RAYONIER INC annual report, FY2023

Rayonier Inc. 2023 Form 10-K Summary

Business context and reporting period

This combined Form 10-K covers Rayonier Inc. and Rayonier, L.P. for the fiscal year ended December 31, 2023. Rayonier is a timberland REIT operating through an UPREIT structure, with five reportable segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate and Trading. The Company owned, leased or managed approximately 2.7 million acres across the U.S. South, Pacific Northwest and New Zealand. The filing reports full-year results; it does not provide a standalone fourth-quarter financial summary.

Rayonier owned a 98.4% interest in Rayonier, L.P.; third parties held the remaining 1.6%.
New Zealand operations are consolidated through a 77%-owned subsidiary.
Rayonier qualifies as a REIT and stated that it remained in compliance with applicable REIT requirements at year-end.

Financial performance and key metrics

Metric	2023	2022	Change
Sales	$1,056.9 million	$909.1 million	+16%
Operating income	$211.3 million	$165.8 million	+27%
Net income	$178.5 million	$122.8 million	+45%
Net income attributable to Rayonier Inc.	$173.5 million	$107.1 million	+62%
Basic and diluted EPS	$1.17	$0.73	+$0.44
Adjusted EBITDA	$296.5 million	$314.2 million	-6%
Cash provided by operating activities	$298.4 million	$269.2 million	+11%
Cash Available for Distribution	$163.9 million	$191.5 million	-14%

Operating margin was approximately 20.0%, compared with 18.2% in 2022. Net income attributable to Rayonier Inc. represented approximately 16.4% of sales, compared with 11.8% in 2022. Adjusted EBITDA margin declined to approximately 28.0% from 34.6%, reflecting weaker timber profitability and the differing contribution of large land dispositions.

Southern Timber sales were $264.1 million, essentially flat year over year; operating income declined to $76.3 million from $96.6 million. Higher harvest volumes were offset by lower stumpage prices and higher depletion and operating costs.
Pacific Northwest Timber sales declined 23% to $124.1 million, and the segment posted a $9.0 million operating loss versus $15.2 million of operating income in 2022.
New Zealand Timber sales declined 14% to $235.5 million, while operating income declined to $26.0 million from $30.6 million. Carbon-credit and other non-timber income partially offset weaker log pricing and lower volumes.
Real Estate sales increased to $390.0 million from $138.0 million, including $242.2 million from a 55,000-acre Oregon timberland disposition. Real Estate operating income increased to $156.6 million, including $105.1 million from large dispositions.
Trading sales declined to $43.7 million from $71.0 million, but operating income increased modestly to $0.5 million.

Cash flow, capital structure and liquidity

Year-end cash and cash equivalents were $207.7 million, compared with $114.3 million in 2022; cash, cash equivalents and restricted cash totaled $208.4 million.
Total principal debt was $1,372.7 million, down from $1,523.1 million. Reported long-term debt, net of discounts and financing costs, was $1,365.8 million.
Debt-to-capital was 41%, debt-to-Adjusted EBITDA was 4.6x, and net debt-to-Adjusted EBITDA was 3.9x, compared with 4.8x and 4.5x, respectively, in 2022.
The revolving credit facility had $289.9 million of available borrowing capacity at year-end, net of letters of credit. The Company stated that it had sufficient funding for its business requirements over the next 12 months and longer term.
Debt ratings were investment grade: BBB- from S&P and Baa3 from Moody’s, both with stable outlooks. The Company was in compliance with all debt covenants.
Capital expenditures were $81.4 million, real estate development investments were $23.1 million, and timberland acquisitions were $14.1 million.
Dividends for 2023 totaled $1.34 per common share, including an additional $0.20 dividend payable in January 2024. Management expects approximately $170.4 million of 2024 common-share dividends, assuming a quarterly rate of $0.285.

Material changes versus 2022

Results benefited from the $242.2 million Oregon large disposition, compared with $30.5 million of large dispositions in 2022. This materially increased reported Real Estate revenue and operating income but is excluded from Adjusted EBITDA and CAD.
Timber markets weakened across all three timber regions. Lower log and stumpage prices, reduced Pacific Northwest and New Zealand harvest volumes, and higher costs pressured recurring timber earnings.
Southern harvest volume increased 16% to 7.31 million tons, but weighted-average stumpage realizations fell 15% to $22.49 per ton.
Interest expense increased $12.1 million to $48.3 million due to higher average debt and interest rates.
Interest and other miscellaneous income increased to $20.6 million, primarily due to $20.7 million of net legal-settlement recoveries, partially offset by a $2.0 million pension settlement charge.
Operating cash flow improved, but CAD declined because of the exclusion of the legal-settlement recovery, higher capital spending and working-capital effects.
The Company reduced its 2022 Incremental Term Loan by $150 million during the fourth quarter.

Guidance, outlook, commentary and risks

Management expects 2024 Southern Timber harvest volumes of 7.1 to 7.3 million tons, modestly improved stumpage pricing, and higher non-timber income driven primarily by land-based solutions.
Pacific Northwest harvest volume is expected to be approximately 1.4 million tons. Pricing is expected to remain modestly below 2023 levels, partly due to species mix.
New Zealand harvest volume is expected to be 2.4 to 2.5 million tons, with modestly improved domestic and export sawtimber pricing and higher carbon-credit sales.
Management expects another strong year in rural land sales and improved development projects, although closing activity is expected to be light in the first quarter and stronger in the second quarter.
Capital expenditures are forecast at $83 million to $88 million, and real estate development investments at $28 million to $32 million in 2024.
On November 1, 2023, the Company announced a plan to sell $1 billion of selected assets over 18 months, use proceeds to target net debt-to-Adjusted EBITDA of no more than 3.0x, and return capital to shareholders and unitholders. Execution remains subject to market and transaction conditions.
Key risks include timber-price cyclicality, housing and construction demand, interest rates, inflation, weather, fire, disease, climate change, logging and transportation availability, export markets and foreign exchange.
Real estate performance depends on financing conditions, entitlements, permits, infrastructure, local political factors and development demand.
Port Gamble environmental remediation and natural-resource-damage liabilities totaled $16.6 million at year-end. Management believes no material loss beyond the accrued amount is currently expected, but the liability may increase as remediation and restoration scopes develop.
The CEO announced retirement effective March 31, 2024. Mark McHugh is scheduled to become CEO on April 1, 2024, and April Tice is scheduled to become Chief Financial Officer.
The Company terminated its defined benefit and unfunded excess benefit plans in 2023 and expects approximately $8.4 million of related cash contributions in 2024.

Most important facts for investors to verify

Whether the planned $1 billion asset-sale program is completed on schedule and whether proceeds reduce leverage toward the 3.0x target.
The extent to which 2024 timber-price and harvest-volume improvements offset the Pacific Northwest disposition, weaker 2023 pricing and cost inflation.
The sustainability of recurring CAD and dividends after excluding large dispositions and the one-time legal-settlement recovery.
Debt maturities, refinancing costs and covenant headroom, particularly the $225.5 million due in 2026, $125.5 million due in 2027 and $350.0 million due in 2028.
Progress and potential cost changes associated with Port Gamble remediation and natural-resource-damage obligations.
Execution of the CEO and CFO succession plan and its effect on capital allocation.
Exposure to New Zealand export demand, China construction conditions, foreign exchange rates and carbon-credit pricing.