Rayonier Reports Third Quarter 2022 Results

• Third quarter net income attributable to Rayonier of $20.6 million ($0.14 per share) on revenues of $195.3 million
• Third quarter pro forma net income of $21.6 million ($0.15 per share) on pro forma revenues of $195.3 million
• Third quarter operating income of $40.9 million, pro forma operating income of $30.5 million, and Adjusted EBITDA of $64.7 million
• Year-to-date cash provided by operations of $209.9 million and cash available for distribution (CAD) of $158.8 million

Rayonier Inc. (NYSE:RYN) today reported third quarter net income attributable to Rayonier of $20.6 million, or $0.14 per share, on revenues of $195.3 million. This compares to net income attributable to Rayonier of $75.8 million, or $0.53 per share, on revenues of $364.7 million in the prior year quarter.

The third quarter results included a $1.1 million timber write-off resulting from a fire casualty event in Washington.¹ Excluding this item, pro forma net income for the quarter was $21.6 million. The prior year third quarter results included $14.5 million of income from a Large Disposition,² a $7.2 million gain on Fund II Timberland Dispositions attributable to Rayonier,³ a $3.7 million gain on investment in Timber Funds,⁴ and a $0.9 million gain on debt extinguishments.⁵ Excluding these items and pro forma net income adjustments attributable to noncontrolling interests in the operating partnership,⁶ pro forma net income⁷ was $50.3 million, or $0.35 per share, on pro forma revenues⁷ of $251.8 million in the prior year period.

The following table summarizes the current quarter and comparable prior year period results:

Third quarter operating income was $40.9 million versus $123.3 million in the prior year period. Third quarter operating income included a $16.0 million gain on the sale of a multi-family apartment complex in Bainbridge Island, Washington, which was held in a joint venture acquired as part of our merger with Pope Resources in 2020. This gain is reflected in our condensed statement of consolidated income under the caption "Other operating income, net." Pro forma operating income excludes $11.5 million of this gain that was attributable to noncontrolling interests. Adjusting for the $11.5 million gain attributable to noncontrolling interests⁸ and the $1.1 million timber write-off resulting from a casualty event,¹ current quarter pro forma operating income⁷ was $30.5 million. Prior year third quarter operating income included $14.5 million of income from a Large Disposition,² a $7.2 million gain on Fund II Timberland Dispositions attributable to Rayonier,³ a $3.7 million gain on investment in Timber Funds,⁴ and $30.5 million of operating income attributable to noncontrolling interests in the Timber Funds segment. Excluding these items, pro forma operating income⁷ was $67.4 million in the prior year period. Third quarter Adjusted EBITDA⁷ was $64.7 million versus $114.6 million in the prior year period.

The following table summarizes operating income, pro forma operating income (loss),⁷ and Adjusted EBITDA⁷ for the current quarter and comparable prior year period:

Year-to-date cash provided by operating activities was $209.9 million versus $277.4 million in the prior year period. Year-to-date cash available for distribution (CAD)⁷ of $158.8 million decreased $45.0 million versus the prior year period, primarily due to lower Adjusted EBITDA⁷ ($33.6 million), higher cash taxes paid ($7.3 million), higher capital expenditures ($3.5 million), and higher cash interest paid ($0.6 million).

"We are encouraged by our third quarter results, particularly given the challenges presented by ongoing cost pressures, the recent slowdown in the U.S. housing market, and continued headwinds in China as it relates to our export business," said David Nunes, President and CEO. "While Adjusted EBITDA declined significantly versus the prior year quarter, this was primarily due to exceptionally strong Real Estate results in the prior year period. Notably, total Adjusted EBITDA for our timber segments increased 14% versus the prior year period, as favorable results in our Southern Timber segment more than offset lower Adjusted EBITDA in our New Zealand Timber segment."

"Southern Timber Adjusted EBITDA improved 50% over the prior year quarter, as strong demand and favorable geographic mix drove 18% higher net stumpage prices and drier weather conditions across the region drove a 27% increase in harvest volumes. In Pacific Northwest Timber, Adjusted EBITDA improved 1% over the prior year quarter, as a 13% increase in weighted-average log prices more than offset higher costs and an 11% reduction in harvest volumes. Overall, we were pleased by our ability to maintain pricing gains during the quarter and thus absorb higher costs across both regions, as customer demand remained healthy."

"In New Zealand, the operating environment remained very challenging throughout the third quarter. Our New Zealand Timber segment Adjusted EBITDA declined 22% versus the prior year quarter, primarily driven by an 18% decrease in weighted-average delivered log prices due to COVID-related disruptions and a slowdown in construction activity in China."

"Following a strong first half of the year, closing activity in our Real Estate segment moderated in the third quarter as expected. Real Estate segment Adjusted EBITDA was $55.4 million below the prior year quarter, as the prior year period benefited from the closing of two significant development transactions totaling $62.5 million in revenue. Despite the decline in Adjusted EBITDA, we were encouraged by continued strong pricing for rural land in our markets during the third quarter."

Southern Timber

Third quarter sales of $64.5 million increased $19.7 million, or 44%, versus the prior year period. Harvest volumes increased 27% to 1.50 million tons versus 1.19 million tons in the prior year period, as more favorable weather conditions led to improved production. Average pine sawtimber stumpage prices increased 19% to $33.31 per ton versus $28.06 per ton in the prior year period, due to continued strong demand from sawmills as well as competition from pulp mills for chip-n-saw volume. Average pine pulpwood stumpage prices rose 19% to $22.77 per ton versus $19.14 per ton in the prior year period, driven by strong end-market demand and a favorable geographic mix. Overall, weighted-average stumpage prices (including hardwood) increased 18% to $25.80 per ton versus $21.88 per ton in the prior year period. Operating income of $22.5 million increased $9.7 million versus the prior year period due to higher net stumpage realizations ($5.8 million), higher volumes ($3.8 million), higher non-timber income ($1.3 million), and lower depletion rates ($0.5 million), partially offset by higher overhead and other costs ($1.7 million).

Third quarter Adjusted EBITDA⁷ of $36.6 million was 50%, or $12.2 million, above the prior year period.

Pacific Northwest Timber

Third quarter sales of $34.4 million increased $2.9 million, or 9%, versus the prior year period, notwithstanding a decline in harvest volumes of 11% to 307,000 tons versus 346,000 tons in the prior year period. Average delivered sawtimber prices increased 10% to $117.86 per ton versus $107.56 per ton in the prior year period, driven by continued healthy demand from domestic lumber mills as well as a favorable species mix, as a higher proportion of Douglas-fir sawtimber was harvested in the current year quarter. Average delivered pulpwood prices increased 62% to $50.74 per ton versus $31.34 per ton in the prior year period, reflecting strong end-market demand coupled with supply constraints due to fewer residuals and increased competition for a limited supply of smaller-sized logs. Operating income of $2.2 million improved $0.1 million versus the prior year period due to higher net stumpage realizations ($1.9 million) and higher non-timber income ($0.5 million), partially offset by the write-off of timber basis due to a fire in Washington ($1.1 million), lower volumes ($0.7 million), and higher overhead and other costs ($0.5 million).

Third quarter Adjusted EBITDA⁷ of $12.6 million was 1%, or $0.1 million, above the prior year period.

New Zealand Timber

Third quarter sales of $72.5 million decreased $3.1 million, or 4%, versus the prior year period. Harvest volumes increased 7% to 712,000 tons versus 668,000 tons in the prior year period, due to an increase in harvest activity following a relatively light start to the year. Average delivered prices for export sawtimber decreased 18% to $123.07 per ton versus $149.68 per ton in the prior year period, driven by reduced demand from China due to COVID-related disruptions as well as a slowdown in construction activity. Average delivered prices for domestic sawtimber decreased 18% to $69.69 per ton versus $85.00 per ton in the prior year period. The decrease in domestic sawtimber prices (in U.S. dollar terms) was primarily driven by the decline in the NZ$/US$ exchange rate (US$0.62 per NZ$1.00 versus US$0.70 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices decreased 8% versus the prior year period, reflecting additional supply that was diverted into domestic markets due to export market headwinds. Operating income of $9.3 million decreased $4.0 million versus the prior year period due to lower net stumpage realizations ($11.2 million), higher costs ($0.3 million), and higher depletion rates ($0.1 million), partially offset by higher carbon credit sales ($6.0 million), higher volumes ($1.4 million), and favorable foreign exchange impacts ($0.2 million).

Third quarter Adjusted EBITDA⁷ of $15.6 million was 22%, or $4.3 million, below the prior year period.

Real Estate

Third quarter sales of $12.4 million decreased $80.9 million versus the prior year period, while operating income of $15.7 million decreased $44.9 million versus the prior year period. Third quarter operating income included an $11.5 million gain attributable to noncontrolling interests⁸ associated with the Bainbridge Island multi-family apartment complex sale. Excluding this item, pro forma operating income⁷ was $4.3 million. The prior year third quarter sales and operating income included $20.0 million and $14.5 million, respectively, from a Large Disposition.² Excluding this item, pro forma sales⁷ were $73.4 million and pro forma operating income⁷ was $46.1 million in the prior year period. Pro forma sales⁷ and pro forma operating income⁷ decreased versus the prior year period due to a lower number of acres sold (1,828 acres sold versus 4,131 acres sold in the prior year period) and a decrease in weighted-average prices ($5,064 per acre versus $17,490 per acre in the prior year period).

Improved Development sales of $2.3 million included $0.8 million from the Wildlight development project north of Jacksonville, Florida and $1.5 million from the Heartwood development project south of Savannah, Georgia. Sales in Wildlight consisted of 13 residential lots ($65,000 per lot). Sales in Heartwood consisted of a 15-acre commercial parcel to be used for a healthcare campus for $1.0 million ($67,000 per acre) and 10 residential lots for $0.4 million ($44,000 per lot). This compares to prior year period Improved Development sales of $27.8 million, which included a significant sale in the Heartwood / Belfast Commerce Park.

There were no Unimproved Development sales in the third quarter. This compares to prior year period sales of $37.5 million, which consisted of a 359-acre sale in Kingston, Washington for $105,000 per acre.

Rural sales of $7.0 million consisted of 1,809 acres at an average price of $3,848 per acre. This compares to prior year period sales of $6.9 million, which consisted of 3,260 acres at an average price of $2,128 per acre.

Third quarter Adjusted EBITDA⁷ of $8.4 million was $55.4 million below the prior year period.

Trading

Third quarter sales of $11.6 million decreased $14.0 million versus the prior year period, primarily due to lower volumes and prices. Sales volumes decreased 46% to 95,000 tons versus 177,000 tons in the prior year period, reflecting constrained export market demand. The Trading segment generated operating income of $0.2 million versus breakeven results in the prior year period.

Third quarter Adjusted EBITDA⁷ of $0.2 million was above breakeven results in the prior year period.

Other Items

Third quarter corporate and other operating expenses of $9.0 million increased $2.2 million versus the prior year period, primarily due to higher compensation and benefits expenses ($1.4 million) and higher legal and other overhead expenses ($0.8 million).

Third quarter interest expense of $9.1 million decreased $2.2 million versus the prior year period due to lower average outstanding debt and a lower weighted-average interest rate as compared to the prior year period.

Third quarter income tax expense of $1.2 million decreased $1.6 million versus the prior year period. The New Zealand subsidiary is the primary driver of income tax expense.

Outlook

"Based on our year-to-date results and our expectations for the fourth quarter, we are on track to achieve our prior full-year Adjusted EBITDA guidance," added Nunes. "In our Southern Timber segment, we expect full-year Adjusted EBITDA in line with our prior guidance based on healthy demand trends and continued strong pricing in our markets. In our Pacific Northwest Timber segment, we expect full-year Adjusted EBITDA toward the higher end of our prior guidance, as we expect continued strong pricing for both pulpwood and sawtimber as compared to the prior year, albeit partially offset by ongoing cost pressures. In our New Zealand Timber segment, we expect full-year Adjusted EBITDA toward the lower end of our prior guidance due to ongoing export market headwinds, as demand from China remains constrained. In our Real Estate segment, we expect full-year Adjusted EBITDA toward the lower end of our prior guidance, as we now anticipate that a few transactions will be deferred into early 2023 and that demand for certain rural properties will likely moderate with the recent increase in interest rates."

Conference Call

A conference call and live audio webcast will be held on Thursday, November 3, 2022 at 10:00 AM (ET) to discuss these results.

Access to the live audio webcast will be available at www.rayonier.com. A replay of the webcast will be archived on the Company’s website and available shortly after the call.

Investors may listen to the conference call by dialing 888-604-9366 (domestic) or 517-308-9338 (international), passcode: RAYONIER. A replay of the conference call will be available one hour following the call until Saturday, December 3, 2022, by dialing 866-568-3705 (domestic) or 203-369-3811 (international), passcode: 11322.

Complimentary copies of Rayonier press releases and other financial documents are also available by calling (904) 357-9100.

About Rayonier

Rayonier is a leading timberland real estate investment trust with assets located in some of the most productive softwood timber growing regions in the United States and New Zealand. As of September 30, 2022, Rayonier owned or leased under long-term agreements approximately 2.7 million acres of timberlands located in the U.S. South (1.79 million acres), U.S. Pacific Northwest (486,000 acres) and New Zealand (417,000 acres). More information is available at www.rayonier.com.

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Forward-Looking Statements - Certain statements in this press release regarding anticipated financial outcomes including Rayonier’s earnings guidance, if any, business and market conditions, outlook, expected dividend rate, Rayonier’s business strategies, expected harvest schedules, timberland acquisitions and dispositions, the anticipated benefits of Rayonier’s business strategies, and other similar statements relating to Rayonier’s future events, developments or financial or operational performance or results, are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as "may," "will," "should," "expect," "estimate," "believe," "intend," "project," "anticipate" and other similar language. However, the absence of these or similar words or expressions does not mean that a statement is not forward-looking. While management believes that these forward-looking statements are reasonable when made, forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements.

The following important factors, among others, could cause actual results or events to differ materially from those expressed in forward-looking statements that may have been made in this document: the cyclical and competitive nature of the industries in which we operate; fluctuations in demand for, or supply of, our forest products and real estate offerings, including any downturn in the housing market; entry of new competitors into our markets; changes in global economic conditions and world events, including the war in Ukraine; business disruptions arising from public health crises and outbreaks of communicable diseases, including the current outbreak of the virus known as the novel coronavirus; fluctuations in demand for our products in Asia, and especially China; the uncertainties of potential impacts of climate-related initiatives; the cost and availability of third party logging, trucking and ocean freight services; the geographic concentration of a significant portion of our timberland; our ability to identify, finance and complete timberland acquisitions; changes in environmental laws and regulations regarding timber harvesting, delineation of wetlands, endangered species and development of real estate generally, that may restrict or adversely impact our ability to conduct our business, or increase the cost of doing so; adverse weather conditions, natural disasters and other catastrophic events such as hurricanes, wind storms and wildfires; the lengthy, uncertain and costly process associated with the ownership, entitlement and development of real estate, especially in Florida and Washington, including changes in law, policy and political factors beyond our control; the availability of financing for real estate development and mortgage loans; changes in tariffs, taxes or treaties relating to the import and export of our products or those of our competitors; changes in key management and personnel; and our ability to meet all necessary legal requirements to continue to qualify as a real estate investment trust ("REIT") and changes in tax laws that could adversely affect beneficial tax treatment.

For additional factors that could impact future results, please see Item 1A - Risk Factors in the Company’s most recent Annual Report on Form 10-K and similar discussion included in other reports that we subsequently file with the Securities and Exchange Commission (the "SEC"). Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its forward-looking statements except as required by law. You are advised, however, to review any further disclosures we make on related subjects in our subsequent reports filed with the SEC.

Non-GAAP Financial Measures – To supplement Rayonier’s financial statements presented in accordance with generally accepted accounting principles in the United States ("GAAP"), Rayonier uses certain non-GAAP measures, including "cash available for distribution," "pro forma sales," "pro forma operating income (loss)," "pro forma net income," and "Adjusted EBITDA," which are defined and further explained in this communication. Reconciliation of such measures to the nearest GAAP measures can also be found in this communication. Rayonier’s definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP.