Rayonier Inc. 10-Q Summary
Business Context and Reporting Period
Rayonier is a timberland real estate investment trust operating through Rayonier, L.P., its 97.1%-owned operating partnership. The company manages approximately 2.7 million acres in the U.S. South, Pacific Northwest and New Zealand, in addition to timber fund interests and real estate development projects. The filing covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods.
Key Financial Metrics
| Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 |
|---|---|---|---|---|
| Sales | $291.4 million | $195.6 million | $482.9 million | $454.8 million |
| Operating income | $84.4 million | $11.7 million | $112.9 million | $50.2 million |
| Net income | $63.4 million | $0.5 million | $78.5 million | $26.9 million |
| Net income attributable to Rayonier Inc. | $57.2 million | $1.7 million | $68.1 million | $27.6 million |
| Basic and diluted EPS | $0.41 | $0.01 | $0.49 | $0.21 |
| Adjusted EBITDA | $95.3 million | $78.6 million | $164.7 million | $125.7 million |
| Cash provided by operating activities | Not separately provided | Not separately provided | $164.6 million | $82.6 million |
Q2 operating margin was approximately 29.0%, compared with 6.0% in the prior-year quarter. Six-month operating margin was approximately 23.4%, compared with 11.0%. Q2 net income attributable to Rayonier Inc. margin was approximately 19.6%, compared with 0.9%.
- Cash and cash equivalents totaled $314.3 million at June 30, 2021, including $309.8 million outside Timber Funds, versus $84.5 million at December 31, 2020.
- Total debt principal was approximately $1.45 billion, including $1.39 billion excluding Timber Funds and $57.4 million of Timber Fund debt. Current maturities excluding Timber Funds were $199.8 million.
- Debt to capital was 39%, unchanged from December 31, 2020; net debt to enterprise value declined to 17% from 23%.
- Cash flow from operations was $164.6 million. Investing activities used $49.1 million, including $51.9 million for timberland acquisitions, $32.2 million of capital expenditures and $6.3 million of real estate development investments. Financing activities provided $112.0 million.
- Adjusted cash available for distribution was $110.8 million, but was negative $214.2 million after $325.0 million of mandatory debt repayments.
- The quarterly dividend and operating partnership distribution remained $0.27 per share or unit.
Material Changes Versus the Prior Comparable Period
- Sales increased 49% in Q2 and 6% for the six-month period. Higher timber prices and volumes drove substantial growth in Pacific Northwest Timber, New Zealand Timber and Timber Funds.
- New Zealand Timber sales increased 93% in Q2 and 74% year to date, reflecting stronger export and domestic demand, higher log prices and favorable foreign exchange.
- Pacific Northwest Timber returned to operating profitability, with Q2 operating income of $1.9 million versus a $6.7 million loss in Q2 2020, primarily because of stronger sawtimber pricing.
- Southern Timber operating income increased to $17.0 million from $11.2 million despite lower harvest volumes, supported by higher stumpage prices and lower depletion and other expenses.
- Real Estate Q2 sales increased to $74.5 million from $50.0 million, including a $36.0 million large disposition that generated a $30.3 million gain. Six-month real estate sales declined to $85.0 million from $168.6 million because the prior-year period included a $116.0 million large disposition.
- Corporate and other expenses declined to $8.0 million in Q2 from $20.9 million, and to $15.6 million for six months from $28.6 million, primarily because 2020 included Pope Resources merger costs.
- In May 2021, the company issued $450 million of 2.75% senior notes due 2031 and used part of the proceeds to repay $250 million of incremental term loans. It also prepaid another $100 million of term debt and established a $200 million delayed-draw incremental term loan facility.
- The company raised $110.7 million net through its ATM equity offering during the first six months, with $148.8 million remaining available under the program at June 30, 2021.
Guidance, Outlook, Risks and Unusual Items
- Expected 2021 harvest volumes are 5.9–6.1 million tons in Southern Timber, 1.7–1.8 million tons in Pacific Northwest Timber and 2.6–2.8 million tons in New Zealand Timber.
- Management expects Southern Timber pricing to remain above prior-year levels, Pacific Northwest pricing to remain relatively stable and Real Estate activity to remain strong.
- Management expects lower New Zealand export pricing in the second half of 2021 as Chinese log inventories increased, while shipping and demurrage costs are expected to remain elevated.
- Expected 2021 capital expenditures are $74–$77 million, real estate development investments are $15–$17 million, and cash tax payments are approximately $8 million. Planned 2021 common dividends are approximately $152 million, assuming the quarterly rate remains $0.27.
- On July 21, 2021, the company sold management rights and ownership interests in Timber Funds III and IV for approximately $35.9 million. It also began a process to liquidate Fund II, whose timberland was classified as held for sale.
- COVID-19 remains a risk to timber demand, housing activity, operating conditions and supply chains. Other key risks include timber and real estate pricing, export demand, foreign exchange, interest rates, logging and transportation costs, and elevated ocean freight and demurrage.
- Environmental and natural resource damage liabilities related to Port Gamble totaled $11.3 million at June 30, 2021. Management expects portions of cleanup and restoration to continue for several years, with monitoring extending 10 to 15 years; actual costs could increase.
- Total contractual cash obligations were $1.96 billion, including debt, interest, leases, development projects, environmental remediation and other commitments. The company reported compliance with applicable debt covenants.
- Unusual Q2 items included the $30.3 million gain from the large disposition, a $2.2 million loss on termination of an interest-rate hedge and debt modification and extinguishment costs. No Pope Resources integration charges were recorded in 2021.
Important Facts for Investors to Verify
- Whether strong timber pricing, particularly in New Zealand and the Pacific Northwest, persists after the second quarter.
- The timing and funding of the $325 million of 2022 debt maturities and the planned draw under the $200 million delayed-draw facility.
- The sustainability of dividends and distributions relative to adjusted cash available for distribution after mandatory debt repayments.
- The effect of the Fund III and Fund IV sale and the planned Fund II liquidation on future revenue, earnings and assets under management.
- Potential changes in Port Gamble environmental and natural resource damage costs.
- Exposure to Chinese export demand, foreign exchange movements, interest rates, shipping costs and COVID-19-related market disruption.
- The extent to which reported earnings and margins depend on nonrecurring large dispositions and other unusual items.