RAYONIER INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Results: Full-year 2024 adjusted EBITDA was $299 million, 3% above prior guidance. Fourth quarter adjusted EBITDA was $115 million, pro forma net income $41 million.
• Dispositions: Closed $495 million in Q4, total $737 million towards $1B target, reducing leverage and returning capital to shareholders.
• Special Dividend: Declared $1.80 per share special dividend, paid in cash and shares.
• Land-Based Solutions: Pipeline building for solar and carbon capture, with ~154,000 acres under CCS lease and ~39,000 acres under solar option.

Segment Performance

• Southern Timber: Fourth quarter adjusted EBITDA was $35 million, up modestly from prior year. Harvest volumes declined 3%, weighted average net stumpage realizations down 15%, but non-timber income was higher.
• Pacific Northwest Timber: Fourth quarter adjusted EBITDA was $6 million, flat vs prior year. Harvest volumes down 3%, average delivered log prices down 9%, but costs lower and non-timber income higher.
• New Zealand Timber: Fourth quarter adjusted EBITDA was $20 million, up $8 million vs prior year. Driven by favorable foreign exchange, higher volume, higher net stumpage realizations, but lower carbon credit sales.
• Real Estate: Fourth quarter adjusted EBITDA was $63 million, up $10 million vs prior year. Strong weighted average price per acre of ~$7,200 from large dispositions and development sales.

Guidance

• Full-year 2025 adjusted EBITDA guidance $270-300 million.
• Southern Timber: 2025 adjusted EBITDA $141-149 million, harvest volumes 6.9-7.1 million tons, stumpage realizations expected to trend higher but slightly lower vs prior year.
• Pacific Northwest Timber: 2025 adjusted EBITDA $21-26 million, harvest volumes ~900,000 tons, log pricing expected to increase modestly.
• New Zealand Timber: 2025 adjusted EBITDA $54-60 million, harvest volumes 2.5-2.7 million tons, pricing expected to improve.
• Real Estate: 2025 adjusted EBITDA $86-96 million, light Q1 closing activity, but strong demand for HBU properties.

Risks

• Salvage Volume Impact: Hurricane Helene's salvage volume continuing to weigh on stumpage prices in Southern Timber into first half of 2025.
• Policy Uncertainty: New administration policies affecting ESG land-based solutions, including potential curtailment of IRA disbursements.
• Market Dynamics: Uncertainty around Timberland M&A market and impact of tariffs on lumber prices.

Q: Thanks very much. Please correct me if I heard this wrong. It sounds like you're wrapping up your own salvage operations. Do you expect other salvage volumes through maybe the first half of the year? Does this imply anything about your own volumes through the year, and maybe specifically, should we also be expecting relatively stronger volumes from Rayonier Inc. in the south in the second half of the year as the salvage operations wrap up?

A: Sure. This is Doug. I'll start with that. So, yeah, Hurricane Helene obviously was a large hurricane. It was a category four coming across from Florida's Big Bend and into Georgia, and then all the way to North Carolina. And so we really saw something that I haven't seen in my career. So it's had a significant impact, and to your point, it's definitely impacted the stumpage markets in that area. So, over ten million acres of forestland were impacted in Florida and Georgia. And while we only had a couple thousand acres, and we've pretty much cleaned that up, we're still seeing a lot of other people working through that backlog, basically. And so we do expect that that's going to create some headwinds going into the first half of the year. You can imagine based on that scale, there's a lot of salvage operations underway. And most of the crews pivoted to that salvage of damaged timber both within the path and then also neighboring wood baskets. So while the impact to us was small, we're really seeing this influx of unexpected volume that led to a steep drop in pricing in much of our Georgia wood basket, as Timberland owners were price takers in order to try to clean up their wood that was damaged. So it reduces higher restoration costs. We contended with that pricing dynamic for the entirety of Q4, and originally thought that it would be winding down sooner, but what we've seen is that there's a lot of wood on the market there from the length of that. And so people continue on with their salvage operations. And so we do see that being a headwind going into at least the first half of 2025 and think it should wrap up sometime in that first half. So to your point, we're staging our volumes and working around that. With the geographic diversity we have, we are able to harvest in other areas. So we're trying not to exacerbate the problem by putting more volume into particular areas. But we will continue to pretty much have a steady run rate as we go because we have the ability to flex across geographic areas as we go forward. We do think this is going to weigh on our geographic pricing. So we still do have volume we're moving in that area to meet commitments we have with mills and things like that. So there are going to be some headwinds to start the year for us across our southern footprint, but we will move volume around geographically as we can.

Q: Next for me, just in terms of a general outlook, what are your expectations for what the Timberlands M&A market looks like in 2025?

A: This is Mark. I'll take that. Okay. You know, overall, I'd say that the demand in the M&A market has continued to outstrip supply, especially with respect to higher quality properties. We estimate that there is about $3 to $4 billion of capital available for Timberland acquisitions. I think a significant portion of those funds are specifically targeting carbon or climate-focused investments. You know, with all that said, there hasn't been a whole lot of property on the market recently, but we're still seeing successful transaction outcomes and certainly very strong values being paid for the assets that we have seen come to market, particularly those higher quality assets. You know, for example, there have been several, you know, smaller to medium-sized deals over the past couple of years in the US South where we've seen value per acre in excess of $3,000. So, you know, overall, we think the market is still, you know, quite competitive, especially for higher quality assets, as well as, again, assets with that unique carbon angle. But, you know, again, relatively limited volume on the market right now. Is it really set our appetite for Timberland acquisitions, you know, given our debt financing costs as well as our overall cost of capital, it's really tough to make math work right now on buying Timberland assets. Again, the Timberland M&A market is highly competitive, especially for those higher quality assets, which are generally the ones that we would be pursuing, and we continue to see those per acre values move up. You know, for example, the Nacreep South, average acre per acre value in the US South currently sits about $2,240 per acre, which is up roughly 5% from year-end 2023. So, you know, with all that said, we haven't seen that same value momentum for Timberland assets reflect in our share price. So, you know, rather than buying assets, as you know, we've been selling assets over the past year with a view towards, you know, both improving our balance sheet positioning as well as putting ourselves in a position to take advantage of share buyback opportunities.