RAYONIER INC annual report, FY2022

Rayonier Inc. 2022 Form 10-K Summary

Business context and reporting period

Rayonier Inc., together with Rayonier, L.P., reported results for the fiscal year ended December 31, 2022. The Company is a pure-play timberland REIT operating through an UPREIT structure. Its five reportable segments are Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate and Trading.

At year-end, Rayonier owned, leased or managed approximately 2.8 million acres across the U.S. South, U.S. Pacific Northwest and New Zealand. Rayonier owned 97.9% of the Operating Partnership, and controlled 77% of the New Zealand subsidiary.

Financial performance and key metrics

Metric	2022	2021	Change
Sales	$909.1 million	$1,109.6 million	Down 18%
Operating income	$165.8 million	$269.8 million	Down 39%
Net income	$122.8 million	$210.5 million	Down 42%
Net income attributable to Rayonier Inc.	$107.1 million	$152.6 million	Down 30%
Basic/diluted EPS	$0.73/$0.73	$1.08/$1.08	Down from prior year
Adjusted EBITDA	$314.2 million	$329.8 million	Down 5%
Cash provided by operating activities	$269.2 million	$325.1 million	Down 17%
Cash Available for Distribution	$188.5 million	$207.8 million	Down 9%

Calculated margins were approximately 18.2% for operating income, 11.8% for net income attributable to Rayonier Inc. and 34.6% for Adjusted EBITDA. These are calculated from reported figures and are not Company-defined GAAP measures.

Southern Timber sales increased 29% to $264.2 million; operating income increased to $96.6 million. Harvest volume rose 10% to 6.28 million tons, while weighted average pine stumpage prices increased.
Pacific Northwest Timber sales increased 13% to $162.2 million; operating income increased to $15.2 million despite a 5% volume decline, reflecting stronger delivered log prices.
New Zealand Timber sales declined 3% to $274.1 million; operating income fell 41% to $30.6 million as export and domestic prices weakened, foreign exchange was unfavorable and costs increased. Carbon and other non-timber revenue increased substantially.
Real Estate sales declined to $138.0 million from $189.9 million, and operating income declined to $58.5 million. The 2022 results included $30.5 million of Large Disposition sales and a $16.0 million equity gain from a multi-family apartment complex sale.
Trading sales declined 26% to $71.0 million, but operating income improved modestly to $0.4 million.

Liquidity, capital structure and debt

Cash and cash equivalents, excluding Timber Funds, were $114.3 million at December 31, 2022, compared with $358.7 million a year earlier.
Total debt was $1.523 billion, compared with $1.376 billion in 2021. Long-term debt, net of discounts and financing costs, was $1.515 billion.
Debt to capital was 43%, debt to Adjusted EBITDA was 4.8x, net debt to Adjusted EBITDA was 4.5x and net debt to enterprise value was 22%.
The Company maintained investment-grade ratings of BBB- from S&P and Baa3 from Moody’s, both with stable outlooks.
The revolving credit facility had approximately $296.2 million of available borrowing capacity at year-end, net of letters of credit.
Debt maturities include $21.9 million in 2025, $225.6 million in 2026, $275.6 million in 2027 and $1.0 billion thereafter. The Company reported compliance with all applicable debt covenants.
Capital expenditures were $74.8 million, real estate development investments were $13.7 million and timberland acquisitions totaled $458.5 million.
The Company paid $165.7 million of common dividends in 2022. The annual dividend increased to $1.125 per share from $1.08 in 2021.

Material changes versus the prior comparable period

Revenue and GAAP profitability declined primarily because 2021 included substantial Timber Funds and Large Disposition activity that did not recur in 2022.
Timber Funds operations were liquidated in 2021; consequently, the segment reported no 2022 sales or operating income.
Southern and Pacific Northwest timber results improved from higher pricing and, in the South, higher harvest volumes. New Zealand results deteriorated because of lower log prices, weaker Chinese demand, foreign exchange effects and higher costs.
Operating cash flow declined while investing cash use increased sharply, principally because of the $458.5 million of timberland acquisitions and lower disposition proceeds.
In December 2022, Rayonier completed the acquisition of approximately 138,000 acres from Manulife Investment Management for approximately $454.5 million, funded with incremental borrowings, cash and like-kind exchange proceeds.
The Company amended its variable-rate debt and related swaps to transition from LIBOR to Daily Simple SOFR. The transition did not materially affect reported financial position or operating results.

Guidance, outlook, risks and unusual items

For 2023, management expects Southern Timber harvest volume of 6.7 to 7.0 million tons, with higher volume and non-timber income largely offset by lower stumpage realizations and higher harvesting and transportation costs.
Pacific Northwest harvest volume is expected at approximately 1.5 to 1.6 million tons, with lower pricing anticipated because of weaker macroeconomic conditions and lumber prices.
New Zealand harvest volume is expected at 2.5 to 2.7 million tons. Management expects pressured stumpage margins early in the year but anticipates improving Chinese export conditions and favorable carbon credit contributions.
Real Estate activity is expected to be weighted toward the second half of 2023, with limited first-quarter activity despite continued interest in development and rural properties.
2023 capital expenditures are forecast at $85 million to $95 million, and real estate development investments at $25 million to $28 million, excluding strategic timberland acquisitions.
Port Gamble environmental and natural resource damage liabilities increased to $15.6 million, including a $4.9 million increase in the fourth quarter. Management expects payments over up to 20 years but cannot estimate any possible loss beyond accrued amounts.
Cyclone Gabrielle affected New Zealand in February 2023. As of the filing date, the Company was assessing possible damage to roads and timber but could not reasonably quantify the loss.
Key risks include timber price cyclicality, housing and construction demand, inflation and interest rates, logging and transportation capacity, weather, fire, insects, disease, climate change, foreign exchange, export markets and Chinese demand, environmental regulation, real estate entitlement delays, REIT qualification and debt covenant compliance.
The Company approved termination of its defined benefit pension plan, expected in the first quarter of 2023. It expects approximately $7.6 million of pension funding and $1.3 million of excess benefit plan contributions in 2023, with potential non-cash settlement charges.
Management and Ernst & Young concluded that Rayonier Inc. maintained effective internal control over financial reporting, and the financial statement audit opinion was unqualified.

Most important facts for investors to verify

Whether 2023 timber pricing and margins offset the expected volume growth, particularly in the Southern Timber segment.
The realized performance and financing impact of the $454.5 million Manulife timberland acquisition.
Debt refinancing and interest-rate exposure, including the $1.0 billion of debt due after 2027 and the effect of higher SOFR rates.
Cash generation relative to dividends, development spending, acquisitions and other capital commitments.
The timing, scope and ultimate cost of Port Gamble environmental and natural resource damage obligations.
The financial and operational effects of Cyclone Gabrielle and other weather-related events in New Zealand.
The sustainability of carbon credit revenue and the Company’s ability to monetize its 1,631,127 New Zealand carbon units.
Progress and sales pace at the Wildlight and Heartwood development projects under a higher-interest-rate environment.
The effect of timber inventory estimates and depletion assumptions; depletion was approximately $150 million in 2022 and was identified as a critical audit matter.