Rayonier Reports Third Quarter 2020 Results
Rayonier Inc. (“Rayonier”) reported third quarter net loss attributable to Rayonier of ($0.8) million, or ($0.01) per share, on revenues of $198.9 million. This compares to net loss attributable to Rayonier of ($0.4) million, or $0.00 per share, on revenues of $156.4 million in the prior year quarter. The third quarter results included costs related to the merger with Pope Resources1 of $0.4 million and timber write-offs resulting from casualty events2 attributable to Rayonier of $7.9 million. Excluding these items, pro forma net income (loss)3 was $7.5 million, or $0.06 per share, versus ($0.4) million, or $0.00 per share, in the prior year period.
Third quarter operating income was $1.8 million versus $11.0 million in the prior year period. The current quarter operating income included costs related to the merger with Pope Resources1 of $0.4 million and timber write-offs resulting from casualty events2 of $15.2 million (of which $7.9 million was attributable to Rayonier). Excluding these items and adjusting for the operating loss attributable to noncontrolling interest in Timber Funds, current quarter pro forma operating income3 was $20.3 million. Third quarter Adjusted EBITDA3 was $67.2 million versus $43.2 million in the prior year period.
Year-to-date cash provided by operating activities was $138.0 million versus $164.2 million in the prior year period. Cash available for distribution (CAD)3 of $124.2 million increased $8.6 million versus the prior year period primarily due to higher Adjusted EBITDA3 ($10.1 million), lower cash taxes paid ($0.7 million) and lower capital expenditures ($2.2 million), partially offset by higher cash interest paid ($4.4 million).
“We delivered strong operating results across our segments in the third quarter despite ongoing challenges associated with the COVID-19 pandemic,” said David Nunes, President and CEO. “Both our U.S. and New Zealand timber operations remained fully-operational throughout the third quarter as we continued to follow enhanced safety protocols to protect our employees, contractors and customers. During the quarter, we also contended with several casualty events, including a hurricane that impacted properties in our Southern Timber segment and wildfires that impacted properties in our Timber Funds segment. Fortunately, no Rayonier employees were injured during these events. While our third quarter results were negatively impacted by inventory write-downs due to damage sustained to standing timber on these properties, I’m pleased that our team was able to quickly mobilize, assess the damage to our lands and execute a plan to maximize salvage opportunities. Overall, I’ve been very encouraged by the resiliency of our business as well as the dedication of our employees as we’ve navigated these various operational challenges.”
“Notably, each of our operating segments registered an increase in Adjusted EBITDA versus the prior year quarter,” continued Nunes. “Southern Timber Adjusted EBITDA improved 16% relative to the prior year quarter, as strong demand for sawlogs amid surging lumber prices resulted in a 16% increase in harvest volumes and an 8% increase in sawtimber stumpage prices. In Pacific Northwest Timber, Adjusted EBITDA more than tripled versus the prior year quarter, as an additional 55,000 tons of harvest volume resulting from the acquisition of Pope Resources was augmented by an 18% increase in weighted-average log prices. New Zealand Timber Adjusted EBITDA improved 2% relative to the prior year quarter, as lower log prices were offset by a 3% increase in harvest volumes and higher carbon credit sales. Real Estate also delivered another strong quarter as Adjusted EBITDA rose significantly versus the prior year quarter driven primarily by strong rural sales demand.”
Hurricane & Wildfire Update
During the third quarter, properties within our Southern Timber and Timber Funds segments were impacted by hurricane and wildfire events, respectively. In our Southern Timber segment, Hurricane Laura made landfall in Louisiana on August 27th as a Category 4 hurricane with 150mph sustained winds, impacting nearly 8,000 acres of our timberland properties in the state. Initial damage assessments indicated that approximately 4,900 acres of pine plantations and 2,900 acres of natural stands sustained severe damage. Of the approximately 4,900 acres of pine plantations, we anticipate being able to salvage approximately 1,000 acres, weather permitting, based on existing mill quotas and the condition of the damaged timber. We do not expect to be able to salvage any of the natural stands. As a result of the hurricane, we wrote off timber basis in the amount of $6.0 million during the third quarter.
In our Timber Funds segment, the Beachie Creek fire in Oregon spread through approximately 9,000 acres of land owned by ORM Timber Fund II, which Rayonier manages and in which Rayonier holds a 20% economic interest, and the Slater fire in Oregon spread through approximately 1,000 acres of land owned by ORM Timber Fund IV, which Rayonier manages and in which Rayonier holds a 15% economic interest. Based on the severity of the damage sustained to these properties, as well as the widespread impact on other timberland owners throughout the Pacific Northwest, we estimate that approximately 60% of the damaged merchantable timber will be salvageable. As a result of the wildfires, we wrote off timber basis of approximately $9.2 million (including $8.8 million in ORM Timber Fund II and $0.4 million in ORM Timber Fund IV) during the third quarter, of which approximately $7.3 million was attributable to the non-controlling interest in the Timber Funds and $1.9 million was attributable to Rayonier.
Due to the nature of these casualty events and the infrequency with which they materially impact our results, we have included these charges as a pro forma item in our third quarter results.
Third quarter sales of $47.7 million increased $6.4 million, or 15%, versus the prior year period primarily due to higher volumes, partially offset by lower pipeline easement revenue. Harvest volumes increased 16% to 1.48 million tons versus 1.28 million tons in the prior year period due to strong demand for sawtimber and pulpwood products. Average pine sawtimber stumpage prices increased 8% to $25.02 per ton versus $23.16 per ton in the prior year period, primarily due to improved demand for domestic and export grade timber coupled with favorable geographic mix. Average pine pulpwood stumpage prices were flat at $15.50 per ton versus $15.53 per ton in the prior year period. Overall, weighted-average stumpage prices (including hardwood) increased 5% to $18.88 per ton versus $18.05 per ton in the prior year period, primarily driven by higher sawtimber prices coupled with an 8% increase in sawtimber mix. Operating income of $5.1 million decreased $4.4 million versus the prior year period due to the write-off of timber basis as a result of Hurricane Laura ($6.0 million) and lower non-timber income ($2.9 million), partially offset by higher volumes ($1.6 million), higher net stumpage prices ($1.2 million), lower lease and other expenses ($1.6 million) and lower depletion rates ($0.1 million).
Third quarter Adjusted EBITDA3 of $26.1 million was $3.6 million above the prior year period.
Pacific Northwest Timber
Third quarter sales of $28.9 million increased $10.1 million, or 54%, versus the prior year period. Harvest volumes increased 33% to 346,000 tons versus 261,000 tons in the prior year period primarily due to improved sawtimber demand coupled with 55,000 tons of incremental volume from the acquired Pope Resources timberlands. Average delivered sawtimber prices increased 19% to $93.34 per ton versus $78.26 per ton in the prior year period, primarily due to improved domestic lumber markets coupled with a higher percentage of Douglas-fir sawtimber. Average delivered pulpwood prices decreased 15% to $32.12 per ton versus $37.87 per ton in the prior year period, as the deterioration of pulpwood export markets and higher lumber mill residuals resulted in excess domestic supply. Operating loss of $1.8 million improved $1.7 million versus the prior year period due to higher net stumpage prices ($5.0 million) and higher non-timber income ($0.8 million), partially offset by higher depletion rates ($2.6 million) and higher overhead and road maintenance costs ($1.4 million).
Third quarter Adjusted EBITDA3 of $9.1 million was $6.4 million above the prior year period.
New Zealand Timber
Third quarter sales of $62.8 million increased $0.8 million, or 1%, versus the prior year period. Harvest volumes increased 3% to 776,000 tons versus 754,000 tons in the prior year period. Average delivered prices for export sawtimber decreased 1% to $94.42 per ton versus $95.51 per ton in the prior year period, while average delivered prices for domestic sawtimber decreased 7% to $70.24 per ton versus $75.29 per ton in the prior year period. The slight decrease in export sawtimber prices was driven primarily by a buildup of China log inventories and continued competition from lower-cost European log and lumber imports into China. The decrease in domestic sawtimber prices (in U.S. dollar terms) was partially offset by the slight rise in the NZ$/US$ exchange rate (US$0.661 per NZ$1.00 versus US$0.655 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices decreased 8% versus the prior year period, generally lagging the prior negative trend in the export market. Operating income of $10.7 million increased $0.6 million versus the prior year period as a result of higher volumes ($0.4 million), higher carbon credit sales ($0.9 million) and lower depletion rates ($0.5 million), partially offset by lower net stumpage prices ($1.0 million) and unfavorable foreign exchange impacts ($0.2 million).
Third quarter Adjusted EBITDA3 of $18.1 million was $0.4 million above the prior year period.
The Timber Funds segment generated third quarter sales of $9.9 million on harvest volumes of 110,000 tons, and operating loss of $12.4 million. Third quarter operating loss included timber write-offs of $9.2 million resulting from two fires in Oregon.2 Adjusting for the portion of the Timber Funds segment attributable to noncontrolling interests and fee revenue to Rayonier, and excluding timber write-offs resulting from the Oregon fires, pro forma sales3 and pro forma operating loss3 were $2.2 million and ($0.3) million, respectively.
Third quarter Adjusted EBITDA3 was $0.2 million.
Third quarter sales of $28.8 million increased $19.6 million versus the prior year period while operating income of $9.5 million increased $9.0 million versus the prior year period due to a higher number of acres sold (10,562 acres sold versus 1,345 acres sold in the prior year period), partially offset by a decrease in weighted-average prices ($2,332 per acre versus $6,513 per acre in the prior year period).
Improved Development sales of $1.3 million included $1.0 million of sales in the Wildlight development project north of Jacksonville, Florida consisting of 15 residential lots ($65,000 per lot or $377,000 per acre) in addition to a $0.3 million sale of development property in Kitsap County, Washington ($247,000 per acre). This compares to prior year period sales of $4.5 million, which consisted of 21.7 acres of commercial property ($207,000 per acre) in the Wildlight development project.
There were no Unimproved Development sales in the third quarter or the prior year period.
Rural sales of $23.2 million consisted of 10,482 acres at an average price of $2,218 per acre. This compares to prior year period sales of $4.2 million, which consisted of 1,291 acres at an average price of $3,262 per acre.
Timberland and Non-Strategic sales in the current quarter and the prior year quarter were negligible.
During the quarter, we began reporting Conservation Easement sales as a new sales category within the Real Estate segment. Since Conservation Easement sales involve the sale of certain land use rights rather than an outright sale of the land, these sales are not reflected in our average price per acre metrics for the Real Estate segment. Conservation Easement sales during the quarter were $3.1 million and covered 2,150 acres in Kitsap and Mason Counties, Washington ($1,450 per acre). There were no Conservation Easement sales in the prior year period.
Third quarter Adjusted EBITDA3 of $22.2 million was $16.8 million above the prior year period.
Third quarter sales of $22.2 million decreased $3.0 million versus the prior year period due to lower volumes and prices. Sales volumes decreased 7% to 252,000 tons versus 270,000 tons in the prior year period. The Trading segment generated operating loss of $0.6 million versus breakeven results in the prior year period, due to lower trading margins resulting from lower volumes and prices as well as higher shipping expenses.
Third quarter corporate and other operating expenses of $8.7 million increased $3.3 million versus the prior year period, primarily due to higher employee benefit costs ($1.8 million), legal expenses ($0.7 million), costs related to the Pope Resources merger ($0.4 million) and other overheads ($0.4 million). The increase in employee benefit costs was primarily driven by an increase in the annual bonus accrual due to an improved outlook for the year as well as additional headcount from the Pope Resources merger.
Third quarter interest expense of $10.4 million increased $2.4 million versus the prior year period due to higher outstanding debt following the closing of the Pope Resources merger.
Third quarter income tax expense of $0.7 million decreased $1.5 million versus the prior year period. The New Zealand subsidiary is the primary driver of income tax expense.
ATM Equity Offering Program
In September, we established an at-the-market (“ATM”) equity offering program under which we may sell common shares, from time to time, having an aggregate sales price of up to $300 million. There were no shares issued under the ATM program during the three months ended September 30, 2020, and all $300 million authorized under the program remained available for issuance.
“Based on our year-to-date results and expectations for the fourth quarter, we anticipate that full-year Adjusted EBITDA will be modestly above the high end of our prior guidance while pro forma EPS will be around the high end of our prior guidance,” stated Nunes. “In our Southern Timber segment, we expect full-year Adjusted EBITDA toward the higher end of our prior guidance based on continued strong sawtimber demand and pricing, partially offset by lower-priced salvage volume and market impacts from Hurricane Laura. In our Pacific Northwest Timber segment, we expect full-year Adjusted EBITDA well above our prior guidance based on continued strong log demand and pricing. In our New Zealand Timber segment, we expect full-year Adjusted EBITDA near the high end of our prior guidance as our operations continue to normalize following the COVID-19 disruptions earlier this year, with modest improvements anticipated in both export and domestic pricing. In our Real Estate segment, we expect full-year Adjusted EBITDA near the high end of our prior guidance, as we continue to see strong demand and a favorable transaction pipeline across our sales categories. Overall, we remain very encouraged by the stability of our business and the strength of our end markets despite the ongoing uncertainty associated with the COVID-19 pandemic.”
For the full third quarter results, click here.
1“Costs related to the merger with Pope Resources” include legal, accounting, due diligence, consulting and other costs related to the merger with Pope Resources.
2“Timber write-offs resulting from casualty events” include the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which cannot be salvaged.
3Pro forma net income (loss), Pro forma revenues (sales), Pro forma operating income (loss), Adjusted EBITDA and CAD are non-GAAP measures defined and reconciled to GAAP in the attached exhibits.
Rayonier is a leading timberland real estate investment trust with assets located in some of the most productive softwood timber growing regions in the United States and New Zealand. As of June 30, 2020, Rayonier owned or leased under long-term agreements approximately 2.7 million acres of timberlands located in the U.S. South (1.8 million acres), U.S. Pacific Northwest (507,000 acres) and New Zealand (416,000 acres). The Company also acts as the managing member in a private equity timber fund business with three funds comprising approximately 141,000 acres. On a “look-through basis”, the Company’s ownership in the timber fund business equates to approximately 17,000 acres. More information is available at www.rayonier.com.
Mark McHugh – Investors & Media Contact – email@example.com – (904) 357-9100
Source: Rayonier, Inc.