Rayonier Inc. 2021 Form 10-K Summary
Business context and reporting period
Rayonier Inc. and Rayonier, L.P. reported consolidated results for the fiscal year ended December 31, 2021. Rayonier is a timberland REIT operating through an UPREIT structure; Rayonier Inc. owned 97.8% of the Operating Partnership at year-end. The Company owned, leased or managed approximately 2.7 million acres across the U.S. South, Pacific Northwest and New Zealand through Southern Timber, Pacific Northwest Timber, New Zealand Timber, Timber Funds, Real Estate and Trading segments.
Financial and operating metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Sales | $1,109.6 million | $859.2 million |
| Operating income | $269.8 million | $74.4 million |
| Net income | $210.5 million | $29.8 million |
| Net income attributable to Rayonier Inc. | $152.6 million | $37.1 million |
| Basic and diluted EPS | $1.08 | $0.28 basic; $0.27 diluted |
| Adjusted EBITDA | $329.8 million | $267.4 million |
| Cash provided by operating activities | $325.1 million | $204.2 million |
| Capital expenditures | $76.0 million | $66.5 million |
| Timberland acquisitions | $179.1 million | $24.7 million |
| Cash and cash equivalents, excluding Timber Funds | $358.7 million | $80.5 million |
| Total debt, excluding Timber Funds | $1,376.1 million | $1,294.9 million |
Reported operating margin was approximately 24.3%, net income attributable to Rayonier Inc. margin was approximately 13.8%, and Adjusted EBITDA margin was approximately 29.7%. These are analytical calculations based on reported figures and are not company-defined measures.
- Southern Timber sales increased 7% to $204.4 million; operating income increased to $66.1 million despite an 8% decline in harvest volume, driven by stronger pulpwood and sawtimber pricing.
- Pacific Northwest Timber sales increased 18% to $143.0 million, and the segment returned to operating profitability with $6.8 million of operating income.
- New Zealand Timber sales increased 39% to $281.2 million, supported by higher export and domestic log prices, favorable foreign exchange and modestly higher volume.
- Real Estate sales declined to $189.9 million from $229.3 million, but operating income increased to $112.5 million. Results included $56.0 million of Large Disposition sales and $44.8 million of related operating income.
- Timber Funds results included $156.8 million of Fund II timberland disposition sales, a $51.5 million gain on those dispositions, a $3.7 million gain on the sale of Funds III and IV, and a $3.8 million Fund II carried-interest gain.
- Cash increased by $281.7 million, including $154.7 million of net proceeds from Fund II timberland dispositions and $31.0 million from the sale of Timber Funds III and IV.
- Cash Available for Distribution was $207.8 million; Adjusted CAD was negative $117.2 million after $325.0 million of mandatory debt repayments.
- Debt to capital was 41%, debt to Adjusted EBITDA was 4.2 times, net debt to Adjusted EBITDA was 3.1 times, and net debt to enterprise value was 14%.
- The Company paid $1.08 per common share in dividends during 2021, and all 2021 distributions were characterized as capital gains in the filing.
Material changes versus the prior comparable period
- Sales increased approximately 29%, operating income increased approximately $195.4 million, and net income attributable to Rayonier Inc. increased approximately $115.5 million.
- The improvement reflected stronger timber pricing, higher New Zealand and Pacific Northwest results, lower corporate costs following the 2020 Pope Resources merger, and significant Timber Fund and Real Estate disposition gains.
- Southern harvest volumes fell because of wet weather and supply-chain constraints, while New Zealand and Pacific Northwest pricing benefited from strong demand and export conditions.
- The Company acquired approximately 103,000 acres of timberland for $179.1 million, primarily in Florida, Georgia, Texas and New Zealand.
- Rayonier sold its management rights and ownership interests in Timber Funds III and IV and completed the liquidation of Fund II timberland assets. At December 31, 2021, it retained a 20% interest in Fund II, which is scheduled to terminate in March 2023.
- The Company issued 6.4 million shares under its at-the-market program for $235.5 million of gross proceeds; $31.1 million remained available under the program at year-end.
- Rayonier, L.P. issued $450 million of 2.75% senior notes due 2031 and repaid or prepaid other debt. The $325 million of Senior Notes due 2022 was repaid on January 4, 2022 using cash and short-term borrowing, followed by a $200 million draw under the 2021 Incremental Term Loan Facility.
Guidance, outlook, commentary and risks
For 2022, management expects Southern Timber harvest volumes of 6.3–6.6 million tons, Pacific Northwest volumes of 1.7–1.8 million tons, and New Zealand volumes of 2.6–2.8 million tons. Management expects improved Southern pricing, modestly higher Pacific Northwest pricing, and modestly lower New Zealand export pricing compared with 2021. Real Estate activity is expected to normalize after exceptionally strong 2021 results.
Management forecast 2022 capital expenditures of $80–$85 million, real estate development investments of $22–$25 million, cash income taxes of $18–$22 million, and dividend payments of approximately $157.5 million, assuming a quarterly dividend of $0.27 per share. The outlook excludes potential strategic timberland acquisitions.
- Key operating risks include timber-price cyclicality, housing and construction demand, inflation, higher fuel, labor, logging, transportation and ocean freight costs, and limited contractor availability.
- Weather, wildfire, hurricanes, insects, disease, drought and climate change could reduce harvest volumes and timber inventory; the Company generally does not insure its timber against these losses.
- International operations are exposed to China and other Pacific Rim demand, tariffs, trade restrictions, exchange rates and public-health disruptions. New Zealand export exposure is partially hedged through derivatives and natural offsets.
- Real Estate results depend on development approvals, infrastructure, financing conditions, market demand and the timing of land sales. Management anticipates more normalized transaction activity in 2022.
- Environmental and natural-resource-damage liabilities related principally to Port Gamble, Washington, totaled $10.8 million at year-end. Management stated that costs could increase as remediation and restoration scopes develop.
- The Company must maintain REIT qualification and relies on complex tax rules. Loss of REIT status could materially increase taxes and reduce cash available for distributions.
- The filing identifies timber depletion as a critical audit matter. A 3% change in estimated standing merchantable inventory would have changed 2021 depletion expense by approximately $3.9 million.
- Management reported effective disclosure controls and internal control over financial reporting for Rayonier Inc.; the independent auditor issued unqualified opinions on the financial statements and Rayonier Inc.’s internal controls.
Investor verification checklist
- Reconcile reported earnings and Adjusted EBITDA to determine the effect of Fund II dispositions, Timber Funds III and IV sale gains, Large Dispositions and other nonrecurring items.
- Review 2022 debt refinancing, including the January 2022 repayment of the $325 million Senior Notes due 2022, the $200 million incremental term loan and resulting interest expense.
- Assess whether 2022 harvest-volume and pricing assumptions support the projected dividend, capital spending and acquisition plans.
- Monitor logging, transportation, labor and ocean freight costs, particularly in Southern Timber and New Zealand Timber.
- Evaluate the sustainability of Real Estate cash flow after the unusually strong 2021 disposition results.
- Review Port Gamble environmental and natural-resource-damage estimates, guarantees and other commitments.
- Consider dilution from the ATM program, operating partnership unit conversions and remaining authorized equity issuance.
- Verify timber inventory, depletion rates, sustainable-yield estimates and the impact of weather, fire and regulatory restrictions on harvestable acreage.