Rayonier Inc. — First Quarter 2022 Form 10-Q Summary
Business context and reporting period
Rayonier Inc. is a timberland real estate investment trust operating through Rayonier, L.P., its operating partnership. As of March 31, 2022, the Company owned or leased approximately 2.7 million timberland acres across the U.S. South, Pacific Northwest and New Zealand. The filing covers the three months ended March 31, 2022, with comparative results for the three months ended March 31, 2021. Rayonier owned 97.8% of the Operating Partnership at quarter-end.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Sales | $222.0 million | $191.4 million | 16% |
| Operating income | $45.3 million | $28.5 million | 59% |
| Net income | $31.0 million | $15.0 million | 106% |
| Net income attributable to Rayonier Inc. | $29.3 million | $10.8 million | 170% |
| Diluted earnings per share | $0.20 | $0.08 | 150% |
| Adjusted EBITDA | $98.1 million | $69.5 million | 41% |
| Cash provided by operating activities | $49.7 million | $53.9 million | (8%) |
| Cash Available for Distribution | $64.5 million | $47.3 million | 36% |
Operating margin improved to approximately 20.4% from 14.9%, while net margin improved to approximately 14.0% from 7.9%. Results benefited from stronger Southern Timber and Pacific Northwest Timber pricing and volumes, and substantially higher Real Estate activity. These gains were partly offset by weaker New Zealand Timber results and the absence of the liquidated Timber Funds segment.
Cash and cash equivalents, excluding Timber Funds, were $256.5 million at March 31, 2022, compared with $358.7 million at December 31, 2021. Total debt principal was $1.254 billion, compared with $1.376 billion at year-end; debt to capital was 38%, versus 41%. The Company had $299.1 million of available borrowings under its revolving credit facility, net of letters of credit, and was in compliance with all debt covenants. The EBITDA-to-interest covenant ratio was 13.6x versus a 2.5x minimum, and debt-to-capital covenant usage was 40% versus a 65% maximum.
First-quarter investing cash outflows were $18.9 million, including $15.6 million of capital expenditures, $3.1 million of real estate development investments and $2.8 million of timberland acquisitions. Financing cash outflows were $134.7 million, principally reflecting $526.9 million of debt repayments, $39.4 million of common dividends and $30.9 million of net ATM equity proceeds, partially offset by $404.0 million of debt issuance.
Material changes versus the prior comparable period
- Southern Timber: Sales rose 49% to $76.8 million and operating income rose to $30.3 million from $17.3 million. Harvest volume increased 25%, while weighted-average stumpage pricing increased 31%.
- Pacific Northwest Timber: Sales increased 11% to $46.3 million and operating income increased to $6.6 million from $1.3 million, driven by higher log prices despite 6% lower harvest volume.
- New Zealand Timber: Sales declined 11% to $51.4 million and operating income declined to $5.4 million from $14.0 million. Volume fell 14%, while shipping and demurrage costs, port congestion and foreign exchange reduced profitability.
- Real Estate: Sales increased to $34.2 million from $10.5 million and operating income increased to $10.2 million from $1.7 million, primarily due to sales of 8,734 acres versus 2,395 acres in the prior-year quarter.
- Timber Funds: The segment generated no current-period sales or operating income because the funds were liquidated or management and ownership interests were sold during 2021.
- Other operating expense: The Company recorded $1.0 million of net other operating expense versus $2.4 million of income in the prior-year period, including a $0.6 million foreign-currency remeasurement loss.
Guidance, outlook, risks and unusual items
Management expects lower Southern Timber and Pacific Northwest harvest volumes for the remainder of 2022 after strong first-quarter removals. Southern Timber pricing is expected to moderate from first-quarter levels, while Pacific Northwest pricing is expected to remain near first-quarter levels. New Zealand harvest volumes are expected to increase, but COVID-19-related disruptions in China, port congestion and supply-chain conditions remain uncertain. Real Estate results are expected to be lower for the remainder of the year following a strong first quarter.
Expected 2022 capital expenditures are $81 million to $84 million, excluding strategic timberland acquisitions. Real estate development investments are expected to be $23 million to $25 million. The Company expects approximately $158 million of common-share dividends and $3.6 million of Operating Partnership distributions, assuming no material change in the quarterly $0.27 per-share or per-unit distribution rate. Full-year cash taxes are expected to be approximately $17 million, primarily related to New Zealand.
Key risks include volatility in global log and lumber markets arising from the Russia-Ukraine conflict, ongoing COVID-19 disruptions, demand and pricing changes in housing and wood-products markets, elevated logging, transportation, ocean freight and demurrage costs, New Zealand/U.S. dollar fluctuations, interest-rate exposure and port congestion. The Company had $11.3 million of environmental and natural-resource-damage liabilities related to Port Gamble, Washington, and estimates that remediation and restoration costs may increase as the project scope develops. It also disclosed $24.8 million of financial guarantees, primarily surety bonds and standby letters of credit.
On April 1, 2022, a New Zealand subsidiary recorded a $27.9 million shareholder loan payable due in 2027 at a fixed 6.48% rate in connection with a noncontrolling-interest redemption. Management reported effective disclosure controls and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether elevated first-quarter Southern Timber and Real Estate performance can be sustained despite management's expectation of lower results or volumes for the remainder of 2022.
- The duration and financial effect of China-related COVID-19 disruptions, port congestion and elevated New Zealand shipping and demurrage costs.
- Timber price, harvest-volume and foreign-exchange assumptions underlying full-year cash flow and dividend coverage.
- The maturity and refinancing plan for approximately $1.0 billion of debt due after 2026, as well as exposure to variable interest rates after existing swaps expire.
- Progress and potential cost increases related to the Port Gamble environmental and natural-resource-damage obligations.
- The impact of the liquidation of Timber Funds and the resulting change in recurring revenue, earnings and noncontrolling interests.
- The terms and financial effect of the April 2022 New Zealand shareholder loan and noncontrolling-interest redemption.