Rayonier’s New Zealand business is the firm’s largest timber segment by revenue

Business Strategy & Outlook

Rayonier is the second largest timberland real estate investment trust, or REIT, in North America, managing roughly 1.8 million acres in the southern U.S., 500,000 acres in the Pacific Northwest, and over 400,000 acres in New Zealand. As a REIT, Rayonier distributes its REIT income to shareholders without having to pay corporate level incomes taxes. Cash flow is generated through timber harvesting and the sale of land that it determines has higher value than if it remained in its portfolio. Unlike some of its competitors, Rayonier is a pure-play REIT. The firm generates most of its revenue from the sale of timber and does not produce wood or paper products. While some of its operations are subject to U.S. federal and state income taxes (New Zealand business and log trading), a majority of Rayonier’s income is tax-exempt under its REIT status.

A significant majority of Rayonier’s timberland acreage (70%) is located in the southern region of the U.S., but the firm derives a comparable amount of revenue in each of its regions. In its southern region, roughly two thirds of sales volume are from pulpwood timber, which is used in a variety of pulp and paper products. The remaining one third of volume is higher value sawtimber and serves general construction and homebuilding end markets. Rayonier’s Pacific Northwest timber business sells sawtimber to domestic customers and exports timber to Pacific Rim markets. Homebuilding and general construction are the main end markets for Rayonier’s Pacific Northwest operation. Rayonier’s New Zealand business is the firm’s largest timber segment by revenue. It operates as a joint venture, with Rayonier owning a 77% controlling interest in the subsidiary. The majority of its timberland portfolio in New Zealand is composed of sawtimber that serves the construction end market. Rayonier’s New Zealand operations reduce the firm’s reliance on North American construction as much of its production is exported to China, South Korea, and India.

Financial Strengths

Rayonier has a sound capital structure, and its consistent free cash flow generation should easily support its debt-service requirements and future capital allocation decisions. The firm has historically operated with moderate amounts of leverage. Net debt/adjusted EBITDA dropped below 3.0 times in 2021, but it will return to historical levels as lumber prices retreat from all-time highs and the firm’s EBITDA normalizes. The firm has roughly $1.3 billion in outstanding debt with staggered maturities through 2031, but its next maturity isn’t until 2025 when roughly $24 million is due. Rayonier’s outstanding debt is dwarfed by its substantial timberland portfolio. Its strong asset base should provide the firm with ample access to capital markets should it need to raise additional capital for future acquisitions or capital allocation decisions. Going forward, the firm to continue evaluating timberland acquisitions in the United States and New Zealand that it believes will add value to its timberland portfolio.

Bulls Say

The vast majority of Rayonier’s timberland is located in the southeastern region of the U.S. It is the most popular region for sawmill capacity increases and will provide a strong avenue for timber volume and price growth.
Rayonier’s New Zealand business reduces the firm’s reliance on North American construction markets and will enable the firm to capitalize on rising wood demand in Asia.
Rayonier’s timberland is set to become increasingly valuable as alternative uses for its land in the U.S. become more popular.

Company Description

Rayonier Inc is a real estate investment trust. The company owns and manages timberland. It derives revenue from the following core business segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate, and Trading. The majority of revenue is earned from the New Zealand timber segment. It owns land in the United States and New Zealand.

(Source: Morningstar)

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