RAYONIER INC MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (“MD&A”) (Form 10-Q)
When we refer to "Rayonier" or "the Company" we meanRayonier Inc. and its consolidated subsidiaries. References to the "Operating Partnership" meanRayonier, L.P. and its consolidated subsidiaries. References to "we," "us," or "our," mean collectivelyRayonier Inc. , theOperating Partnership and entities/subsidiaries owned or controlled byRayonier Inc. and/or theOperating Partnership . References herein to "Notes to Financial Statements" refer to the Notes to Consolidated Financial Statements ofRayonier Inc. andRayonier, L.P. included in Item 1 of this report. This MD&A is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors which may affect future results. Our MD&A should be read in conjunction with our Consolidated Financial Statements included in Item 1 of this report, our Annual Report on Form 10-K for the year endedDecember 31, 2021 (the "2021 Form 10-K") and information contained in our subsequent reports filed with theSecurities and Exchange Commission (the "SEC").
FORWARD-LOOKING STATEMENTS
Certain statements in this document regarding anticipated financial outcomes,
including our earnings guidance, if any, business and market conditions,
outlook, expected dividend rate, our business strategies, including the
potential effects of the ongoing global novel coronavirus ("COVID-19") pandemic,
expected harvest schedules, timberland acquisitions and dispositions, the
anticipated benefits of our business strategies, and other similar statements
relating to our 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 risk factors contained in Item 1A
- Risk Factors in our 2021 Form 10-K, Part II, Item 1A - Risk Factors in
this report and similar discussions included in other reports that we
subsequently file with the SEC , among others, could cause actual results or
events to differ materially from our historical experience and those expressed
in forward-looking statements made in this document.
Forward-looking statements are only as of the date they are made, and we
undertake no duty to update our forward-looking statements except as required by
law. You are advised, however, to review any subsequent disclosures we make on
related subjects in subsequent reports filed with the SEC .
NON-GAAP MEASURES
To supplement our financial statements presented in accordance with generally accepted accounting principles inthe United States ("GAAP"), we use certain non-GAAP measures, including "Cash Available for Distribution," and "Adjusted EBITDA," which are defined and further explained in Performance and Liquidity Indicators below. Reconciliation of such measures to the nearest GAAP measures can also be found in Performance and Liquidity Indicators below. Our 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.
OBJECTIVE
The objective of the Management's Discussion and Analysis is to detail material information, events, uncertainties and other factors impacting the Company and theOperating Partnership and to provide investors an understanding of "Management's perspective." Item 7, Management's Discussion and Analysis ("MD&A") highlights the critical areas for evaluating the Company's performance which includes a discussion on the reportable segments, liquidity and capital, and critical accounting estimates. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and notes. 37
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Contents
OUR COMPANY
We are a leading timberland real estate investment trust ("REIT") with assets
located in some of the most productive softwood timber growing regions in the
United States and New Zealand . We invest in timberlands and actively manage them
to provide current income and attractive long-term returns to our shareholders.
We conduct our business through an umbrella partnership real estate investment
trust ("UPREIT") structure in which our assets are owned by our Operating
Partnership and its subsidiaries. Rayonier manages the Operating Partnership as
its sole general partner. Our revenues, operating income and cash flows are
primarily derived from the following core business segments: Southern Timber,
Pacific Northwest Timber, New Zealand Timber, Real Estate, and Trading. As of
June 30, 2022 , we 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 (418,000 gross acres or
296,000 net plantable acres).
SEGMENT INFORMATION
The Southern Timber, Pacific Northwest Timber and New Zealand Timber segments include all activities related to the harvesting of timber and other non-timber income activities, such as the licensing of properties for hunting, the leasing of properties for mineral extraction and cell towers, and carbon credit sales. OurNew Zealand operations are conducted byMatariki Forestry Group , a joint venture (the "New Zealand subsidiary"), in which we maintain a 77% ownership interest. See Note 4 - Noncontrolling Interests for additional information regarding our noncontrolling interests in the New Zealand Timber segment.The Real Estate segment includes allU.S. andNew Zealand land or leasehold sales disaggregated into six sales categories:Improved Development ,Unimproved Development , Rural, Timberland & Non-Strategic, Conservation Easements and Large Dispositions. It also includes residential and commercial lease activity, primarily in the town ofPort Gamble, Washington . The Trading segment primarily reflects log trading activities inNew Zealand andAustralia conducted by ourNew Zealand subsidiary. It also includes log trading activities conducted from theU.S. South andPacific Northwest . Our Trading segment activities include an export services joint venture with a third-party forest manager in whichMatariki Forests Trading Ltd maintains a 50% ownership interest. The Trading segment complements the New Zealand Timber segment by providing added market intelligence, increasing the scale of export operations and achieving cost savings that directly benefit theNew Zealand Timber segment. This additional market intelligence also benefits our Southern andPacific Northwest export log marketing.
ENVIRONMENTAL ISSUES
For a full description of our environmental matters, see Item 1 - "Business" in
our Annual Report on Form 10-K for the year ended December 31, 2021 and our
sustainability report located at our Responsible Stewardship webpage.
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Contents
INDUSTRY AND MARKET CONDITIONS
The demand for timber is directly related to the underlying demand for pulp, paper, packaging, lumber and other wood products. The significant majority of timber sold in our Southern Timber segment is consumed domestically. With a higher proportion of pulpwood, our Southern Timber segment relies heavily on downstream markets for pulp and paper, and to a lesser extent wood pellet markets. Our Pacific Northwest Timber segment relies primarily on domestic customers but also exports a significant volume of timber, particularly toChina . The Southern Timber and Pacific Northwest Timber segments rely on the strength ofU.S. lumber markets as well as underlying housing starts. Our New Zealand Timber segment sells timber to domesticNew Zealand wood products mills and also exports a significant portion of its volume to Asian markets, particularly inChina andSouth Korea . In addition to market dynamics in thePacific Rim , the New Zealand Timber segment is subject to foreign exchange fluctuations, which can impact the operating results of the segment inU.S. dollar terms. Global log and lumber markets were volatile during the first and second quarters as sanctions were placed onRussia in response to their invasion ofUkraine . While we do not expect our operations to be directly impacted by the conflict at this time, changes in global wood and commodity flows could impact the markets in which we operate. As the current COVID-19 pandemic continues to evolve, the expected duration and the extent of economic disruption it may ultimately cause remain uncertain. Local, state and national governments continue to evaluate policies and restrictions in order to mitigate the spread of COVID-19. Government-mandated shutdowns or shelter-in-place orders in markets in which we operate could negatively impact our results. Further, prolonged periods of lower overall business activity as a result of COVID-19 could cause significant damage to the underlying economy, which would likely impact timber markets. We are also subject to the risk of price fluctuations in certain of our cost components, primarily logging and transportation (cut and haul), ocean freight and demurrage costs. Other major components of our cost of sales are the cost basis of timber sold (depletion) and the cost basis of real estate sold. Depletion includes the amortization of capitalized site preparation, planting and fertilization, real estate taxes, timberland lease payments and certain payroll costs. The cost basis of real estate sold includes the cost basis in land and costs directly associated with the development and construction of identified real estate projects, such as infrastructure, roadways, utilities, amenities and/or other improvements. Other costs include amortization of capitalized costs related to road and bridge construction and software, depreciation of fixed assets and equipment, road maintenance, severance and excise taxes, fire prevention and real estate commissions and closing costs.
For more information on market conditions affecting our business, see
Operating results .
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
The preparation of financial statements requires us to make estimates,
assumptions and judgments that affect our assets, liabilities, revenues and
expenses, and disclosure of contingent assets and liabilities. We base these
estimates and assumptions on historical data and trends, current fact patterns,
expectations and other sources of information we believe are reasonable. Actual
results may differ from these estimates. For a full description of our critical
accounting policies, see Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations in our 2021 Form 10-K.
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DISCUSSION ON WOOD INVENTORY AND SUSTAINABLE PERFORMANCE
See Item 1 – Business – Discussion of Wood Inventory and Sustainable Yield in our 2021 Form 10-K.
OUR TIMBERLANDS Our timber operations are disaggregated into three geographically distinct segments: Southern Timber, Pacific Northwest Timber and New Zealand Timber. The following tables provide a breakdown of our timberland holdings as ofJune 30, 2022 andDecember 31, 2021 : (acres in 000s) As of June 30, 2022 As of December 31, 2021 Owned Leased Total Owned Leased Total Southern Alabama 224 14 238 223 14 237 Arkansas - 4 4 - 4 4 Florida 348 51 399 350 51 401 Georgia 618 64 682 619 64 683 Louisiana 140 - 140 140 - 140 Oklahoma 91 - 91 92 - 92 South Carolina 16 - 16 16 - 16 Texas 221 - 221 225 - 225 1,658 133 1,791 1,665 133 1,798 Pacific Northwest Oregon 61 - 61 61 - 61 Washington 421 4 425 425 4 429 482 4 486 486 4 490 New Zealand (a) 187 231 418 187 232 419 Total 2,327 368 2,695 2,338 369 2,707 (a)Represents legal acres owned and leased by theNew Zealand subsidiary, in which we own a 77% interest. As ofJune 30, 2022 , legal acres inNew Zealand consisted of 296,000 plantable acres and 122,000 non-productive acres. 40
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The following tables detail activity for acres owned and leased at our logging operations by state from
(acres in 000s) Acres Owned
December 31, 2021 Acquisitions Sales Other June 30, 2022
Southern
Alabama 223 1 - - 224
Florida 350 1 (3) - 348
Georgia 619 - (1) - 618
Louisiana 140 - - - 140
Oklahoma 92 - (1) - 91
South Carolina 16 - - - 16
Texas 225 - (4) - 221
1,665 2 (9) - 1,658
Pacific Northwest
Oregon 61 - - - 61
Washington 425 - (4) - 421
486 - (4) - 482
New Zealand (a) 187 - - - 187
Total 2,338 2 (13) - 2,327
(a)Represents legal acres owned by the New Zealand subsidiary, in which we have
a 77% interest.
(acres in 000s) Acres Leased
December 31, 2021 New Leases Sold/Expired Leases (a) Other June 30, 2022
Southern
Alabama 14 - - - 14
Arkansas 4 - - - 4
Florida 51 - - - 51
Georgia 64 - - - 64
133 - - - 133
Pacific Northwest
Washington (b) 4 - - - 4
New Zealand (c) 232 - (1) - 231
Total 369 - (1) - 368
(a)Includes acres previously under lease that have been harvested and activity
for the relinquishment of leased acres.
(b)Primarily timber reservations acquired in the merger with Pope Resources.
(c)Represents legal acres leased by the New Zealand subsidiary, in which we have
a 77% interest.
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RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
The following table provides key financial information by segment and on a
consolidated basis:
Three Months Ended Six Months Ended
June 30, June 30,
Financial Information (in millions) 2022 2021 2022 2021
Sales
Southern Timber$66.3 $49.3 $143.0 $101.0 Pacific Northwest Timber 39.2 35.3 85.4 76.8 New Zealand Timber 78.9 80.6 130.3 138.1 Timber Funds - 18.6 - 33.6 Real Estate Improved Development 11.6 19.3 16.5 19.6 Rural 23.4 20.3 40.4 30.1 Timberland & Non-Strategic - - 11.4 - Conservation Easement - 3.9 - 3.9 Deferred Revenue/Other (a) (0.6) (5.0) 0.3 (4.5) Large Dispositions - 36.0 - 36.0Total Real Estate 34.4 74.5 68.6 85.0 Trading 27.7 34.5 41.1 51.2 Intersegment Eliminations (0.1) (1.4) (0.1) (2.8) Total Sales$246.3 $291.4 $468.4 $482.9 Operating Income Southern Timber$24.1 $17.0 $54.4 $34.3 Pacific Northwest Timber 2.9 1.9 9.5 3.2 New Zealand Timber 8.0 20.7 13.4 34.7 Timber Funds - 2.0 - 3.5 Real Estate (a)(b) 11.0 50.5 21.2 52.2 Trading (0.4) 0.4 (0.1) 0.7 Corporate and Other (10.1) (8.0) (17.7) (15.6) Operating Income 35.5 84.4 80.8 112.9 Interest expense, interest income and other (8.9) (14.1) (17.7) (24.1) Income tax expense (1.3) (6.9) (6.8) (10.3) Net Income 25.3 63.4 56.3 78.5 Less: Net income attributable to noncontrolling interests in consolidated affiliates (0.6) (4.5) (1.7) (8.3) Net Income Attributable to Rayonier, L.P.$24.7 $58.9 $54.6 $70.2 Less: Net income attributable to noncontrolling interests in the operating partnership (0.6) (1.7) (1.2) (2.1) Net Income Attributable to Rayonier Inc.$24.1 $57.2 $53.4 $68.1 Adjusted EBITDA (c) Southern Timber$38.7 $30.6 $87.1 $62.3 Pacific Northwest Timber 14.3 13.9 35.8 31.5 New Zealand Timber 14.9 27.7 25.3 48.9 Timber Funds - 1.4 - 2.3 Real Estate 25.4 29.1 50.1 34.1 Trading (0.4) 0.4 (0.1) 0.7 Corporate and Other (9.8) (7.7) (17.0) (15.1) Total Adjusted EBITDA$83.0 $95.3 $181.1 $164.7 (a)Includes deferred revenue adjustments, revenue true-ups and marketing fees related toImproved Development sales in addition to residential and commercial lease revenue. (b)The three and six months endedJune 30, 2021 includes$30.3 million from a Large Disposition. (c)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators . 42 --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
Southern Timber Overview 2022 2021 2022 2021
Sales Volume (in thousands of tons)
Pine Pulpwood 962 889 2,133 1,732
Pine Sawtimber 458 516 1,080 1,154
Total Pine Volume 1,420 1,405 3,213 2,886
Hardwood 103 63 206 95
Total Volume 1,523 1,468 3,419 2,980
% Delivered Volume (vs. Total Volume) 47 % 39 % 40 % 38 %
% Pine Sawtimber Volume (vs. Total Pine
Volume) 32 % 37 % 34 % 40 %
% Export Volume (vs. Total Volume) (a) 3 % 4 % 2 % 4 %
Net Stumpage Pricing (dollars per ton)
Pine Pulpwood $21.46 $18.22 $22.93 $17.69
Pine Sawtimber 34.09 27.96 34.86 27.69
Weighted Average Pine $25.54 $21.80 $26.94 $21.69
Hardwood 25.70 17.49 25.88 15.20
Weighted Average Total $25.55 $21.61 $26.87 $21.48
Summary Financial Data (in millions of
dollars)
Timber Sales $58.2 $43.7 $129.2 $87.9
Less: Cut and Haul (17.6) (10.3) (33.2) (20.2)
Less: Port and Freight (1.8) (1.6) (4.1) (3.6)
Net Stumpage Sales $38.9 $31.7 $91.9 $64.0
Non-Timber Sales 8.1 5.6 13.8 13.1
Total Sales $66.3 $49.3 $143.0 $101.0
Operating Income $24.1 $17.0 $54.4 $34.3
(+) Depreciation, depletion and
amortization 14.7 13.6 32.7 27.9
Adjusted EBITDA (b) $38.7 $30.6 $87.1 $62.3
Other Data
Period-End Acres (in thousands) 1,791 1,743 1,791 1,743
(a) Estimated percentage of export volume, which includes volumes sold to third-party exporters in addition to direct exports through our log export program.
(b) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.
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Three Months Ended Six Months Ended
June 30, June 30,
Pacific Northwest Timber Overview 2022 2021 2022 2021
Sales Volume (in thousands of tons)
Pulpwood 80 70 155 150
Sawtimber 296 330 725 786
Total Volume 376 400 881 936
% Delivered Volume (vs. Total Volume) 99 % 96 % 90 % 86 %
% Sawtimber Volume (vs. Total Volume) 79 % 82 % 82 % 84 %
% Export Volume (vs. Total Volume) (a) 16 % 19 % 9 % 15 %
Delivered Log Pricing (in dollars per
ton)
Pulpwood $45.17 $29.02 $41.83 $29.18
Sawtimber 116.60 97.80 110.66 94.20
Weighted Average Log Price $101.62 $85.47 $98.32 $83.56
Summary Financial Data (in millions of
dollars)
Timber Sales $37.9 $33.8 $83.0 $74.1
Less: Cut and Haul (16.5) (14.5) (32.8) (30.4)
Less: Port and Freight (0.4) - (0.4) -
Net Stumpage Sales $21.0 $19.3 $49.8 $43.7
Non-Timber Sales 1.3 1.5 2.4 2.8
Total Sales $39.2 $35.3 $85.4 $76.8
Operating Income $2.9 $1.9 $9.5 $3.2
(+) Depreciation, depletion and
amortization 11.3 12.0 26.2 28.3
Adjusted EBITDA (b) $14.3 $13.9 $35.8 $31.5
Other Data
Period-End Acres (in thousands) 486 499 486 499
Sawtimber (in dollars per MBF) (c) $905 $750 $873 $740
(a) Estimated percentage of export volume, which includes volumes sold to third-party exporters in addition to direct exports through our log export program.
(b) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.
(c) Lumber delivered excluding shavings and saw.
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Three Months Ended Six Months Ended
June 30, June 30,
New Zealand Timber Overview 2022 2021 2022 2021
Sales Volume (in thousands of tons)
Domestic Pulpwood (Delivered) 105 104 199 210
Domestic Sawtimber (Delivered) 188 174 323 333
Export Pulpwood (Delivered) 55 56 91 103
Export Sawtimber (Delivered) 355 359 604 646
Total Volume 703 692 1,217 1,291
% Delivered Volume (vs. Total Volume) 100 % 100 % 100 % 100 %
% Sawtimber Volume (vs. Total Volume) 77 % 77 % 76 % 76 %
% Export Volume (vs. Total Volume) (a) 58 % 60 % 57 % 58 %
Delivered Log Pricing (in dollars per ton)
Domestic Pulpwood $34.56 $43.31 $34.76 $41.72
Domestic Sawtimber 76.82 85.09 76.48 83.11
Export Sawtimber 140.44 148.28 135.13 136.45
Weighted Average Log Price $106.88 $115.92 $102.53 $106.54
Summary Financial Data (in millions of
dollars)
Timber Sales $75.1 $80.3 $124.8 $137.6
Less: Cut and Haul (26.7) (25.1) (45.8) (46.1)
Less: Port and Freight (31.4) (23.1) (46.8) (35.1)
Net Stumpage Sales $16.9 $32.1 $32.2 $56.4
Non-Timber Sales / Carbon Credits 3.8 0.3 5.5 0.6
Total Sales $78.9 $80.6 $130.3 $138.1
Operating Income $8.0 $20.7 $13.4 $34.7
(+) Depreciation, depletion and amortization 6.9 7.0 11.9 14.2
Adjusted EBITDA (b) $14.9 $27.7 $25.3 $48.9
Other Data
New Zealand Dollar to U.S. Dollar Exchange
Rate (c) 0.6628 0.7164 0.6650 0.7189
Net Plantable Period-End Acres (in thousands) 296 296 296 296
Export Sawtimber (in dollars per JAS m3) $163.29 $172.41 $157.11 $158.65
Domestic Sawtimber (in $NZD per tonne) $127.50 $130.65 $126.51 $127.18
(a) Percentage of export volume includes direct exports through our log export program.
(b) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.
(c) Represents the average rate for the period.
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Three Months Ended Six Months Ended
June 30, June 30,
Real Estate Overview 2022 2021 2022 2021
Sales (in millions of dollars)
Improved Development $11.6 $19.3 $16.5 $19.6
Rural 23.4 20.3 40.4 30.1
Timberland & Non-Strategic - - 11.4 -
Conservation Easement - 3.9 - 3.9
Deferred Revenue/Other (a) (0.6) (5.0) 0.3 (4.5)
Large Dispositions (b) - 36.0 - 36.0
Total Sales $34.4 $74.5 $68.6 $85.0
Acres Sold
Improved Development 60.8 289.2 77.0 289.9
Rural 4,633 7,725 9,385 10,119
Timberland & Non-Strategic - - 3,966 -
Large Dispositions (b) - 8,534 - 8,534
Total Acres Sold 4,694 16,548 13,428 18,943
Gross Price per Acre (dollars per acre)
Improved Development $190,136 $66,864 $214,841 $67,590
Rural 5,054 2,627 4,302 2,971
Timberland & Non-Strategic - - 2,874 -
Large Dispositions (b) - 4,218 - 4,218
Weighted Average (Total) (c) $7,453 $4,946 $5,087 $4,770
Weighted Average (Adjusted) (d) $5,054 $2,627 $3,878 $2,971
Sales (Excluding Large Dispositions) $34.4 $38.5 $68.6 $49.0
Operating Income $11.0 $50.5 $21.2 $52.2
(+) Depreciation, depletion and amortization 2.6 3.7 11.7 5.3
(+) Non-cash cost of land and improved
development 11.8 5.2 17.1 7.0
(-) Large Dispositions (b) - (30.3) - (30.3)
Adjusted EBITDA (e) $25.4 $29.1 $50.1 $34.1
(a)Includes deferred revenue adjustments, revenue true-ups and marketing fees
related to Improved Development sales in addition to residential and commercial
lease revenue.
(b)Large Dispositions are defined as transactions involving the sale of
timberland that exceed $20 million in size and do not have a demonstrable
premium relative to timberland value. In June 2021 , we completed the disposition
of approximately 9,000 acres located in Washington for a sales price and a gain
of approximately $36.0 million and $30.3 million , respectively.
(c) Excludes large disposals.
(D)
(e) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.
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Three Months Ended Six Months Ended
June 30, June 30,
Trading Overview 2022 2021 2022 2021
Sales Volume (in thousands of tons)
U.S. 27 - 43 -
NZ 182 243 278 384
Total Volume 209 243 320 384
Summary Financial Data (in millions of
dollars)
Trading Sales $27.3 $34.2 $40.4 $50.4
Non-Timber Sales 0.4 0.4 0.8 0.8
Total Sales $27.7 $34.5 $41.1 $51.2
Operating Income ($0.4 ) $0.4 ($0.1 ) $0.7
Adjusted EBITDA (a) ($0.4 ) $0.4 ($0.1 ) $0.7
(a) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.
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Three Months Ended Six Months Ended
June 30, June 30,
Capital Expenditures By Segment (in millions of
dollars) 2022 2021 2022 2021
Timber Capital Expenditures
Southern Timber
Reforestation, silviculture and other capital
expenditures $3.6 $4.3 $6.1 $7.6
Property taxes 1.9 1.8 3.7 3.3
Lease payments 0.2 0.2 0.9 1.0
Allocated overhead 1.1 1.0 2.4 2.2
Subtotal Southern Timber $6.8 $7.2 $13.1 $14.0
Pacific Northwest Timber
Reforestation, silviculture and other capital
expenditures 1.5 1.7 5.2 4.4
Property taxes 0.3 0.3 0.5 0.5
Allocated overhead 1.4 1.2 2.7 2.3
Subtotal Pacific Northwest Timber $3.2 $3.1 $8.4 $7.3
New Zealand Timber
Reforestation, silviculture and other capital
expenditures 3.0 3.1 5.5 5.0
Property taxes 0.2 0.2 0.4 0.4
Lease payments 0.9 0.7 1.4 1.2
Allocated overhead 0.7 0.8 1.4 1.5
Subtotal New Zealand Timber $4.8 $4.7 $8.6 $8.1
Total Timber Segments Capital Expenditures $14.7 $15.1 $30.2 $29.3
Timber Funds ("Look-through") (a) - 0.2 - 0.4
Real Estate - - 0.1 0.1
Total Capital Expenditures $14.7
$15.2 $30.3 $29.7 Timberland Acquisitions Southern Timber$0.4 $11.0 $3.2 $41.0 New Zealand Timber - 10.9 - 10.9 Timberland Acquisitions$0.4 $21.9 $3.2 $51.9 Real Estate Development Investments (b)$2.9 $3.3 $6.0 $6.3 (a)The three and six months endedJune 30, 2021 exclude$1.2 million and$2.5 million , respectively, of capital expenditures attributable to noncontrolling interests in Timber Funds. (b)Represents investments in master infrastructure or entitlements in our real estate development projects. Real Estate Development Investments are amortized as the underlying properties are sold and included in Non-Cash Cost of Land andImproved Development . 48 -------------------------------------------------------------------------------- The following tables summarize sales, operating income (loss) and Adjusted EBITDA variances forJune 30, 2022 versusJune 30, 2021 (millions of dollars): Sales Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Intersegment Eliminations Total Three Months EndedJune 30, 2021 $49.3 $35.3 $80.6 $18.6 $74.5 $34.5 ($1.4 )$291.4 Volume 1.2 (1.2) 1.2 - (15.9) (4.9) - (19.6) Price 6.0 3.0 (16.5) - 11.0 (2.0) - 1.5 Non-timber sales 2.4 (0.2) 3.4 - - - - 5.6 Foreign exchange (a) - - (1.4) - - - - (1.4) Other 7.4 (b) 2.3 (b) 11.6 (c) (18.6) (d) (35.2) (e) 0.1 1.3 (f) (31.1) Three Months EndedJune 30, 2022 $66.3 $39.2 $78.9 -$34.4 $27.7 ($0.1 )$246.3 (a) Net of currency hedging impact. (b) Includes variance due to stumpage versus delivered sales. (c) Includes variance due to domestic versus export sales. (d) Timber Funds segment was liquidated in 2021. (e) Includes$36.0 million of sales from a Large Disposition in addition to Conservation Easement sales in Q2 2021, residential and commercial lease income, revenue true-ups and marketing fees related toImproved Development sales, equity income from joint venture entities and deferred adjustments. (f) Includes a decrease in Intersegment eliminations related to timberland management fees paid to us by the timber funds and reported as sales within the Timber Funds segment. Sales Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Intersegment Eliminations Total Six Months EndedJune 30, 2021 $101.0 $76.8 $138.1 $33.6 $85.0 $51.2 ($2.8 )$482.9 Volume 9.4 (2.6) (7.8) - 13.9 (8.4) - 4.5 Price 18.4 8.7 (22.4) - 3.5 (1.6) - 6.6 Non-timber sales 0.8 (0.3) 4.9 - - (0.1) - 5.3 Foreign exchange (a) - - (2.6) - - - - (2.6) Other 13.4 (b) 2.8 (b) 20.1 (c) (33.6) (d) (33.8) (e) - 2.7 (f) (28.3) Six Months EndedJune 30, 2022 $143.0 $85.4 $130.3 -$68.6 $41.1 ($0.1 )$468.4 (a) Net of currency hedging impact. (b) Includes variance due to stumpage versus delivered sales. (c) Includes variance due to domestic versus export sales. (d) Timber Funds segment was liquidated in 2021. (e) Includes$36.0 million of sales from a Large Disposition in addition to Conservation Easement sales in Q2 2021, residential and commercial lease income, revenue true-ups and marketing fees related toImproved Development sales, equity income from joint venture entities and deferred adjustments. (f) Includes a decrease in Intersegment eliminations related to timberland management fees paid to us by the timber funds and reported as sales within the Timber Funds segment. 49 -------------------------------------------------------------------------------- Operating Income (Loss) Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Corporate and Other Total Three Months EndedJune 30, 2021 $17.0 $1.9 $20.7 $2.0 $50.5 $0.4 ($8.0 )$84.4 Volume 0.7 (0.4) 0.5 - (11.3) - - (10.5) Price (a) 6.0 3.0 (16.5) - 11.0 - - 3.5 Cost (1.4) (1.4) (0.9) - 0.9 (0.8) (2.1) (5.7) Non-timber income (b) 2.4 (0.2) 3.4 - - - - 5.6 Foreign exchange (c) - - 1.1 - - - - 1.1 Depreciation, depletion & amortization (0.6) - (0.3) - (0.3) - - (1.2) Non-cash cost of land and improved development - - - - (8.6) - - (8.6) Other (d) - - - (2.0) (31.2) - - (33.2) Three Months EndedJune 30, 2022 $24.1 $2.9 $8.0 -$11.0 ($0.4 ) ($10.1 )$35.5 (a)For Timber segments, price reflects net stumpage realizations (i.e., net of cut and haul and shipping costs). For Real Estate, price is presented net of cash closing costs. (b)For the New Zealand Timber segment, includes carbon credit sales. (c)Net of currency hedging impact. (d)Timber Funds segment was liquidated in 2021. Real Estate includes$30.3 million of operating income from a Large Disposition in addition to Conservation Easement sales in Q2 2021, residential and commercial lease income, revenue true-ups and marketing fees related toImproved Development sales, equity income from joint venture entities and deferred adjustments. Operating Income (Loss) Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Corporate and Other Total Six Months EndedJune 30, 2021 $34.3 $3.2 $34.7 $3.5 $52.2 $0.7 ($15.6 )$112.9 Volume 5.3 (0.6) (2.6) - 9.8 - - 11.9 Price (a) 18.4 8.7 (22.4) - 3.5 - - 8.2 Cost (3.6) (1.9) (1.4) - (1.8) (0.8) (2.1) (11.6) Non-timber income (b) 0.7 (0.3) 4.9 - - - - 5.3 Foreign exchange (c) - - (0.4) - - - - (0.4) Depreciation, depletion & amortization (0.7) 0.4 0.6 - (5.1) - - (4.8) Non-cash cost of land and improved development - - - - (6.1) - - (6.1) Other (d) - - - (3.5) (31.3) - - (34.7) Six Months EndedJune 30, 2022 $54.4 $9.5 $13.4 -$21.2 ($0.1 ) ($17.7 )$80.8 (a)For Timber segments, price reflects net stumpage realizations (i.e., net of cut and haul and shipping costs). For Real Estate, price is presented net of cash closing costs. (b)For the New Zealand Timber segment, includes carbon credit sales. (c)Net of currency hedging impact. (d)Timber Funds segment was liquidated in 2021. Real Estate includes$30.3 million of operating income from a Large Disposition in addition to Conservation Easement sales in Q2 2021, residential and commercial lease income, revenue true-ups and marketing fees related toImproved Development sales, equity income from joint venture entities and deferred adjustments. 50 -------------------------------------------------------------------------------- Adjusted EBITDA (a) Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Corporate and Other Total Three Months EndedJune 30, 2021 $30.6 $13.9 $27.7 $1.4 $29.1 $0.4 ($7.7 )$95.3 Volume 1.1 (1.0) 0.6 - (15.9) - - (15.2) Price (b) 6.0 3.0 (16.5) - 11.0 - - 3.5 Cost (1.4) (1.4) (0.9) - 0.9 (0.8) (2.1) (5.7) Non-timber income (c) 2.4 (0.2) 3.4 - - - - 5.6 Foreign exchange (d) - - 0.6 - - - - 0.6 Other (e) - - - (1.4) 0.3 - - (1.1) Three Months EndedJune 30, 2022 $38.7 $14.3 $14.9 -$25.4 ($0.4 ) ($9.8 )$83.0 (a)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators below. (b)For Timber segments, price reflects net stumpage realizations (i.e., net of cut and haul and shipping costs). For Real Estate, price is presented net of cash closing costs. (c)For the New Zealand Timber segment, includes carbon credit sales. (d)Net of currency hedging impact. (e)Timber Funds segment was liquidated in 2021. Real Estate includes Conservation Easement sales in Q2 2021, residential and commercial lease income, revenue true-ups and marketing fees related toImproved Development sales, equity income from joint venture entities and deferred adjustments. Adjusted EBITDA (a) Southern Timber Pacific
Northwest Timber New Zealand Timber Timber Funds Real Estate
Trading Corporate and Other Total Six Months EndedJune 30, 2021 $62.3 $31.5 $48.9 $2.3 $34.1 $0.7 ($15.1 )$164.7 Volume 9.3 (2.2) (3.3) - 13.9 - - 17.7 Price (b) 18.4 8.7 (22.4) - 3.5 - - 8.2 Cost (3.6) (1.9) (1.4) - (1.8) (0.8) (1.9) (11.4)
Non-timber income (c) 0.7 (0.3) 4.9 - - - - 5.3 Foreign exchange (d) - - (1.4) - - - - (1.4) Other (e) - - - (2.3) 0.4 - - (1.9) Six Months Ended June 30, 2022$87.1 $35.8 $25.3 -
$50.1 ($0.1 ) ($17.0 )$181.1 (a)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators below. (b)For Timber segments, price reflects net stumpage realizations (i.e., net of cut and haul and shipping costs). For Real Estate, price is presented net of cash closing costs. (c)For the New Zealand Timber segment, includes carbon credit sales. (d)Net of currency hedging impact. (e)Timber Funds segment was liquidated in 2021. Real Estate includes Conservation Easement sales in Q2 2021, residential and commercial lease income, revenue true-ups and marketing fees related toImproved Development sales, equity income from joint venture entities and deferred adjustments.
SOUTH WOOD
Second quarter sales of$66.3 million increased$17.0 million , or 34%, versus the prior year period. Harvest volumes increased 4% to 1.52 million tons versus 1.47 million tons in the prior year period, as demand remained strong across the region. Average pine sawtimber stumpage prices increased 22% to$34.09 per ton versus$27.96 per ton in the prior year period, due to strong domestic lumber demand as well as increased competition for chip-n-saw volume from pulp mills. Average pine pulpwood stumpage prices rose 18% to$21.46 per ton versus$18.22 per ton in the prior year period. Despite an unfavorable shift in our geographic mix of pulpwood sales versus the prior year period, robust competition amid strong end-market demand allowed us to capture pulpwood price increases that more than offset the upward pressure on cut and haul costs. Overall, weighted-average stumpage prices (including hardwood) increased 18% to$25.55 per ton versus$21.61 per ton in the prior year period. Operating income of$24.1 million increased$7.1 million versus the prior year period due to higher net stumpage realizations ($6.0 million ), higher non-timber income ($2.4 million ) and higher volumes ($0.7 million ), partially offset by higher overhead costs ($1.4 million ) and higher depletion rates ($0.6 million ). Second quarter Adjusted EBITDA of$38.7 million was 27%, or$8.1 million , above the prior year period. 51 -------------------------------------------------------------------------------- Year-to-date sales of$143.0 million increased$42.1 million , or 42%, versus the prior year period. Harvest volumes increased 15% to 3.42 million tons versus 2.98 million in the prior year period, due to strong demand and favorable logging conditions. Average pine sawtimber stumpage prices increased 26% to$34.86 per ton versus$27.69 per ton in the prior year period, primarily due to robust demand from sawmills given the strength of the domestic lumber market, as well as competition for chip-n-saw volume from pulp mills. Average pine pulpwood stumpage prices increased 30% to$22.93 per ton versus$17.69 per ton in the prior year period, driven by strong demand due to low mill inventories at the start of the year and favorable end-market demand. Overall, weighted-average stumpage prices (including hardwood) increased 25% to$26.87 per ton versus$21.48 per ton in the prior year period. Operating income of$54.4 million increased$20.1 million versus the prior year period due to higher net stumpage realizations ($18.4 million ), higher volumes ($5.3 million ) and higher non-timber income ($0.7 million ), partially offset by higher costs ($3.6 million ) and higher depletion rates ($0.7 million ).
PACIFIC NORTHWEST WOOD
Second quarter sales of$39.2 million increased$3.8 million , or 11%, versus the prior year period, notwithstanding a decline in harvest volumes of 6% to 376,000 tons versus 400,000 tons in the prior year period. Average delivered sawtimber prices increased 19% to$116.60 per ton versus$97.80 per ton in the prior year period, driven by continued strong demand from domestic lumber mills as well as a favorable species mix, as a higher proportion ofDouglas -fir sawtimber was harvested in the current year quarter. Average delivered pulpwood prices increased 56% to$45.17 per ton versus$29.02 per ton in the prior year period, reflecting strong end- market demand as well as the resumption of chip exports, which resulted in greater competition from pulp mills to secure supply. Operating income of$2.9 million improved$1.1 million versus the prior year period due to higher net stumpage realizations ($3.0 million ), partially offset by higher overhead and other costs ($1.4 million ), lower volumes ($0.4 million ) and lower non-timber income ($0.2 million ). Second quarter Adjusted EBITDA of$14.3 million was 3%, or$0.4 million , above the prior year period. Year-to-date sales of$85.4 million increased$8.6 million , or 11%, versus the prior year period, notwithstanding a decline in harvest volumes of 6% to 881,000 tons versus 936,000 tons in the prior year period. Average delivered sawtimber prices increased 17% to$110.66 per ton versus$94.20 per ton in the prior year period due to strong domestic lumber demand and a favorable species mix in the current year period. Average delivered pulpwood prices increased 43% to$41.83 per ton versus$29.18 per ton in the prior year period, driven by strong end-market demand, the restart of previously idled pulp mill capacity, and the resumption of chip exports, which resulted in greater competition from pulp mills to secure supply. Operating income of$9.5 million improved$6.3 million versus the prior year period due to higher net stumpage realizations ($8.7 million ) and lower depletion rates ($0.4 million ), partially offset by higher costs ($1.9 million ), lower volumes ($0.6 million ) and lower non-timber income ($0.3 million ).NEW ZEALAND TIMBER Second quarter sales of$78.9 million decreased$1.7 million , or 2%, versus the prior year period. Harvest volumes increased 1% to 703,000 tons versus 692,000 tons in the prior year period, reflecting a pickup in activity to more normalized levels following a relatively light first quarter. Average delivered prices for export sawtimber decreased 5% to$140.44 per ton versus$148.28 per ton in the prior year period. The decrease in export sawtimber prices versus the prior year period was driven by reduced demand stemming from the COVID-19 lockdowns inChina , which in turn contributed to persistently high port inventories. Net stumpage realizations for export sawtimber were further reduced by significantly higher port / freight costs, driven by elevated fuel prices as well as increased demurrage charges due to port congestion. Average delivered prices for domestic sawtimber decreased 10% to$76.82 per ton versus$85.09 per ton in the prior year period. The decrease in domestic sawtimber prices (inU.S. dollar terms) was primarily driven by the decline in the NZ$/US$ exchange rate (US$0.66 per NZ$1.00 versusUS$0.72 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices decreased 2% versus the prior year period, reflecting additional supply that was diverted into domestic markets due to export market headwinds. Operating income of$8.0 million decreased$12.7 million versus the prior year period due to lower net stumpage realizations ($16.5 million ), higher costs ($0.9 million ) and higher depletion rates ($0.3 million ), partially offset by higher carbon credit sales ($3.4 million ), favorable foreign exchange impacts ($1.1 million ) and higher volumes ($0.5 million ). Second quarter Adjusted EBITDA of$14.9 million was 46%, or$12.8 million , below the prior year period. Year-to-date sales of$130.3 million decreased$7.9 million , or 6%, versus the prior year period. Harvest volumes decreased 6% to 1.2 million tons versus 1.3 million tons in the prior year period. Average delivered prices 52 -------------------------------------------------------------------------------- for export sawtimber decreased 1% to$135.13 per ton versus$136.45 per ton in the prior year period. The decrease in export sawtimber prices versus the prior year period was primarily driven by reduced demand due to COVID-19 related disruptions inChina . Net stumpage realizations for export sawtimber were further pressured by higher shipping and demurrage costs due to ongoing supply chain and port congestion issues. Average delivered prices for domestic sawtimber decreased 8% to$76.48 per ton versus$83.11 per ton in the prior year period. The decrease in domestic sawtimber prices (inU.S. dollars terms) was driven primarily by the decline in the NZ$/US$ exchange rate (US$0.67 per NZ$1.00 versusUS$0.72 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices decreased 1% versus the prior year period. Operating income of$13.4 million decreased$21.3 million versus the prior year period as a result of lower net stumpage realizations ($22.4 million ), lower volumes ($2.6 million ), higher costs (1.4 million) and unfavorable foreign exchange impacts ($0.4 million ), partially offset by higher carbon credit sales (4.9 million) and lower depletion rates ($0.6 million ). Year-to-date Adjusted EBITDA of$25.3 million was$23.6 million below the prior year period.
WOOD BACKGROUNDS
During 2021, we sold the rights to manage Fund III and Fund IV, as well as our ownership interests in both funds, and we completed the liquidation of Fund II timberland assets. As such, we had no sales, operating income or Adjusted EBITDA in the current quarter or year-to-date period in the Timber Funds segment, as will be the case going forward. The Timber Funds segment generated prior year second quarter sales of$18.6 million on harvest volumes of 175,000 tons, resulting in operating income of$2.0 million in the prior year period. Second quarter Adjusted EBITDA was$1.4 million in the prior year period. The Timber Funds segment generated prior year year-to-date sales of$33.6 million on harvest volumes of 319,000 tons, resulting in operating income of$3.5 million in the prior year period. Year-to-date Adjusted EBITDA was$2.3 million in the prior year period.
IMMOVABLE
Second quarter sales of$34.4 million decreased$40.1 million versus the prior year period, while operating income of$11.0 million decreased$39.5 million versus the prior year period. The prior year second quarter sales and operating income included$36.0 million and$30.3 million , respectively, from a Large Disposition. Sales and operating income declined versus the prior year period due to a lower number of acres sold (4,694 acres sold versus 16,548 acres sold in the prior year period), partially offset by an increase in weighted-average prices ($7,453 per acre versus$4,571 per acre in the prior year period).Improved Development sales of$11.6 million included$10.5 million from the Wildlight development project north ofJacksonville, Florida and$1.1 million from the Heartwood development project south ofSavannah, Georgia . Sales in Wildlight consisted of a 22-acre multifamily apartment site for$4.8 million ($222,000 per acre), a 31-acre single-family build-to-rent site for$4.4 million ($140,000 per acre), and 19 residential lots for$1.3 million ($70,000 per lot). Sales in Heartwood consisted of 26 residential lots for$1.1 million ($42,000 per lot). This compares to prior year periodImproved Development sales of$19.3 million , which reflected significant activity in both Wildlight and Heartwood /Belfast Commerce Park .
There was no
Rural sales of$23.4 million consisted of 4,633 acres at an average price of$5,054 per acre, which compares to prior year period sales of$20.3 million , which consisted of 7,725 acres at an average price of$2,627 per acre.
There were no sales from Timberland & Non-Strategic during the second quarter or prior year period.
Second quarter adjusted EBITDA of
Year-to-date sales of$68.6 million decreased$16.4 million versus the prior year period, while operating income of$21.2 million decreased$31.0 million versus the prior year period. There were no Large Dispositions in the current year period, compared with year-to-date sales and operating income of$36.0 million and$30.3 million , respectively from a Large Disposition in the prior year period. Sales decreased in the first six months primarily due to lower volumes (13,428 acres sold versus 18,943 acres sold in the prior year period), partially offset by higher weighted-average prices ($5,087 per acre versus$4,522 per acre in the prior year period). Year-to-date Adjusted EBITDA of$50.1 million increased$15.9 million versus the prior year period. 53 --------------------------------------------------------------------------------
TRADE
Second quarter sales of$27.7 million decreased$6.9 million versus the prior year period primarily due to lower volumes and prices. Sales volumes decreased 14% to 209,000 tons versus 243,000 tons in the prior year period, reflecting elevated log inventories inChina and constrained export market demand. The Trading segment generated an operating loss of$0.4 million versus operating income of$0.4 million in the prior year period. Year-to-date sales of$41.1 million decreased$10.1 million versus the prior year period primarily due to lower volumes, as well as lower prices. Sales volumes decreased 17% to 320,000 tons versus 384,000 tons in the prior year period. The Trading segment generated an operating loss of$0.1 million versus operating income of$0.7 million in the prior year period.
OTHER ELEMENTS
CORPORATE AND OTHER EXPENSES / ELIMINATIONS
Corporate and other operating expenses for the second quarter of
increase
Year-to-date corporate and other operating expenses of$17.7 million increased$2.0 million versus the prior year period, primarily due to higher compensation and benefits expenses ($1.2 million ), higher legal costs ($0.4 million ) and higher insurance and travel expenses ($0.4 million ).
Compensation and benefits expense was elevated in the current quarter and year-to-date due to the accelerated realization of stock compensation expense for employees eligible to retire.
INTEREST EXPENSES
Second quarter and year-to-date interest expense of$9.1 million and$17.4 million , respectively, decreased$3.9 million and$5.6 million versus the prior year period, as the prior year period included a$2.2 million loss from the termination of a cash flow hedge. Additionally, second quarter and year-to-date interest expense benefited from lower average outstanding debt and a lower average interest rate as compared to the prior year period.
INCOME TAX BURDEN
Second quarter and year-to-date income tax expense of$1.3 million and$6.8 million , respectively, decreased$5.6 million and$3.5 million versus the prior year period. TheNew Zealand subsidiary is the primary driver of income tax expense. OUTLOOK In our Southern Timber segment, we now expect full-year harvest volumes of 6.4 to 6.6 million tons, as strong customer demand and favorable weather conditions are allowing us to successfully execute our annual harvest plan. We are encouraged by the significant year-over-year pricing gains that have been realized across our operating areas. However, we expect modestly lower weighted-average net stumpage realizations during the second half of 2022 as compared to the first half, primarily due to higher cut and haul costs as a result of elevated diesel prices and a higher proportion of thinning volume. In our Pacific Northwest Timber segment, we now expect full-year harvest volumes of 1.6 to 1.7 million tons, due in part to a modest adjustment in our harvest plan to reflect land sales, as well as reducedChina export volume. We further expect that weighted-average delivered log prices will remain well above prior year levels for the balance of the year. However, we anticipate these pricing gains will be partially offset by higher cut and haul costs due to elevated diesel prices. In our New Zealand Timber segment, we now expect full-year harvest volumes of 2.6 to 2.7 million tons. While domestic log demand was strong throughout the first half of the year, export market dynamics were negatively impacted by ongoing COVID-19 lockdowns inChina . We expect export sawtimber prices to stabilize in the second half of the year in response to improved offtake from Chinese ports and a reduction in competing log supply. However, we expect that net stumpage realizations on export volume will continue to be constrained by elevated port and freight costs. In the domestic market, we anticipate continued strong log demand, although we expect that pricing will be modestly lower in the second half of the year as compared to the first half of the year due to added supply pressure resulting from reduced export volume. Partially offsetting these headwinds, we expect a higher contribution from non-timber income (carbon credit sales) in the second half of the year as compared to the first half. 54 -------------------------------------------------------------------------------- In our Real Estate segment, following strong Real Estate results in the first half of the year, we anticipate lower quarterly results for the balance of the year.
CASH AND CAPITAL RESOURCES
Our principal source of cash is cash flow from operations, primarily the harvesting of timber and sales of real estate. As an UPREIT, our main use of cash is dividends and unitholder distributions. We also use cash to maintain the productivity of our timberlands through replanting and silviculture. Our operations have generally produced consistent cash flow and required limited capital resources. Short-term borrowings have helped fund working capital needs while acquisitions of timberlands generally require funding from external sources or Large Dispositions.
SUMMARY OF CASH AND FINANCING COMMITMENTS
June 30, December 31,
(millions of dollars) 2022 2021
Cash and cash equivalents (excluding Timber Funds) $279.3 $358.7
Total debt (a) 1,272.1 1,376.1
Noncontrolling interests in the operating partnership 123.8 133.8
Shareholders' equity 1,820.4 1,815.6
Total capitalization (total debt plus permanent and temporary equity)
3,216.3 3,325.5 Debt to capital ratio 40 % 41 % Net debt to enterprise value (b)(c) 15 % 14 %
(a) Total debt as of
(b) Net debt is calculated as total debt less cash and cash equivalents.
(c)Enterprise value based on market capitalization (includingRayonier, L.P. "OP" units) plus net debt based onRayonier's share price of$37.38 and$40.36 as ofJune 30, 2022 andDecember 31, 2021 , respectively.
AT-THE-MARKET STOCK OFFERING PROGRAM (“ATM”)
OnSeptember 10, 2020 , we entered into a distribution agreement with a group of sales agents through which we may sell common shares, from time to time, having an aggregate sales price of up to$300 million . As ofJune 30, 2022 ,$1.0 million remains available for issuance under the program. The following table outlines common share issuances pursuant to our ATM program (dollars in millions): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Shares of common stock issued under the ATM program - 2,199,459 726,248 3,307,273 Average price per share sold under the ATM program -$36.79 $41.46 $35.63 Gross proceeds from common shares issued under the ATM program -$80.9 $30.1 $117.8 55
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CASH FLOW
The following table summarizes our cash flows from operating, investing and financing activities for the six months ended
(millions of dollars) 2022 2021 Cash provided by (used for): Operating activities$148.5 $164.6 Investing activities (34.5) (49.1) Financing activities (184.9) 112.0
CASH RELATED TO OPERATING ACTIVITIES
Cash flow from operating activities decreased
CASH USED FOR INVESTING ACTIVITIES
Cash used for investing activities decreased$14.6 million from the prior year period primarily due to lower timberland acquisitions ($48.6 million ), lower capital expenditures ($1.9 million ) and lower real estate development investments ($0.3 million ), partially offset by lower proceeds from Large Dispositions ($35.2 million ) and other investing activities ($1.0 million ).
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
Cash used for financing activities of$184.9 million compares to cash provided by financing activities of$112.0 million in the prior year period. This is primarily due to lower net borrowings ($221.2 million ), lower net proceeds from the issuance of common shares under the ATM equity offering program ($78.8 million ), higher dividends paid on common shares ($6.1 million ), higher share repurchases ($2.6 million ) and lower proceeds from the issuance of common shares under the Company's incentive stock plan ($1.9 million ), partially offset by lower distributions to consolidated affiliates ($8.5 million ), lower debt issuance costs of ($4.8 million ) and lower distributions to noncontrolling interests in the operating partnership ($0.4 million ). 56 --------------------------------------------------------------------------------
FUTURE USES OF MONEY
We expect future uses of cash to include working capital requirements, principal and interest payments on long-term debt, lease payments, capital expenditures, real estate development investments, timberland acquisitions, dividends onRayonier Inc. common shares and distributions onRayonier, L.P. units, distributions to noncontrolling interests, and repurchases of the Company's common shares to satisfy other commitments. During Q2 2022, the Company announced a 5.6% increase in its quarterly cash dividend from$0.27 to$0.285 per common share andRayonier, LP unit.
Significant long-term uses of cash include the following (in millions):
Payments Due by Period
Future uses of cash (in millions) Total 2022 2023-2024 2025-2026 Thereafter
Long-term debt (a) $1,271.5 - - $246.5 $1,025.0
Current maturities of long-term debt (b) 0.6 - 0.6 - -
Interest payments on long-term debt (b) 238.4 18.1 72.5 67.2 80.6
Operating leases - timberland (c) 189.5 5.5 14.8 14.1 155.1
Operating leases - PP&E, offices (c) 7.9 0.9 2.2 1.2 3.6
Commitments - development projects (d) 27.8 19.7 3.5 0.5 4.1
Commitments - derivatives (e) 25.4 8.1 15.9 1.4 -
Commitments - environmental remediation
(f) 11.3 0.7 7.7 1.5 1.4
Commitments - other (g) 1.1 0.4 0.6 0.1 -
Total $1,773.5 $53.4 $117.8 $332.5 $1,269.8
(a) The carrying amount of long-term debt, net of deferred financing costs and unamortized discounts, is currently carried at
(b) Projected interest payments for floating rate debt were calculated based on outstanding principal and interest rates at
(c) Excludes planned renewal options.
(d) Commitments – development projects consist primarily of payments expected to be made on our Wildlight and Heartwood projects.
(e)Commitments – derivatives represent expected payments on derivative financial instruments (interest rate swaps and deferred interest rate swaps). See Note 7 – Derivative financial instruments and hedging activities for more information.
(f)Commitments - environmental remediation represents our estimate of potential liability associated with environmental contamination and Natural Resource Damages inPort Gamble, Washington . See Note 11 - Environmental and Natural Resource Damage Liabilities for additional information.
(g) Commitments – other includes other purchase obligations.
We expect to fund future uses of cash with a combination of existing cash balances, cash generated from operating activities, remaining issuances available under the Company’s ATM program, material disposals and the use of our revolving credit facilities.
57 --------------------------------------------------------------------------------
PLANNED EXPENSES FOR 2022
Capital expenditures in 2022 are expected to be between$80 million and$82 million , excluding any strategic timberland acquisitions we may make. Capital expenditures are expected to primarily consist of seedling planting, fertilization and other silvicultural activities, property taxes, lease payments, allocated overhead and other capitalized costs. Aside from capital expenditures, we may also acquire timberland as we actively evaluate acquisition opportunities. We anticipate real estate development investments in 2022 to be between$23 million and$25 million , net of reimbursements from community development bonds. Expected real estate development investments are primarily related to Wildlight, our mixed-use community development project located north ofJacksonville, Florida and Heartwood, our mixed-use development project located inRichmond Hill just south ofSavannah, Georgia . Our 2022 dividend payments onRayonier Inc. common shares and distributions toRayonier, L.P. unitholders are expected to be approximately$164 million and$3.7 million , respectively, assuming no change in the quarterly dividend rate of$0.285 per share or partnership unit, or material changes in the number of shares or partnership units outstanding.
Future share repurchases, if any, will depend on the Company’s liquidity and cash flow, as well as general market conditions and other considerations, including capital allocation priorities.
We have no mandatory pension contribution requirements for the current year.
Full-year 2022 cash tax payments are expected to be approximately$15.0 million , primarily related to theNew Zealand subsidiary. First quarter cash tax payments were elevated due to the required timing of tax payments for ourNew Zealand subsidiary following the full utilization of its NOLs.
OFF-BALANCE SHEET ARRANGEMENTS
We utilize off-balance sheet arrangements to provide credit support for certain suppliers and vendors in case of their default on critical obligations, and collateral for outstanding claims under our previous workers' compensation self-insurance programs. These arrangements consist of standby letters of credit and surety bonds. As part of our ongoing operations, we also periodically issue guarantees to third parties. Off-balance sheet arrangements are not considered a source of liquidity or capital resources and do not expose us to material risks or material unfavorable financial impacts. See Note 12 - Guarantees for details on the letters of credit and surety bonds as ofJune 30, 2022 .
SUMMARY OF GUARANTOR’S FINANCIAL INFORMATION
InMay 2021 ,Rayonier, L.P. issued$450 million of 2.75% Senior Notes due 2031 (the "Senior Notes due 2031").Rayonier TRS Holdings Inc. ,Rayonier Inc. , andRayonier Operating Company, LLC agreed to irrevocably, fully and unconditionally guarantee jointly and severally, the obligations ofRayonier, L.P. in regards to the Senior Notes due 2031. As a general partner ofRayonier, L.P. ,Rayonier Inc. consolidatesRayonier, L.P. and has no material assets or liabilities other than its interest inRayonier, L.P. These notes are unsecured and unsubordinated and will rank equally with all other unsecured and unsubordinated indebtedness from time to time outstanding.Rayonier, L.P. is a limited partnership, in whichRayonier Inc. is the general partner. The operating subsidiaries ofRayonier, L.P. conduct all of our operations.Rayonier, L.P.'s most significant assets are its interest in operating subsidiaries, which have been eliminated in the table below to eliminate intercompany transactions between the issuer and guarantors and to exclude investments in non-guarantors. As a result, our ability to make required payments on the notes depends on the performance of our operating subsidiaries and their ability to distribute funds to us. There are no material restrictions on dividends from the operating subsidiaries. 58 -------------------------------------------------------------------------------- The summarized balance sheet information for the consolidated obligor group of debt issued byRayonier, L.P. for the six months endedJune 30, 2022 and year endedDecember 31, 2021 are provided in the table below: (in millions) June 30, 2022 December 31, 2021 Current assets$272.0 $335.8 Non-current assets 100.9 54.6 Current liabilities 19.2 146.0 Non-current liabilities 1,800.6 1,821.7 Due to non-guarantors 566.3 570.4 The summarized results of operations information for the consolidated obligor group of debt issued byRayonier, L.P. for the six months endedJune 30, 2022 and year endedDecember 31, 2021 are provided in the table below: (in millions) June 30, 2022 December 31, 2021 Cost and expenses ($14.6 ) ($27.5 ) Operating loss (14.6) (27.3) Net loss (30.0) (69.7) Revenue from non-guarantors 468.4 1,109.4
PERFORMANCE AND LIQUIDITY INDICATORS
The discussion below is presented to enhance the reader's understanding of our
operating performance, liquidity, and ability to generate cash and satisfy
rating agency and creditor requirements. This information includes two measures
of financial results: Adjusted Earnings before Interest, Taxes, Depreciation,
Depletion and Amortization ("Adjusted EBITDA") and Cash Available for
Distribution ("CAD"). These measures are not defined by Generally Accepted
Accounting Principles ("GAAP"), and the discussion of Adjusted EBITDA and CAD is
not intended to conflict with or change any of the GAAP disclosures described
above.
Management uses CAD as a liquidity measure. CAD is a non-GAAP measure of cash
generated during a period that is available for common share dividends,
distributions to operating partnership unitholders, distributions to
noncontrolling interests, repurchase of the Company's common shares, debt
reduction, timberland acquisitions and real estate development investments. CAD
is defined as cash provided by operating activities adjusted for capital
spending (excluding timberland acquisitions and real estate development
investments), CAD attributable to noncontrolling interests in Timber Funds, and
working capital and other balance sheet changes. CAD is not necessarily
indicative of the CAD that may be generated in future periods.
Management uses Adjusted EBITDA as a performance measure. Adjusted EBITDA is a
non-GAAP measure that management uses to make strategic decisions about the
business and that investors can use to evaluate the operational performance of
the assets under management. It excludes specific items that management believes
are not indicative of the Company's ongoing operating results. We define
Adjusted EBITDA as earnings before interest, taxes, depreciation, depletion,
amortization, the non-cash cost of land and improved development, non-operating
income and expense, operating income attributable to noncontrolling interests in
Timber Funds and Large Dispositions.
59
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We reconcile Adjusted EBITDA to Net Income for the consolidated Company and to
Operating Income for the segments, as those are the most comparable GAAP
measures for each. The following table provides a reconciliation of Net Income
to Adjusted EBITDA for the respective periods (in millions of dollars):
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Net Income to Adjusted EBITDA Reconciliation
Net Income $25.3 $63.4 $56.3 $78.5
Operating income attributable to NCI in Timber Funds - (1.6) - (2.7)
Interest, net attributable to NCI in Timber Funds - 0.2 - 0.2
Net Income (Excluding NCI in Timber Funds) 25.3 62.0 56.3 76.0
Interest, net income and miscellaneous attributable to
8.9 12.8 17.1 22.7 Income tax expense attributable to Rayonier 1.3 6.8 6.8 10.3 Depreciation, depletion and amortization attributable to Rayonier 35.8 37.6 83.2 77.9 Non-cash cost of land and improved development 11.8 5.2 17.1 7.0 Non-operating expense - 1.2 0.6 1.2 Large Dispositions (a) - (30.3) - (30.3) Adjusted EBITDA$83.0 $95.3 $181.1 $164.7 (a)Large Dispositions are defined as transactions involving the sale of timberland that exceed$20 million in size and do not have a demonstrable premium relative to timberland value. InJune 2021 , we completed the disposition of approximately 9,000 acres located inWashington for a sales price and gain of approximately$36.0 million and$30.3 million , respectively. 60
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The following tables provide a reconciliation of Operating Income by segment to
Adjusted EBITDA by segment for the respective periods (in millions of dollars):
Corporate
and
Three Months Ended Southern Timber Pacific Northwest
Timber New Zealand Timber Timber Funds Real Estate
Trading Other TotalJune 30, 2022 Operating income (loss)$24.1 $2.9 $8.0 -$11.0 ($0.4 ) ($10.1 )$35.5 Depreciation, depletion and amortization 14.7 11.3 6.9 - 2.6 - 0.3 35.8 Non-cash cost of land and improved development - - - - 11.8 - - 11.8 Adjusted EBITDA$38.7 $14.3 $14.9 -$25.4 ($0.4 ) ($9.8 )$83.0 June 30, 2021 Operating income$17.0 $1.9 $20.7 $2.0 $50.5 $0.4 ($8.0 )$84.4 Operating income attributable to NCI in Timber Funds - - - (1.6) - - - (1.6) Depreciation, depletion and amortization 13.6 12.0 7.0 1.0 3.7 - 0.3 37.6 Non-cash cost of land and improved development - - - - 5.2 - - 5.2 Large Dispositions (a) - - - - (30.3) - - (30.3) Adjusted EBITDA$30.6 $13.9 $27.7 $1.4 $29.1 $0.4 ($7.7 )$95.3 (a)Large Dispositions are defined as transactions involving the sale of timberland that exceed$20 million in size and do not have a demonstrable premium relative to timberland value. InJune 2021 , we completed the disposition of approximately 9,000 acres located inWashington for a sales price and gain of approximately$36.0 million and$30.3 million , respectively. Corporate and Six Months Ended Southern Timber Pacific Northwest
Timber New Zealand Timber Timber Funds Real Estate
Trading Other TotalJune 30, 2022 Operating income (loss)$54.4 $9.5 $13.4 -$21.2 ($0.1 ) ($17.7 )$80.8 Depreciation, depletion and amortization 32.7 26.2 11.9 - 11.7 - 0.6 83.2 Non-cash cost of land and improved development - - - - 17.1 - - 17.1 Adjusted EBITDA$87.1 $35.8 $25.3 -$50.1 ($0.1 ) ($17.0 )$181.1 June 30, 2021 Operating income$34.3 $3.2 $34.7 $3.5 $52.2 $0.7 ($15.6 )$112.9 Operating income attributable to NCI in Timber Funds - - - (2.7) - - - (2.7) Depreciation, depletion and amortization 27.9 28.3 14.2 1.6 5.3 - 0.6 77.9 Non-cash cost of land and improved development - - - - 7.0 - - 7.0 Large Dispositions (a) - - - - (30.3) - - (30.3) Adjusted EBITDA$62.3 $31.5 $48.9 $2.3 $34.1
$0.7 ($15.1 )$164.7 (a)Large Dispositions are defined as transactions involving the sale of timberland that exceed$20 million in size and do not have a demonstrable premium relative to timberland value. InJune 2021 , we completed the disposition of approximately 9,000 acres located inWashington for a sales price and gain of approximately$36.0 million and$30.3 million , respectively. 61
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The following table provides a reconciliation of cash flow from operating activities to adjusted CAD (in millions of dollars):
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