Rayonier Inc. 2020 Form 10-K Summary
Business context and reporting period
Rayonier Inc., together with Rayonier, L.P., is a pure-play timberland REIT operating through an UPREIT structure. The filing covers the fiscal year ended December 31, 2020; it is an annual filing rather than a standalone fourth-quarter report. The Company manages approximately 2.7 million acres across the U.S. South, Pacific Northwest and New Zealand, plus three consolidated Timber Funds. Its segments are Southern Timber, Pacific Northwest Timber, New Zealand Timber, Timber Funds, Real Estate and Trading.
On May 8, 2020, Rayonier completed its acquisition of Pope Resources for total consideration of approximately $537.9 million, adding approximately 124,000 Pacific Northwest timberland acres, three timber funds comprising approximately 141,000 acres, and additional real estate opportunities.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Sales | $859.2 million | $711.6 million | Up 21% |
| Operating income | $74.4 million | $107.0 million | Down 30% |
| Net income | $29.8 million | $67.7 million | Down 56% |
| Net income attributable to Rayonier Inc. | $37.1 million | $59.1 million | Down 37% |
| Diluted earnings per share | $0.27 | $0.46 | Down $0.19 |
| Adjusted EBITDA | $267.4 million | $247.8 million | Up 8% |
| Cash provided by operating activities | $204.2 million | $214.3 million | Down 5% |
| Adjusted CAD | $162.4 million | $67.4 million | Up materially |
Reported operating income and net income were affected by $17.2 million of Pope Resources merger-related costs, $15.2 million of casualty-related timber write-offs, including Hurricane Laura and Oregon fires, and the nonrecurring contribution from a $116.0 million large timberland disposition. The large disposition generated a reported gain of approximately $28.7 million and is excluded from Adjusted EBITDA and CAD.
Sales by major segment were $191.8 million for Southern Timber, $120.8 million for Pacific Northwest Timber, $202.3 million for New Zealand Timber, $29.6 million for Timber Funds, $229.3 million for Real Estate and $89.0 million for Trading. Real Estate operating income was $72.0 million, Pacific Northwest Timber reported a $10.0 million operating loss, and Timber Funds reported a $13.2 million operating loss, substantially reflecting casualty-related charges and noncontrolling interests.
Margins, cash flow, debt and liquidity
- Operating margin was approximately 8.7% in 2020 versus 15.0% in 2019. Adjusted EBITDA margin was approximately 31.1% versus 34.8%.
- Total debt, excluding Timber Funds, was $1.295 billion on a principal basis; Timber Funds debt was $57.4 million. Reported long-term debt, net of financing costs, totaled $1.361 billion.
- Cash and cash equivalents totaled $84.5 million, including $80.5 million excluding Timber Funds. Net debt to enterprise value was 23%; debt to capital was 39%; and net debt to Adjusted EBITDA was 4.5 times.
- The Company had approximately $299.1 million of availability under its $300 million revolving credit facility, net of outstanding letters of credit.
- Credit ratings were investment grade at BBB- from S&P and Baa3 from Moody's, both with stable outlooks. The Company was in compliance with applicable debt covenants at year-end.
- Capital expenditures were $66.5 million, real estate development investments were $6.5 million, and timberland acquisitions outside the Pope transaction were $24.7 million.
- Common dividends were $1.08 per share for 2020, and management expected approximately $148.7 million of 2021 common-share dividends, assuming a quarterly dividend of $0.27 per share.
Material changes versus the prior comparable period
- The Pope Resources acquisition expanded the Pacific Northwest portfolio, introduced the Timber Funds segment and increased consolidated debt, assets, noncontrolling interests and operating complexity.
- Pacific Northwest Timber sales increased 41% and Adjusted EBITDA increased to $37.1 million from $16.7 million, driven by acquired volume and stronger sawtimber pricing, although higher depletion expense resulted in a segment operating loss.
- New Zealand Timber sales declined 16% and Adjusted EBITDA declined 27%, primarily because of a 33-day COVID-19 shutdown, lower log prices and weaker export demand earlier in the year.
- Southern Timber sales declined 1% and Adjusted EBITDA declined to $109.1 million from $119.7 million, reflecting lower non-timber income, lower pulpwood pricing and Hurricane Laura write-offs.
- Real Estate sales rose sharply because of the $116.0 million Mississippi large disposition and stronger rural and development activity. Management expects 2021 activity to normalize and to be weighted toward the second half.
- Corporate and other expense increased to $45.2 million from $25.1 million, primarily due to Pope merger costs and higher employee benefit costs.
- The Company issued 1.1 million shares under its at-the-market program for gross proceeds of $33.4 million; $266.6 million remained available under the program at year-end.
Guidance, outlook, commentary and risks
For 2021, management expects Southern Timber harvest volumes of 6.2 to 6.4 million tons, Pacific Northwest Timber volumes of 1.7 to 1.8 million tons and New Zealand Timber volumes of 2.6 to 2.8 million tons. Management expects modestly improved pricing in the South, higher Pacific Northwest sawtimber prices and improved New Zealand pricing as demand recovers. Expected 2021 capital expenditures are $70 million to $75 million, real estate development investments are $13 million to $17 million, and cash income tax payments are $13 million to $15 million.
- COVID-19 may disrupt harvesting, transportation, export markets, customer liquidity, real estate demand and access to capital.
- Timber prices and volumes are exposed to housing, construction, pulp and paper, packaging and global trade cycles, as well as weather, fire, insects, disease, drought and hurricanes. The Company generally does not insure its timber against these casualty risks.
- New Zealand operations face foreign-exchange, export-market and China-related demand risks; the Company uses currency contracts and options to hedge part of its exposure.
- Environmental laws, endangered-species protections, permitting delays and restrictions on harvesting or development may reduce usable timber inventory or increase costs.
- The Port Gamble, Washington remediation and natural-resource-damage obligations assumed through the Pope acquisition totaled $11.6 million at year-end. Cleanup and monitoring are expected to continue for several years, and the NRD component could increase as restoration requirements are defined.
- The REIT structure depends on continued compliance with complex tax requirements. Loss of REIT status could materially increase taxes and reduce cash available for distributions.
- Variable-rate debt is hedged substantially with interest-rate swaps, but LIBOR discontinuation and refinancing requirements remain relevant risks. Debt principal payments include $350 million in 2022 and approximately $284.9 million in 2025.
- Critical audit matters included estimation of timber depletion and valuation of timberlands acquired from Pope Resources. A 3% change in estimated standing merchantable inventory would have changed 2020 depletion expense by approximately $4.7 million.
Important facts for investors to verify
- Separate recurring timber cash flow and Adjusted EBITDA from nonrecurring 2020 effects, particularly the Mississippi disposition, merger costs and casualty write-offs.
- The final purchase-price allocation for Pope Resources, including valuation of timberlands, real estate and environmental liabilities, because the filing states that certain values remained preliminary.
- Debt maturities, refinancing plans for the $325 million of 2022 notes, covenant compliance and the effect of rising rates or LIBOR replacement.
- The sustainability of the $0.27 quarterly dividend relative to Adjusted CAD, operating cash flow, capital spending and required distributions to noncontrolling interests.
- Progress and potential cost increases related to Port Gamble remediation and natural-resource-damage negotiations.
- Whether 2021 harvest volumes, timber prices and real estate activity meet management’s stated outlook after the COVID-19 disruptions.
- The impact of timber inventory estimates, depletion rates, fire and weather events, export demand, foreign exchange and environmental restrictions on future cash flows.