet it. So it’s a, it’s a, it’s a really, both a supply and a demand issue.
Ketan Mamtora
Got it. That’s has full perspective. And then switching to your CapEx plans for 2022 outside of, you know Ola that we, we discussed earlier. Can you talk about, maybe a couple of key projects that are going on at your S for this year?
Eric Cremers
Yeah. So we’ve got, we’ve got two extra projects that are going in to Ola besides the rebuild project we’re putting in a new trimer optimization piece of equipment. We’re also putting in a log simulator. that’s about$4 million of capital and, 32% kind of IRS on those projects. We thought as long as we’re rebuilding Ola, can we get all this opportunity with that mill to really get it and, fighting shape, we thought, why not enhance the performance of the mill of those two projects?
We’ve also got a an interesting project out at our, our plywood mill. This is about a four and a half million dollar project with a roughly 40% IRR. It’s a, it’s an automated patch line. So right, you got 10, 15 people that do patch repair for plywood, as it moves down the assembly line this new automatic patch equipment that we’re installing.
It’s not only going to remove roughly 12 employees from the mill, which, labor’s hard to get, so that’s helpful. We’re also going to cut chemical usage about $1.7 million per year. So that project is going to going to wrap up here in, in Q1 and Q2 will be off to the races. So we’re really looking forward to getting that behind us as well.
And then we’re also investing some capital, frankly, for projects that aren’t going to happen. This year necessarily because of vendor lead times they’re, they’re out into, into, into next year. We’ve got two projects added our Gwen mill that look really attractive to us.
So we’re going to, we’re going to start work on those projects here this year as well, one’s a, an edger upgrade and the other’s a, a trim Short-line replacement project. So a lot of things in the hopper, but our, our focus candidly this year is really the Ola sawmill rebuild.
Ketan Mamtora
Got it. That’s that’s very helpful. And then turn to real estate. You, you mentioned sort of the development, the Chanel valley development side, but even on the rural side, it seems like there’s quite a bit of activity and interest, for Q1, you are talking about sort of, oh, $4,000 in price per acre. That seems like a very healthy number?
Jerry Richards
Yeah, that that’s correct. Kate. Then I, I would just start by saying over all demand for rural has been really strong as well. it’s a combination of factors, some of it, is just rural recreation and people, in a pandemic window wanting space and prioritizing that even more than, than prior to the pandemic, but, everything I’ll touch on is when you think about, our, our team always find kind of new market opportunities. So always thinking about, what is, what is the next way to kind of create value?
And one of the things that, through on the mix is, there’s about 50 million of solar projects that our team is looking at. this is, this could be longer term, this’s not necessarily, I’m not talking Q1 specifically, or but those, with be instances where most likely we would sell the land after harvesting it and sell it at a really attractive price.
So, overall, give me some examples as to, certain segments of that market have just been really strong and they continue to evolve over time. So as you see in the Q1 price per acre, obviously, we have one or more, really attractive to yields that we’re anticipating and look forward to providing color in, in April. Assuming we can pull those over the finish line.
Eric Cremers
Yeah. And ke just to add to what Jerry was, was saying interestingly enough, we’ve spoken about this Loutre deal down in south Arkansas and north Louisiana Loutre had a, a history of really not selling much, much land. They kind of, kind of kept it for themselves. And since we’ve acquired Loutre and made the announcement, we’ve now fielded a dozen inbound phone calls, people interested in trying to buy some rural acreage from us.
So there’s pent up demand out there for some of those tracks, a and we’re not going to rush into any deals we like to take our time, stratify our acreage, and really be conscious about what we’re going to sell and what kind of premium we’re going to get. But I think that kind of gives you an indication of what we like to do after we do a meaningful Timberland acquisition.
We stratify, we stratify, and then we extract those, those acres that have got really high, rural demand, potential price potential, and we, and we sell ’em off, but we’re seeing, as Jerry said, no, slow-down in rural demand.
Ketan Mamtora
Got it. That’s very helpful. And just one quick one from me on Cedar prices, have you started to see those stabilized or are they still under pressure? So far in Q1?
Jerry Richards
Yeah. I, still a bit under pressure would be the short answer Ketan but the decline has not been as, as significant. And the other thing that’s important is, they’re still trading at really attractive prices relative to history. So, even though they come off you know kind of a record peak, if you will, they’re still we’re still, we’re still very happy with the price that they’re trading at today.
Operator
Your next question comes from the line of job of John Babcock with Bank of America. Your line is now open.
John Babcock
Hey, thanks. And thanks for taking my questions. Starting out, did you make any comments on where you expect EBITDA to come out at all for the quarter?
Jerry Richards
Yeah. In, in, in the prepared comments, John, at the very end, I kind of touched on and, we expect Q1 EBITDA consolidated for the Company to probably be a bit more than double Q4 is, is our current estimate.
Obviously, a key moving part is, is lumber pricing, prices, which, have made a strong move and on a spot basis, provided color that they’re up 90%, compared to our fourth quarter average. But, also feels like, there’s a chance they might have hit a, hit, a, hit a peak and, depends on kind of how the rest of the quarter plays out.
John Babcock
Okay. Got you. Just want to clarify that. And then the next part just on Ola sounds like you guys expect that to start up in the three Q four Q sorry, not three Q four Q July, August timeframe. How should we say about the ramp up of that?
Eric Cremers
Wow. That’s a little early to try to be giving that kind of kind of guidance, John. I mean, I, I think our plan is to get to fully operation by January 1st, 2023. these, startups are always challenging. A lot of kinks get worked out in the system, but I think you could draw, a line starting August 1st at zero production for the large log line. And then it’s going to linearly get to hopefully get to 150 million feet by January 1st. That might be just a simple way to look at it and think about it.
John Babcock
Okay. And CapEx is, going to be a, a little bit elevated this year. How would you have us think about, the longer term CapEx profile? I think in the past, we’ve had, $40, $45 million annually baked in and it sounds like about, $15 million or so is O of course plus or minus, some, a couple million for other investments. So how would you have us kind of think about that?
Eric Cremers
Well, I would say that, our Timberlands CapEx is, is relatively stable around, I don’t know, $17 million a year, our real estate CapEx. It really just depends on, our ability to produce lots. And that runs, who knows $10, $12 million a year. And then, and then it’s Wood Productss and for us wood it’s really driven by discretionary investments, to what extent do we see high return projects that we feel really good about? It varies from year to year. I think this year it is elevated because of the Ola spend. I think you got to back out, that $15 million of insurance proceeds that were going to get reimbursed. But I think a normal run rate would be in the $25 to $30 million kind of range going forward had there, had there not been an Ola.
Operator
At this time. I’m showing there are no more questions. I’ll now turn the call back over to Jerry Richards.
Eric Cremers
Great. Thank you again, him. And, just to reiterate, we expect to start, 20, 22 with a really strong quarter, as you heard, in the Q&A, at least double what we just generated in the fourth quarter, housing fundamentals and repair and remodel market fundamentals remain really strong or well positioned and have a really strong balance sheet to continue to grow the Company and grow shareholder value over time. So thanks for your interest and serve to answer detailed modeling questions the rest of the day. Thank you.
Operator
This concludes today’s conference call. Thank you for attending. You may now disconnect.
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