Rayonier Reports Second Quarter 2022 Results

• Second quarter net income attributable to Rayonier of $24.1 million ($0.16 per share) on revenues of $246.3 million
• Second quarter operating income of $35.5 million and Adjusted EBITDA of $83.0 million
• Year-to-date cash provided by operations of $148.5 million and cash available for distribution (CAD) of $119.5 million

Rayonier Inc. (NYSE:RYN) today reported second quarter net income attributable to Rayonier of $24.1 million, or $0.16 per share, on revenues of $246.3 million. This compares to net income attributable to Rayonier of $57.2 million, or $0.41 per share, on revenues of $291.4 million in the prior year quarter. The prior year second quarter results included $30.3 million of income from a Large Disposition,¹ partially offset by a $2.2 million loss from the termination of a cash flow hedge² and a $1.1 million loss related to debt extinguishments and modifications.³ Excluding these items and adjusting for pro forma net income adjustments attributable to noncontrolling interests in the operating partnership,⁴ pro forma net income⁵ was $31.0 million, or $0.22 per share, on pro forma revenues⁵ of $240.7 million in the prior year period.

The following table summarizes the current quarter and comparable prior year period results:

Second quarter operating income was $35.5 million versus $84.4 million in the prior year period. Prior year second quarter operating income included $30.3 million of income from a Large Disposition¹ and $1.6 million of operating income attributable to noncontrolling interests in the Timber Funds segment. Excluding these items, pro forma operating income⁵ was $52.5 million in the prior year period. Second quarter Adjusted EBITDA⁵ was $83.0 million versus $95.3 million in the prior year period.

The following table summarizes operating income (loss), pro forma operating income (loss)⁵ and Adjusted EBITDA⁵ for the current quarter and comparable prior year period:

Year-to-date cash provided by operating activities was $148.5 million versus $164.6 million in the prior year period. Year-to-date cash available for distribution (CAD)⁵ of $119.5 million increased $8.7 million versus the prior year period primarily due to higher Adjusted EBITDA⁵ ($16.4 million) and lower cash interest paid ($0.2 million), partially offset by higher cash taxes paid ($7.2 million) and higher capital expenditures ($0.6 million).

“We are pleased with our second quarter results, particularly given the challenges presented by rising costs across our segments as well as continued COVID-related disruptions in our export business,” said David Nunes, President and CEO. “Adjusted EBITDA of $83.0 million was 13% below the prior year quarter, as favorable results in our Southern Timber and Pacific Northwest Timber segments were more than offset by lower Adjusted EBITDA in our New Zealand Timber and Real Estate segments.”

“Southern Timber Adjusted EBITDA improved 27% over the prior year quarter, as strong demand drove 18% higher net stumpage prices and a 4% increase in harvest volumes. In Pacific Northwest Timber, Adjusted EBITDA improved 3% over the prior year quarter, as a 19% increase in weighted-average log prices more than offset higher costs and a 6% reduction in harvest volumes. Overall, we were pleased by our ability to maintain pricing gains during the quarter and absorb higher costs across both regions as customer demand remained healthy.”

“In New Zealand, the operating environment throughout the second quarter was considerably more challenging, as our New Zealand Timber segment Adjusted EBITDA dropped 46% versus the prior year quarter. This decline was primarily attributable to reduced log demand in China due to COVID-19 lockdowns, which contributed to an 8% decline in weighted-average delivered log prices versus the prior year period, as well as significantly higher shipping and demurrage costs, which drove further margin compression.”

“Real Estate segment Adjusted EBITDA was $3.7 million below the prior year quarter, as significantly higher per-acre prices in the current quarter were more than offset by a 41% reduction in acres sold.”

Southern Timber

Second quarter sales of $66.3 million increased $17.0 million, or 34%, versus the prior year period. Harvest volumes increased 4% to 1.52 million tons versus 1.47 million tons in the prior year period, as demand remained strong across the region. Average pine sawtimber stumpage prices increased 22% to $34.09 per ton versus $27.96 per ton in the prior year period, due to strong domestic lumber demand as well as increased competition for chip-n-saw volume from pulp mills. Average pine pulpwood stumpage prices rose 18% to $21.46 per ton versus $18.22 per ton in the prior year period. Despite an unfavorable shift in our geographic mix of pulpwood sales versus the prior year period, robust competition amid strong end-market demand allowed us to capture pulpwood price increases that more than offset the upward pressure on cut and haul costs. Overall, weighted-average stumpage prices (including hardwood) increased 18% to $25.55 per ton versus $21.61 per ton in the prior year period. Operating income of $24.1 million increased $7.1 million versus the prior year period due to higher net stumpage realizations ($6.0 million), higher non-timber income ($2.4 million) and higher volumes ($0.7 million), partially offset by higher overhead costs ($1.4 million) and higher depletion rates ($0.6 million).

Second quarter Adjusted EBITDA⁵ of $38.7 million was 27%, or $8.1 million, above the prior year period.

Pacific Northwest Timber

Second quarter sales of $39.2 million increased $3.8 million, or 11%, versus the prior year period, notwithstanding a decline in harvest volumes of 6% to 376,000 tons versus 400,000 tons in the prior year period. Average delivered sawtimber prices increased 19% to $116.60 per ton versus $97.80 per ton in the prior year period, driven by continued strong demand from domestic lumber mills as well as a favorable species mix, as a higher proportion of Douglas-fir sawtimber was harvested in the current year quarter. Average delivered pulpwood prices increased 56% to $45.17 per ton versus $29.02 per ton in the prior year period, reflecting strong end-market demand as well as the resumption of chip exports, which resulted in greater competition from pulp mills to secure supply. Operating income of $2.9 million improved $1.1 million versus the prior year period due to higher net stumpage realizations ($3.0 million), partially offset by higher overhead and other costs ($1.4 million), lower volumes ($0.4 million) and lower non-timber income ($0.2 million).

Second quarter Adjusted EBITDA⁵ of $14.3 million was 3%, or $0.4 million, above the prior year period.

New Zealand Timber

Second quarter sales of $78.9 million decreased $1.7 million, or 2%, versus the prior year period. Harvest volumes increased 1% to 703,000 tons versus 692,000 tons in the prior year period, reflecting a pickup in activity to more normalized levels following a relatively light first quarter. Average delivered prices for export sawtimber decreased 5% to $140.44 per ton versus $148.28 per ton in the prior year period. The decrease in export sawtimber prices versus the prior year period was driven by reduced demand stemming from the COVID-19 lockdowns in China, which in turn contributed to persistently high port inventories. Net stumpage realizations for export sawtimber were further reduced by significantly higher port / freight costs, driven by elevated fuel prices as well as increased demurrage charges due to port congestion. Average delivered prices for domestic sawtimber decreased 10% to $76.82 per ton versus $85.09 per ton in the prior year period. The decrease in domestic sawtimber prices (in U.S. dollar terms) was primarily driven by the decline in the NZ$/US$ exchange rate (US$0.66 per NZ$1.00 versus US$0.72 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices decreased 2% versus the prior year period, reflecting additional supply that was diverted into domestic markets due to export market headwinds. Operating income of $8.0 million decreased $12.7 million versus the prior year period due to lower net stumpage realizations ($16.5 million), higher costs ($0.9 million) and higher depletion rates ($0.3 million), partially offset by higher carbon credit sales ($3.4 million), favorable foreign exchange impacts ($1.1 million) and higher volumes ($0.5 million).

Second quarter Adjusted EBITDA⁵ of $14.9 million was 46%, or $12.8 million, below the prior year period.

Real Estate

Second quarter sales of $34.4 million decreased $40.1 million versus the prior year period, while operating income of $11.0 million decreased $39.5 million versus the prior year period. The prior year second quarter sales and operating income included $36.0 million and $30.3 million, respectively, from a Large Disposition.¹ Excluding this item, pro forma sales⁵ were $38.5 million and pro forma operating income⁵ was $20.2 million in the prior year period. Pro forma sales⁵ and pro forma operating income⁵ decreased versus the prior year period due to a lower number of acres sold (4,694 acres sold versus 8,014 acres sold in the prior year period), partially offset by an increase in weighted-average prices ($7,453 per acre versus $4,946 per acre in the prior year period).

Improved Development sales of $11.6 million included $10.5 million from the Wildlight development project north of Jacksonville, Florida and $1.1 million from the Heartwood development project south of Savannah, Georgia. Sales in Wildlight consisted of a 22-acre multifamily apartment site for $4.8 million ($222,000 per acre), a 31-acre single-family build-to-rent site for $4.4 million ($140,000 per acre), and 19 residential lots for $1.3 million ($70,000 per lot). Sales in Heartwood consisted of 26 residential lots for $1.1 million ($42,000 per lot). This compares to prior year period Improved Development sales of $19.3 million, which reflected significant activity in both Wildlight and Heartwood / Belfast Commerce Park.

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

Rural sales of $23.4 million consisted of 4,633 acres at an average price of $5,054 per acre, which compares to prior year period sales of $20.3 million, which consisted of 7,725 acres at an average price of $2,627 per acre.

There were no Timberland & Non-Strategic sales in the second quarter or the prior year period.

Second quarter Adjusted EBITDA⁵ of $25.4 million was $3.7 million below the prior year period.

Trading

Second quarter sales of $27.7 million decreased $6.9 million versus the prior year period primarily due to lower volumes and prices. Sales volumes decreased 14% to 209,000 tons versus 243,000 tons in the prior year period, reflecting elevated log inventories in China and constrained export market demand. The Trading segment generated an operating loss of $0.4 million versus operating income of $0.4 million in the prior year period.

Other Items

Second quarter corporate and other operating expenses of $10.1 million increased $2.1 million versus the prior year period, primarily due to higher compensation and benefits expenses ($1.5 million), higher legal costs ($0.3 million) and higher insurance and travel expenses ($0.3 million). Compensation and benefits expenses were elevated in the quarter due to the accelerated realization of equity compensation expense for retirement-eligible employees.

Second quarter interest expense of $9.1 million decreased $3.9 million versus the prior year period, as the prior year period included a $2.2 million loss from the termination of a cash flow hedge.² Additionally, second quarter interest expense benefited from lower average outstanding debt and a lower average interest rate as compared to the prior year period.

Second quarter income tax expense of $1.3 million decreased $5.6 million versus the prior year period. The New Zealand subsidiary is the primary driver of income tax expense.

Outlook

“Based on our first half results and our expectations for the balance of the year, we now anticipate full-year net income attributable to Rayonier of $84 to $92 million, EPS of $0.57 to $0.63, and Adjusted EBITDA of $310 to $330 million,” added Nunes. “Notably, we are on track for a stronger 2022 than we had originally anticipated in both our Southern Timber and Pacific Northwest Timber segments given the excellent first half results and favorable pricing environment. In addition, our Real Estate segment outlook is largely unchanged. However, in our New Zealand Timber segment, export market headwinds, including COVID-19 related disruptions in China and elevated shipping costs, have persisted longer than we had anticipated and have negatively impacted our outlook for this segment. Overall, the net impact of our revised outlook by segment translates to a modest reduction in the upper-end of our total full-year Adjusted EBITDA guidance relative to our prior guidance.”

“In our Southern Timber segment, we now expect full-year harvest volumes of 6.4 to 6.6 million tons, as strong customer demand and favorable weather conditions are allowing us to successfully execute our annual harvest plan. We are encouraged by the significant year-over-year pricing gains that have been realized across our operating areas. However, we expect modestly lower weighted-average net stumpage realizations during the second half of 2022 as compared to the first half, primarily due to higher cut and haul costs as a result of elevated diesel prices and a higher proportion of thinning volume. Overall, we expect the Southern Timber segment to generate record full-year Adjusted EBITDA in the range of $156 to $162 million.”

“In our Pacific Northwest Timber segment, we now expect full-year harvest volumes of 1.6 to 1.7 million tons, due in part to a modest adjustment in our harvest plan to reflect land sales, as well as reduced China export volume. We further expect that weighted-average delivered log prices will remain well above prior year levels for the balance of the year. However, we anticipate these pricing gains will be partially offset by higher cut and haul costs due to elevated diesel prices. Overall, we expect the Pacific Northwest Timber segment to generate record full-year Adjusted EBITDA in the range of $59 to $63 million.”

“In our New Zealand Timber segment, we now expect full-year harvest volumes of 2.6 to 2.7 million tons. While domestic log demand was strong throughout the first half of the year, export market dynamics were negatively impacted by ongoing COVID-19 lockdowns in China. We expect export sawtimber prices to stabilize in the second half of the year in response to improved offtake from Chinese ports and a reduction in competing log supply. However, we expect that net stumpage realizations on export volume will continue to be constrained by elevated port and freight costs. In the domestic market, we anticipate continued strong log demand, although we expect that pricing will be modestly lower in the second half of the year as compared to the first half of the year due to added supply pressure resulting from reduced export volume. Partially offsetting these headwinds, we expect a higher contribution from non-timber income (carbon credit sales) in the second half of the year as compared to the first half. Overall, we expect the New Zealand Timber segment to generate full-year Adjusted EBITDA of $55 to $60 million.”

“In our Real Estate segment, we now expect full-year Adjusted EBITDA of $74 to $79 million. Following strong Real Estate results in the first half of the year, we anticipate lower quarterly results for the balance of the year.”

Conference Call

A conference call and live audio webcast will be held on Thursday, August 4, 2022 at 10:00 AM (ET) to discuss these results.

Access to the live audio webcast will be available at www.rayonier.com. A replay of the webcast will be archived on the Company’s website and available shortly after the call.

Investors may listen to the conference call by dialing 888-604-9366 (domestic) or 517-308-9338 (international), passcode: RAYONIER. A replay of the conference call will be available one hour following the call until Saturday, September 3, 2022, by dialing 866-359-3781 (domestic) or 203-369-0148 (international), passcode: 8422.

Complimentary copies of Rayonier press releases and other financial documents are also available by calling (904) 357-9100.

About Rayonier

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, 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 (418,000 acres). More information is available at www.rayonier.com.

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Forward-Looking Statements - Certain statements in this press release regarding anticipated financial outcomes including Rayonier’s earnings guidance, if any, business and market conditions, outlook, expected dividend rate, Rayonier’s business strategies, expected harvest schedules, timberland acquisitions and dispositions, the anticipated benefits of Rayonier’s business strategies, and other similar statements relating to Rayonier’s future events, developments or financial or operational performance or results, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “expect,” “estimate,” “believe,” “intend,” “project,” “anticipate” and other similar language. However, the absence of these or similar words or expressions does not mean that a statement is not forward-looking. While management believes that these forward-looking statements are reasonable when made, forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements.

The following important factors, among others, could cause actual results or events to differ materially from those expressed in forward-looking statements that may have been made in this document: the cyclical and competitive nature of the industries in which we operate; fluctuations in demand for, or supply of, our forest products and real estate offerings, including any downturn in the housing market; entry of new competitors into our markets; changes in global economic conditions and world events, including the war in Ukraine; business disruptions arising from public health crises and outbreaks of communicable diseases, including the current outbreak of the virus known as the novel coronavirus; fluctuations in demand for our products in Asia, and especially China; the uncertainties of potential impacts of climate-related initiatives; the cost and availability of third party logging, trucking and ocean freight services; the geographic concentration of a significant portion of our timberland; our ability to identify, finance and complete timberland acquisitions; changes in environmental laws and regulations regarding timber harvesting, delineation of wetlands, endangered species and development of real estate generally, that may restrict or adversely impact our ability to conduct our business, or increase the cost of doing so; adverse weather conditions, natural disasters and other catastrophic events such as hurricanes, wind storms and wildfires; the lengthy, uncertain and costly process associated with the ownership, entitlement and development of real estate, especially in Florida and Washington, including changes in law, policy and political factors beyond our control; the availability of financing for real estate development and mortgage loans; changes in tariffs, taxes or treaties relating to the import and export of our products or those of our competitors; changes in key management and personnel; and our ability to meet all necessary legal requirements to continue to qualify as a real estate investment trust (“REIT”) and changes in tax laws that could adversely affect beneficial tax treatment.

For additional factors that could impact future results, please see Item 1A - Risk Factors in the Company’s most recent Annual Report on Form 10-K and similar discussion included in other reports that we subsequently file with the Securities and Exchange Commission (the “SEC”). Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its forward-looking statements except as required by law. You are advised, however, to review any further disclosures we make on related subjects in our subsequent reports filed with the SEC.

Non-GAAP Financial Measures – To supplement Rayonier’s financial statements presented in accordance with generally accepted accounting principles in the United States (“GAAP”), Rayonier uses certain non-GAAP measures, including “cash available for distribution,” “pro forma sales,” “pro forma operating income (loss),” “pro forma net income,” and “Adjusted EBITDA,” which are defined and further explained in this communication. Reconciliation of such measures to the nearest GAAP measures can also be found in this communication. Rayonier’s definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP.