Rayonier Inc. 2021 First-Quarter Form 10-Q Summary
Business Context and Reporting Period
Rayonier Inc. and Rayonier, L.P. reported unaudited consolidated results for the three months ended March 31, 2021. Rayonier is a timberland REIT operating through an UPREIT structure. As of quarter-end, it owned or leased approximately 2.7 million acres in the U.S. South, Pacific Northwest and New Zealand, and managed three private equity timber funds.
The prior-year comparison was affected by a $116.0 million Real Estate large disposition completed in the first quarter of 2020. Timber Funds results were included in 2021 but were not present in the reported first-quarter 2020 segment comparison.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Sales | $191.4 million | $259.1 million | Down $67.7 million |
| Operating income | $28.5 million | $38.6 million | Down $10.1 million |
| Net income | $15.0 million | $26.4 million | Down $11.4 million |
| Net income attributable to Rayonier Inc. | $10.8 million | $25.9 million | Down $15.0 million |
| Basic and diluted EPS | $0.08 | $0.20 | Down $0.12 |
| Adjusted EBITDA | $69.5 million | $47.1 million | Up $22.4 million |
| Cash provided by operating activities | $53.9 million | $29.2 million | Up $24.7 million |
| Cash Available for Distribution | $47.3 million | $27.2 million | Up $20.1 million |
Reported operating margin was approximately 14.9%, compared with 14.9% in the prior-year quarter. Net margin was approximately 7.9%, compared with 10.2%; net income attributable to Rayonier Inc. margin was approximately 5.7%, compared with 10.0%. Adjusted EBITDA margin increased to approximately 36.3% from 18.2%, primarily because the 2020 comparison included the large disposition and related non-cash costs.
- Timber sales increased to $171.6 million from $132.3 million, supported by stronger pricing and higher Pacific Northwest and New Zealand volumes.
- Southern Timber sales decreased 2% to $51.7 million, while operating income increased to $17.3 million due to higher stumpage pricing, non-timber income and lower costs.
- Pacific Northwest Timber sales increased 34% to $41.5 million and operating income improved to $1.3 million from a $0.9 million loss.
- New Zealand Timber sales increased 53% to $57.6 million and operating income increased to $14.0 million, reflecting higher volumes, pricing and stronger export demand.
- Real Estate sales fell to $10.5 million from $118.5 million because the prior-year period included the $116.0 million large disposition. Real Estate operating income was $1.7 million versus $26.8 million.
Cash Flow, Debt and Liquidity
- Total cash and cash equivalents were $82.6 million at March 31, 2021, including $4.7 million held by Timber Funds. Cash, cash equivalents and restricted cash totaled $83.1 million.
- Investing activities used $44.4 million, including $29.9 million for timberland acquisitions, $15.8 million of capital expenditures and $3.0 million of real estate development investments.
- Financing activities used $13.8 million, including $37.5 million of common dividends, $1.2 million of distributions to Operating Partnership unitholders and $8.7 million of distributions to noncontrolling interests. ATM equity issuance provided $32.5 million net.
- Long-term debt was $1.36 billion, consisting of $1.30 billion excluding Timber Funds and $60.0 million at Timber Funds. Principal debt maturities include $350.0 million in 2022 and $284.1 million in 2025.
- Revolving credit availability was $299.1 million at quarter-end, net of letters of credit. New Zealand had NZ$20.0 million of available working-capital borrowings.
- Debt-to-capital was 39%, and net debt to enterprise value was 21%. The Company was in compliance with applicable debt covenants.
- The quarterly dividend and Operating Partnership distribution rate remained $0.27 per share or unit.
Material Changes Versus the Prior Comparable Period
- Results benefited from substantially stronger Pacific Northwest and New Zealand timber pricing, increased harvest volumes and the addition of the Timber Funds segment following the 2020 Pope Resources acquisition.
- Results were reduced by the absence of the prior-year $116.0 million Real Estate large disposition and $28.7 million related gain.
- Interest expense increased $1.8 million to $10.0 million because of higher debt outstanding after the Pope Resources acquisition.
- Net income attributable to noncontrolling interests increased to $3.8 million from $0.6 million, reflecting the New Zealand subsidiary, Timber Funds and other consolidated affiliates.
- Other comprehensive income was $47.0 million, primarily from cash-flow hedge gains, compared with a $127.3 million loss in the prior-year quarter.
- The Company issued approximately 1.1 million shares under its ATM program for $36.9 million of gross proceeds. Approximately $229.7 million remained available under the program at quarter-end.
Guidance, Outlook, Risks and Unusual Items
- Management expects strong lumber-mill demand and modestly improved Southern Timber pricing, with quarterly variation driven by geographic mix.
- Pacific Northwest harvest volumes are expected to be lower for the remainder of 2021 because some volume was accelerated into the first quarter; pricing is expected to remain at or above first-quarter levels.
- New Zealand demand and pricing are expected to remain strong, although elevated shipping costs may partially offset the benefit.
- Management expects a significant increase in Real Estate transaction activity during the remainder of 2021, particularly in residential and commercial development properties.
- Expected 2021 capital expenditures are $73 million to $76 million, excluding Timber Funds and strategic timberland acquisitions. Real estate development investments are expected to be $16 million to $18 million.
- Expected 2021 common-share dividends are approximately $150.0 million, assuming a $0.27 quarterly dividend and no material change in share count. Cash tax payments are expected to be approximately $17.0 million, primarily for New Zealand operations.
- Key risks include timber and real estate pricing, housing and downstream wood-product demand, weather and operating disruptions, COVID-19-related economic effects, New Zealand foreign-exchange exposure, interest rates, shipping costs and environmental liabilities.
- Port Gamble environmental and natural-resource-damage liabilities totaled $11.5 million at March 31, 2021. Cleanup is expected over two to three years, with monitoring continuing for an additional 10 to 15 years; costs could increase as restoration requirements develop.
- The Pope Resources purchase-price allocation remained preliminary, with potential future adjustments to timberlands, real estate, debt, environmental liabilities, intangible assets and taxes.
- No material adverse effect was expected from pending lawsuits and claims, and management concluded that disclosure controls were effective.
Investor Verification Priorities
- Verify the sustainability of first-quarter timber pricing and New Zealand export demand, including the effects of China-related trade conditions and shipping costs.
- Assess the timing and economics of the anticipated 2021 Real Estate transactions, particularly development-property sales.
- Review the 2022 $325.0 million Senior Notes maturity and the Company’s refinancing plans, including the forward-starting interest-rate swaps.
- Reconcile Adjusted EBITDA and CAD to GAAP results and distinguish recurring timber operations from the prior-year large disposition.
- Monitor cash requirements for dividends, timberland acquisitions, capital expenditures, development commitments and environmental remediation.
- Review the final Pope Resources purchase-price allocation and any resulting changes to asset values, liabilities, depreciation, depletion or earnings.