Rayonier reports fourth quarter 2020 results

February 10, 2021

By: The Working Forest Staff

WILDLIGHT, Fla.,BUSINESS WIRE –Rayonier Inc. has reported fourth-quarter net income attributable to Rayonier of $10.3 million, or $0.07 per share, on revenues of $205.5 million. This compares to net income attributable to Rayonier of $16.0 million, or $0.12 per share, on revenues of $178.8 million in the prior-year quarter. The fourth-quarter results included costs related to the merger with Pope Resources1 of $0.7 million. Excluding this item, pro forma net incomewas $11.0 million, or $0.08 per share, versus $16.0 million, or $0.12 per share, in the prior-year quarter.

Fourth-quarter operating income was $22.4 million versus $26.1 million in the prior-year period. The current quarter operating income included costs related to the merger with Pope Resources1 of $0.7 million. Excluding this item and adjusting for $0.7 million of operating income attributable to noncontrolling interest in the Timber Funds segment, current quarter pro forma operating income2 was also $22.4 million. Fourth-quarter Adjusted EBITDA2 was $74.5 million versus $65.0 million in the prior-year period.

The following table summarizes operating income (loss), pro forma operating income (loss)2, and Adjusted EBITDA2 for the current quarter and comparable prior year period:

Overview of Full-Year Results: Full-year 2020 net income attributable to Rayonier was $37.1 million, or $0.27 per share, on revenues of $859.2 million. This compares to net income attributable to Rayonier of $59.1 million, or $0.46 per share, on revenues of $711.6 million in the prior year. Full-year results included $28.7 million of income from a Large Disposition,3 partially offset by costs related to the merger with Pope Resources1 of $17.2 million and timber write-offs resulting from casualty events4 of $7.9 million. Excluding these items, pro forma net income2 was $33.5 million, or $0.25 per share, versus $59.1 million, or $0.46 per share, in the prior year.

Full-year operating income was $74.4 million versus $107.0 million in the prior year. Full-year operating income included $28.7 million of income from a Large Disposition,3 partially offset by costs related to the merger with Pope Resources1 of $17.2 million and timber write-offs resulting from casualty events4 of $15.2 million (of which $7.9 million was attributable to Rayonier). Excluding these items and adjusting for the operating loss attributable to noncontrolling interest in the Timber Funds segment, full-year pro forma operating income2 was $82.3 million. Full-year Adjusted EBITDA2 was $267.4 million versus $247.8 million in the prior year.

The following table summarizes operating income (loss), pro forma operating income (loss)2 and Adjusted EBITDA2 for the current full-year and comparable prior year:

Full-year cash provided by operating activities was $204.2 million versus $214.3 million in the prior year. Full-year cash available for distribution (CAD)2 of $162.4 million increased $13.1 million versus the prior year primarily due to higher Adjusted EBITDA2 ($19.6 million) and lower cash taxes paid ($0.9 million), partially offset by higher capital expenditures ($0.2 million) and higher cash interest paid ($7.1 million).

“Given the significant disruption and uncertainty associated with the COVID-19 pandemic throughout 2020, we were very pleased with our fourth quarter and full-year financial results,” said David Nunes, President, and CEO. “The diversity of our timber markets, the positioning of our real estate portfolio and the resiliency of our people during challenging operating conditions all contributed to our solid performance in 2020, and we finished the year with encouraging momentum across our business segments. Moreover, we successfully closed and integrated the Pope Resources acquisition, and we are already seeing the benefits of our enhanced scale and portfolio quality. As we look to 2021, we believe we are well-positioned to capitalize on favorable sawlog trends associated with increased residential construction activity, continued strong end-market demand for products derived from our pulpwood, improved log export market opportunities and growing interest in finished lots as well as rural and recreational properties.”

“Our U.S. and New Zealand businesses were fully-operational throughout the fourth quarter as we continued to follow enhanced safety protocols in response to the COVID-19 pandemic. Fourth-quarter Adjusted EBITDA of $74.5 million was 15% higher than the prior-year quarter, as favorable results in the Pacific Northwest Timber and Real Estate segments more than offset an 18% decline in Adjusted EBITDA from the Southern Timber segment. The decline in Southern Timber Adjusted EBITDA was attributable to a 15% decrease in harvest volumes due to the timing of 2020 harvest activity as well as lower non-timber income, while weighted average pricing showed a meaningful improvement over the prior-year quarter. In Pacific Northwest Timber, Adjusted EBITDA improved 65% versus the prior-year quarter, as strong domestic demand drove a 22% increase in weighted-average log prices. Meanwhile, New Zealand Timber Adjusted EBITDA rose 4% relative to the prior-year quarter, as a modest increase in weighted-average log prices, coupled with higher harvest volumes, more than offset lower carbon credit sales.”

“Our real estate platform also delivered a strong quarter, with Adjusted EBITDA rising 40% versus the prior-year quarter as our team capitalized on the growing demand for rural land, as well as residential lots and commercial properties within our real estate development projects. We believe these favorable tailwinds are continuing to gain momentum and remain optimistic that a combination of favorable demographic trends, historically low mortgage rates, and an increased need for space, coupled with tight supplies of finished lots and entitled land, will benefit our real estate operations.”

Southern Timber

Fourth-quarter sales of $44.4 million decreased by $1.4 million, or 3%, versus the prior-year period primarily due to lower pipeline easement revenue and lower volumes, partially offset by higher prices and a significantly higher proportion of delivered log sales. Harvest volumes decreased 15% to 1.34 million tons versus 1.58 million tons in the prior-year period. The decline was largely attributable to the timing of harvest activity, as a smaller proportion of full-year harvest volume occurred in the fourth quarter of 2020 as compared to the prior year. Average pine saw timber stumpage prices increased 10% to $25.48 per ton versus $23.25 per ton in the prior-year period. We were encouraged to see evidence of increased pricing tension in multiple U.S. South markets during the quarter amid robust lumber pricing, growing competition among mills for logs and improved demand for export-grade logs in select markets. The favorable geographic mix also contributed to the increase in our average saw timber price during the quarter. Average pine pulpwood stumpage prices increased 6% to $15.71 per ton versus $14.82 per ton in the prior-year period, largely due to a favorable geographic mix. Overall, weighted-average stumpage prices (including hardwood) increased 7% to $19.36 per ton versus $18.10 per ton in the prior-year period. Operating income of $9.9 million decreased $2.1 million versus the prior-year period due to lower non-timber income ($2.2 million), lower volumes ($1.8 million), and higher costs ($0.2 million), partially offset by higher net stumpage prices ($1.7 million) and lower depletion rates ($0.4 million).

Fourth-quarter Adjusted EBITDAof $23.3 million was 18% or $5.0 million below the prior-year period.

Pacific Northwest Timber

Fourth-quarter sales of $34.7 million increased by $7.1 million, or 26%, versus the prior-year period. Harvest volumes decreased 5% to 396,000 tons versus 417,000 tons in a particularly strong prior-year period. Average delivered saw timber prices increased 23% to $96.23 per ton versus $78.51 per ton in the prior-year period, as the historic surge in lumber prices translated to significantly improved log demand. Average delivered pulpwood prices decreased 14% to $33.78 per ton versus $39.24 per ton in the prior-year period, as higher lumber mill residuals and the deterioration of pulpwood export markets continued to drive excess domestic supply. Operating loss of $0.5 million improved $0.8 million versus the prior-year period due to higher net stumpage prices ($6.2 million) and higher non-timber income ($0.8 million), partially offset by higher depletion rates ($5.4 million) and higher overhead and other costs ($0.8 million).

Fourth-quarter Adjusted EBITDA2 of $14.4 million was 65% or $5.7 million above the prior-year period.

New Zealand Timber

Fourth-quarter sales of $60.2 million decreased by $0.4 million, or 1%, versus the prior-year period, as higher harvest volumes and log prices were more than offset by lower carbon credit sales. Harvest volumes increased 2% to 702,000 tons versus 688,000 tons in the prior-year period. Average delivered prices for export saw timber increased 2% to $104.78 per ton versus $102.69 per ton in the prior-year period, while average delivered prices for domestic saw timber increased 6% to $73.53 per ton versus $69.13 per ton in the prior-year period. The increase in export saw timber prices was driven primarily by stronger demand from China, which was due in part to a restriction on competing log imports from Australia amid escalating political and trade tensions between the two countries. The increase in domestic saw timber prices (in U.S. dollar terms) was driven primarily by the rise in the NZ$/US$ exchange rate (US$0.67 per NZ$1.00 versus US$0.64 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic saw timber prices were relatively flat versus the prior-year period. Operating income of $8.8 million decreased $0.6 million versus the prior-year period as a result of lower carbon credit sales ($2.7 million), unfavorable foreign exchange impacts ($0.8 million), and higher depletion rates ($0.8 million), partially offset by higher net stumpage prices ($3.4 million), higher volumes ($0.2 million) and lower costs ($0.1 million).

Fourth-quarter Adjusted EBITDA2 of $16.8 million was 4% or $0.7 million above the prior-year period.

Timber Funds

The Timber Funds segment generated fourth-quarter sales of $12.1 million on harvest volumes of 115,000 tons, and operating income of $1.1 million. Adjusting for the portion of the Timber Funds segment attributable to noncontrolling interests, pro forma sales2 and pro forma operating income2 were $2.9 million and $0.3 million, respectively.

Fourth-quarter Adjusted EBITDAwas $0.9 million.

Real Estate

Fourth-quarter sales of $32.0 million increased $9.8 million versus the prior-year period. A higher number of acres sold (12,543 acres sold versus 6,862 acres sold in the prior-year period) was partially offset by a decrease in weighted-average prices ($2,440 per acre versus $3,223 per acre in the prior-year period). Operating income of $10.9 million decreased $1.9 million versus the prior-year period.

Improved Development sales of $6.7 million included a $4.6 million sale consisting of 199 acres in the Belfast Commerce Park development project south of Savannah, Georgia ($23,298 per acre), $1.6 million of sales consisting of 25 residential lots in the Wildlight development project north of Jacksonville, Florida (an average of $64,000 per lot or $356,000 per acre) and a $0.5 million sale consisting of approximately four-tenths of an acre in Kitsap County, Washington ($1.3 million per acre). This compares to prior year period sales of $0.9 million, which consisted of 20.7 acres of commercial property in the Belfast Commerce Park development project ($42,000 per acre).

There were no Unimproved Development sales in the fourth quarter. This compares to prior year period sales of $4.0 million, which consisted of a 405 acre sale in Nassau County, Florida at a price of $10,000 per acre.

Rural sales of $14.3 million consisted of 3,621 acres at an average price of $3,942 per acre. This compares to prior year period sales of $17.1 million, which consisted of 6,412 acres at an average price of $2,670 per acre.

Timberland and Non-Strategic sales of $9.6 million consisted of 8,718 acres at an average price of $1,102 per acre, which was dominated by the sale of a number of scattered parcels of lower quality timberland, some of which also had challenging access issues. This compares to prior year period sales of $0.1 million, which consisted of a 25-acre sale at a price of $3,062 per acre.

Fourth-quarter Adjusted EBITDAof $25.7 million was $7.3 million above the prior-year period.

Trading

Fourth-quarter sales of $23.5 million increased $0.7 million versus the prior-year period primarily due to revenues generated for log export management services. Sales volumes increased 2% to 236,000 tons versus 232,000 tons in the prior-year period. The Trading segment generated breakeven results versus an operating loss of $0.3 million in the prior-year period, due to improved trading margins in line with improving export markets.

Other Items

Fourth-quarter corporate and other operating expenses of $7.8 million increased $1.3 million versus the prior-year period, primarily due to costs related to the Pope Resources merger.1

Fourth-quarter interest expense of $10.3 million increased $2.2 million versus the prior-year period due to higher outstanding debt following the closing of the Pope Resources acquisition.

The fourth-quarter income tax benefit of $0.4 million versus income tax expense of $2.7 million in the prior-year period was primarily due to changes in deferred tax items as a result of the Pope Resources acquisition.

In September, we established an at-the-market (ATM) equity offering program under which we may sell common shares, from time to time, having an aggregate sales price of up to $300 million. There were 1.1 million shares issued under the ATM program during the three months ended December 31, 2020, at an average price of $30.26 per share.

Outlook

In 2021, we expect to achieve net income attributable to Rayonier of $44 to $56 million and Adjusted EBITDA of $285 to $315 million. The projected year-over-year increase in Adjusted EBITDA is driven by our expectation that the contribution from each of our key timber segments will increase in 2021. However, we believe this will be partially offset by a lower contribution from our Real Estate segment following an exceptionally strong 2020. Overall, we remain very encouraged by the stability of our business and the strength of our end markets.

In our Southern Timber segment, we expect to achieve full-year harvest volumes of 6.2 to 6.4 million tons. We expect a modest improvement in weighted average pricing relative to full-year 2020 driven by strong saw timber demand and a higher mix of saw timber, partially offset by an increased proportion of planned harvest volume from relatively lower-priced markets.

We expect the largest year-over-year improvement in our Pacific Northwest Timber segment, bolstered by a full-year contribution from the Pope Resources acquisition. We expect to achieve harvest volumes of 1.7 to 1.8 million tons in the region. We also anticipate higher average saw timber prices as compared to full-year 2020 given strong domestic demand trends and favorable lumber pricing.

In our New Zealand Timber segment, we expect to achieve harvest volumes of 2.6 to 2.8 million tons, up modestly year-over-year following the operational disruptions imposed by the COVID-19 pandemic in 2020. We further expect that strong demand from China coupled with strong local markets will lead to improved export and domestic pricing.

Turning to our Real Estate segment, we remain focused on opportunistically unlocking the long-term value of our HBU development and rural property portfolio. Following exceptionally strong Real Estate results in 2020, we currently anticipate more normalized transaction activity in 2021. We further anticipate that real estate activity will be heavily weighted to the second half of the year, with very limited activity in the first quarter in particular.

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