Rayonier Reports Fourth Quarter 2022 Results

Rayonier Inc. reported fourth quarter net income attributable to Rayonier of $33.1 million, or $0.22 per share, on revenues of $245.4 million. This compares to net income attributable to Rayonier of $8.7 million, or $0.06 per share, on revenues of $262.0 million in the prior year quarter.

The fourth quarter results included $16.6 million of income from Large Dispositions¹ and a $0.4 million favorable adjustment to a timber write-off taken in the third quarter.² Prior year fourth quarter results included a $3.8 million gain on investment in Timber Funds³ and a $3.1 million gain on Fund II Timberland Dispositions attributable to Rayonier.⁴ Excluding these items and adjusting for pro forma net income adjustments attributable to noncontrolling interests in the operating partnership,⁵ fourth quarter pro forma net income⁶ was $16.5 million, or $0.11 per share, on pro forma revenues⁶ of $214.9 million versus pro forma net income⁶ of $2.0 million, or $0.01 per share, on pro forma revenues⁶ of $191.0 million in the prior year period.

Fourth quarter operating income was $44.1 million versus $33.5 million in the prior year period. Fourth quarter operating income included $16.6 million of income from Large Dispositions¹ and a $0.4 million favorable adjustment to a timber write-off.² Prior year fourth quarter operating income included $12.3 million of operating income attributable to noncontrolling interests in the Timber Funds segment, a $3.8 million gain on investment in Timber Funds,³ and a $3.1 million gain on Fund II Timberland Dispositions attributable to Rayonier.⁴ Excluding these items, pro forma operating income⁶ was $27.2 million versus $14.4 million in the prior year period. Fourth quarter Adjusted EBITDA⁶ was $68.4 million versus $50.4 million in the prior year period.

Overview of Full-Year Results

Full-year 2022 net income attributable to Rayonier was $107.1 million, or $0.73 per share, on revenues of $909.1 million. This compares to net income attributable to Rayonier of $152.6 million, or $1.08 per share, on revenues of $1.1 billion in the prior year. Full-year results included $16.6 million of income from Large Dispositions¹ and a $0.7 million timber write-off (net) resulting from a fire casualty event.² The prior year results included $44.8 million of income from Large Dispositions,¹ a $10.3 million gain on Fund II Timberland Dispositions attributable to Rayonier,⁴ a $7.5 million gain on investment in Timber Funds,³ a $2.2 million loss from the termination of a cash flow hedge,⁷ and a $0.2 million loss related to debt extinguishments and modifications.⁸ Excluding these items and adjusting for pro forma net income adjustments attributable to noncontrolling interests in the operating partnership,⁵ full-year pro forma net income⁶ was $91.5 million, or $0.62 per share, on pro forma revenues⁶ of $878.6 million versus pro forma net income⁶ of $94.1 million, or $0.67 per share, on pro forma revenues⁶ of $863.1 million in the prior year.

Full-year operating income was $165.8 million versus $269.8 million in the prior year. Full-year operating income included $16.6 million of income from Large Dispositions,¹ an $11.5 million gain attributable to noncontrolling interests on the sale of a multi-family apartment complex,⁹ and a $0.7 million timber write-off resulting from a fire casualty event.² Prior year operating income included $44.8 million of income from Large Dispositions,¹ a $10.3 million gain on Fund II Timberland Dispositions attributable to Rayonier,⁴ a $7.5 million gain on investment in Timber Funds,³ and $45.6 million of operating income attributable to noncontrolling interests in the Timber Funds segment. Excluding these items, full-year pro forma operating income⁶ was $138.5 million versus $161.6 million in the prior year. Full-year Adjusted EBITDA⁶ was $314.2 million versus $329.8 million in the prior year.

Full-year cash provided by operating activities was $269.2 million versus $325.1 million in the prior year period. Full-year cash available for distribution (CAD)⁶ was $188.5 million, which decreased $19.2 million versus the prior year due to lower Adjusted EBITDA⁶ ($15.6 million), higher cash taxes paid ($7.7 million), and higher capital expenditures ($1.7 million), partially offset by lower cash interest paid ($5.9 million).

“We are pleased with our overall financial performance for the full-year 2022,” said David Nunes, CEO. “The total Adjusted EBITDA generated by our three Timber segments of $275.4 million represented the highest-ever result for the company—roughly 8% above the previous record achieved in 2021. Notwithstanding deteriorating market conditions toward the end of 2022 in response to growing macroeconomic uncertainty and a slowing housing market, we still achieved record full-year Adjusted EBITDA results in both our Southern Timber and Pacific Northwest Timber segments, underscoring the relative strength of our timber markets and the ability of our team to navigate an ever-evolving operating environment. The strong results in our U.S. timber operations were partially offset by lower Adjusted EBITDA versus the prior year in our New Zealand Timber segment, which throughout 2022 contended with slower economic activity in China, as well as higher costs. Finally, in our Real Estate segment, we achieved solid results generally in line with our expectations entering the year, reflecting our continued focus on optimizing the value of our portfolio through the sale of rural and recreational properties, land entitled for development, and non-strategic holdings. Entering 2023, we believe the operational flexibility afforded by our pure-play timber REIT model, the ongoing improvements to our portfolio, and the resiliency of our team will enable us to stay focused on long-term value creation amid more challenging economic conditions.”

“During the fourth quarter, we achieved total Adjusted EBITDA of $68.4 million. In our Southern Timber segment, Adjusted EBITDA declined 1% versus the prior year quarter, as an 11% decrease in harvest volumes was largely offset by a 7% increase in weighted-average log prices. In our Pacific Northwest Timber segment, Adjusted EBITDA improved 18% versus the prior year quarter, driven by a 17% increase in weighted-average log prices and a 3% increase in harvest volumes.”

“In New Zealand, while the operating environment remained very challenging throughout the fourth quarter, Adjusted EBITDA improved $3.9 million versus the prior year quarter due to increased carbon credit sales and harvest volumes, which more than offset lower log pricing.”

“Real Estate segment Adjusted EBITDA was $11.5 million above the prior year quarter, as the current year period benefited from increased sales in the Wildlight development project north of Jacksonville, Florida as well as increased acres sold and average per-acre prices in the Rural category as compared to the prior year period. Large Dispositions consisted of a 10,977-acre timberland sale in western Washington to a conservation-oriented buyer.”

“As previously disclosed, during the fourth quarter we completed our acquisition of 137,800 acres of high-quality commercial timberlands located in Texas, Georgia, Alabama, and Louisiana from Manulife Investment Management for approximately $454 million. Rayonier financed the acquisition with cash on hand and proceeds from a new five-year, $250 million term loan through the Farm Credit System. The company also entered into an interest rate swap agreement during the quarter to fix $100 million of the new term loan at an all-in effective cost of approximately 4.6%, net of estimated patronage refunds.”

Southern Timber

Fourth quarter sales of $56.6 million decreased $2.0 million, or 3%, versus the prior year period. Harvest volumes decreased 11% to 1.37 million tons versus 1.53 million tons in the prior year period, as macroeconomic headwinds led to softer demand in certain markets, particularly for pulpwood. Average pine sawtimber stumpage realizations increased 11% to $34.00 per ton versus $30.74 per ton in the prior year period, as sawtimber demand remained relatively strong versus the prior year quarter. Average pine pulpwood stumpage realizations decreased 1% to $20.95 per ton versus $21.08 per ton in the prior year period due to weaker end-market demand coupled with drier weather conditions leading up to the fourth quarter as compared to the prior year. Overall, weighted-average stumpage realizations (including hardwood) increased 7% to $25.74 per ton versus $24.14 per ton in the prior year period. Operating income of $19.7 million rose $0.7 million versus the prior year period due to higher net stumpage realizations ($2.2 million), lower leased land reforestation and other costs ($0.8 million), and higher non-timber income ($0.5 million), partially offset by lower volumes ($2.4 million) and higher depletion rates ($0.4 million).

Fourth quarter Adjusted EBITDA⁶ of $33.2 million was 1%, or $0.4 million, below the prior year period.

Pacific Northwest Timber

Fourth quarter sales of $42.4 million increased $7.7 million, or 22%, versus the prior year period. Harvest volumes increased 3% to 397,000 tons versus 387,000 tons in the prior year period. Average delivered sawtimber prices increased 14% to $111.78 per ton versus $98.09 per ton in the prior year period, reflecting relatively strong customer demand and a favorable species mix, as a higher proportion of Douglas-fir sawtimber was harvested in the current year period. Average delivered pulpwood prices increased 80% to $66.26 per ton versus $36.82 per ton in the prior year period, as supply constraints amid strong end-market demand continued to put upward pressure on pulpwood prices for much of the fourth quarter. Operating income of $3.5 million improved $1.9 million versus the prior year period due to the sale of a timber reservation to a conservation group ($1.4 million), higher net stumpage realizations ($0.7 million), lower indirect costs ($0.1 million), a favorable adjustment to a timber write-off taken in the third quarter ($0.4 million), and higher volumes ($0.3 million), partially offset by lower non-timber income ($0.5 million) and higher depletion rates ($0.4 million).

Fourth quarter Adjusted EBITDA⁶ of $15.5 million was 18%, or $2.3 million, above the prior year period.

New Zealand Timber

Fourth quarter sales of $71.4 million increased $3.9 million, or 6%, versus the prior year period. Harvest volumes increased 7% to 686,000 tons versus 642,000 tons in the prior year period, primarily due to the timing of export shipments. Average delivered prices for export sawtimber decreased 16% to $111.30 per ton versus $132.87 per ton in the prior year period, as COVID lockdowns and construction market headwinds in China continued to constrain export market demand. Average delivered prices for domestic sawtimber declined 20% to $64.79 per ton versus $81.16 per ton in the prior year period. The decrease in domestic sawtimber prices (in U.S. dollar terms) was primarily driven by the decline in the NZ$/US$ exchange rate (US$0.58 per NZ$1.00 versus US$0.70 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices decreased 5% versus the prior year period, reflecting slowing domestic market demand as well as increased supply due to continued export market headwinds. Operating income of $8.0 million increased $4.4 million versus the prior year period due to higher carbon credit sales ($8.7 million) and higher volumes ($0.9 million), partially offset by lower net stumpage realizations ($3.3 million), unfavorable foreign exchange impacts ($1.8 million), and higher costs ($0.1 million).

Fourth quarter Adjusted EBITDA⁶ of $13.7 million was 39%, or $3.9 million, above the prior year period.

Real Estate

Fourth quarter sales of $57.0 million increased $45.5 million versus the prior year period, while operating income of $21.5 million increased $21.8 million versus the prior year period. Fourth quarter sales and operating income included $30.5 million and $16.6 million, respectively, from Large Dispositions.¹ Excluding Large Dispositions, pro forma sales⁶ were $26.5 million and pro forma operating income⁶ was $4.9 million. Pro forma sales⁶ and pro forma operating income⁶ increased versus the prior year period due to a higher number of acres sold (2,090 acres sold versus 1,209 acres sold in the prior year period) and an increase in weighted-average prices ($13,747 per acre versus $8,635 per acre in the prior year period), driven by a heavier mix of Improved Development activity.

Improved Development sales of $16.6 million included $15.4 million from the Wildlight development project north of Jacksonville, Florida, $0.4 million from the Heartwood development project south of Savannah, Georgia, and a $0.7 million sale of an industrial-use parcel in Kitsap County, Washington ($273,000 per acre). Sales in Wildlight consisted of an 87-acre industrial-use parcel for $7.3 million ($84,000 per acre), a 16-acre parcel for a senior living community for $3.0 million ($190,000 per acre), a 20-acre residential pod sale to a national homebuilder for $4.3 million ($216,000 per acre), and 13 residential lots for $0.8 million (an average of $65,000 per lot or $386,000 per acre). Sales in Heartwood consisted of 10 residential lots for $0.4 million ($43,000 per lot or 276,000 per acre). This compares to Improved Development sales of $4.3 million in the prior year period.

There were no Unimproved Development sales in the fourth quarter or the prior year period.

Rural sales of $12.2 million consisted of 1,961 acres at an average price of $6,196 per acre, including 615 acres in Nassau County, Florida for $3.8 million ($6,250 per acre) and 290 acres in Jefferson County, Washington for $4.1 million ($14,200 per acre). This compares to prior year period sales of $6.1 million, which consisted of 1,186 acres at an average price of $5,132 per acre.

Fourth quarter Adjusted EBITDA⁶ of $14.2 million was $11.5 million above the prior year period.

Trading

Fourth quarter sales of $18.2 million decreased $0.3 million versus the prior year period, due to lower volumes and prices. Sales volumes decreased 1% to 143,000 tons versus 145,000 tons in the prior year period. The Trading segment generated operating income of $0.3 million versus an operating loss of $0.5 million in the prior year period as improved margins more than offset reduced trading volume.

Fourth quarter Adjusted EBITDA⁶ of $0.3 million increased $0.8 million versus the prior year period.

Other Items

Fourth quarter corporate and other operating expenses of $8.9 million increased $0.6 million versus the prior year period, primarily due to higher compensation and other overhead expenses ($1.2 million), partially offset by lower benefit costs ($0.6 million).

Fourth quarter interest expense of $9.7 million decreased $0.9 million versus the prior year period, primarily due to a lower weighted-average interest rate.

Fourth quarter income tax expense of $1.4 million decreased $0.2 million versus the prior year period. The New Zealand subsidiary is the primary driver of income tax expense.

In November, Rayonier replaced its prior at-the-market (ATM) equity offering program with a new ATM program, through which we may sell common shares, from time to time, having an aggregate sales price of up to $300 million. During the fourth quarter, we sold approximately 853,000 shares under the program at a weighted average price of $35.51 per share, generating gross proceeds of $30.3 million.

Outlook

In 2023, we expect to achieve net income attributable to Rayonier of $52 to $73 million, EPS of $0.36 to $0.50 and Adjusted EBITDA of $280 to $320 million. We generally expect that results in the first half of the year will be meaningfully lower than results in the second half of the year, as end market demand continues to normalize following the rapid rise in interest rates and associated market volatility. We further expect that year-over-year net income attributable to Rayonier and EPS will be impacted by increased depletion rates in our Southern Timber segment following the completion of our previously announced acquisition of 137,800 acres in the U.S. South for $454 million.

In our Southern Timber segment, we expect to achieve full-year harvest volumes of 6.7 to 7.0 million tons. The anticipated increase relative to the prior year reflects the additional volume associated with our previously announced acquisitions. We also anticipate higher non-timber income for full-year 2023 as compared to full-year 2022. However, we expect that the increase in harvest volumes and non-timber income will be largely offset by lower weighted average stumpage realizations due to softer demand as well as higher harvest and transportation costs. Overall, we expect full-year Adjusted EBITDA of $145 to $160 million, generally in line with full-year 2022 results.

In our Pacific Northwest Timber segment, we expect to achieve full-year harvest volumes of approximately 1.5 to 1.6 million tons. The anticipated decrease relative to the prior year reflects recent land sales activity, a more muted domestic demand outlook, and an ongoing mix shift toward Douglas-fir, which has a lower MBF-to-ton conversion ratio. We further expect weighted average pricing to decline relative to full-year 2022 due to weaker macroeconomic conditions and lower lumber prices. Overall, we expect full-year Adjusted EBITDA of $42 to $52 million, a decrease from full-year 2022 results.

In our New Zealand Timber segment, we expect full-year harvest volumes of 2.5 to 2.7 million tons. We anticipate that stumpage margins will remain under pressure to start the year but are optimistic that export market conditions will gradually improve as the operating environment in China normalizes following the COVID-related disruptions that persisted throughout 2022. We further expect that favorable carbon credit pricing and volumes will contribute to improved results in 2023. Overall, we expect full-year Adjusted EBITDA of $58 to $64 million, an increase from full-year 2022 results.

Turning to our Real Estate segment, we are encouraged by the continued interest in both our development projects and rural properties despite the higher interest rate environment. However, we anticipate that real estate activity will be significantly weighted to the second half of the year, with relatively limited activity in the first quarter in particular. Overall, we expect full-year Adjusted EBITDA of $68 to $77 million, generally in line with full-year 2022 results.

For the complete press release, click here.

About Rayonier

Rayonier (NYSE:RYN) 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 September 30, 2022, Rayonier owned or leased under long-term agreements approximately 2.7 million acres of timberlands located in the U.S. South (1.79 million acres), U.S. Pacific Northwest (486,000 acres) and New Zealand (417,000 acres). More information is available at www.rayonier.com.

Source: Rayonier, Inc.