Rayonier(RYN) - 2024 Q1 - Quarterly Report

EXPLANATORY NOTE This section explains the combined reporting of Rayonier Inc. and Rayonier, L.P. as a single business for enhanced investor understanding and cost efficiency - The report combines filings for Rayonier Inc. (REIT, general partner) and Rayonier, L.P. (Operating Partnership), which function as a single business unit[3][6] - As of March 31, 2024, Rayonier Inc. owned a 98.6% interest in the Operating Partnership and consolidates it for financial reporting[5][6] - The combined reporting approach aims to strengthen investor understanding, create efficiencies by reducing duplicative disclosures, and generate time and cost savings[7][8] PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements and detailed notes for Rayonier Inc. and Rayonier, L.P. for Q1 2024 and 2023 Rayonier Inc. Consolidated Financial Statements Consolidated Statements of Income and Comprehensive Income (Loss) Rayonier Inc. reported a significant decrease in net income, with sales down 6.1% but operating income up 52.6% in Q1 2024 Rayonier Inc. Consolidated Statements of Income (Three Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | :--------- | | Sales | $168,097 | $179,082 | ($10,985) | -6.1% | | Costs and Expenses | ($151,887)| ($168,460)| $16,573 | -9.8% | | Operating Income | $16,210 | $10,622 | $5,588 | 52.6% | | Net Income | $2,306 | $7,437 | ($5,131) | -69.0% | | Net Income Attributable to Rayonier Inc. | $1,357 | $8,300 | ($6,943) | -83.6% | | Basic EPS | $0.01 | $0.06 | ($0.05) | -83.3% | | Diluted EPS | $0.01 | $0.06 | ($0.05) | -83.3% | Consolidated Balance Sheets Total assets and liabilities decreased by 2.1% and 18.9% respectively, while shareholders' equity saw a slight decline Rayonier Inc. Consolidated Balance Sheets (as of) | Metric (in thousands) | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :-------------------- | :------------- | :---------------- | :--------- | :--------- | | Total Current Assets | $279,944 | $316,958 | ($37,014) | -11.7% | | Total Assets | $3,569,757 | $3,647,585 | ($77,828) | -2.1% | | Total Current Liabilities | $113,756 | $140,277 | ($26,521) | -18.9% | | Long-Term Debt, Net | $1,361,985 | $1,365,773 | ($3,788) | -0.3% | | Total Shareholders' Equity | $1,845,647 | $1,877,602 | ($31,955) | -1.7% | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased due to dividends and foreign currency translation losses, partially offset by net income and pension gains Rayonier Inc. Consolidated Statements of Changes in Shareholders' Equity (Three Months Ended March 31, 2024) | Item (in thousands) | Amount | | :------------------ | :---------- | | Balance, January 1, 2024 | $1,877,602 | | Net income | $2,306 | | Dividends ($0.285 per share) | ($42,777) | | Conversion of units into common shares | $11,511 | | Pension and postretirement benefit plans | $9,562 | | Foreign currency translation adjustment | ($16,951) | | Cash flow hedges | $2,966 | | Balance, March 31, 2024 | $1,845,647 | Consolidated Statements of Cash Flows Operating cash flow decreased, investing cash flow decreased, and financing cash flow significantly increased due to higher dividends Rayonier Inc. Consolidated Statements of Cash Flows (Three Months Ended March 31) | Activity (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :---------------------- | :---------- | :---------- | :--------- | :--------- | | Operating Activities | $52,298 | $63,951 | ($11,653) | -18.2% | | Investing Activities | ($24,049) | ($32,199) | $8,150 | -25.3% | | Financing Activities | ($75,087) | ($43,061) | ($32,026) | 74.4% | | Change in cash, cash equivalents and restricted cash | ($47,794) | ($11,671) | ($36,123) | 309.5% | | Balance, end of period | $160,580 | $103,736 | $56,844 | 54.8% | - Dividends paid on common shares increased significantly to $72.258 million in Q1 2024, including an additional $29.8 million dividend[24] Rayonier, L.P. Consolidated Financial Statements Consolidated Statements of Income and Comprehensive Income (Loss) (Rayonier, L.P.) Rayonier, L.P. reported a significant decrease in net income attributable to unitholders, with sales down 6.1% but operating income up 52.6% Rayonier, L.P. Consolidated Statements of Income (Three Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | :--------- | | Sales | $168,097 | $179,082 | ($10,985) | -6.1% | | Operating Income | $16,210 | $10,622 | $5,588 | 52.6% | | Net Income | $2,306 | $7,437 | ($5,131) | -69.0% | | Net Income Attributable to Rayonier, L.P. Unitholders | $1,377 | $8,474 | ($7,097) | -83.7% | | Basic EPU | $0.01 | $0.06 | ($0.05) | -83.3% | | Diluted EPU | $0.01 | $0.06 | ($0.05) | -83.3% | Consolidated Balance Sheets (Rayonier, L.P.) Total assets and liabilities decreased, mirroring Rayonier Inc.'s trends, with total capital experiencing a slight decline Rayonier, L.P. Consolidated Balance Sheets (as of) | Metric (in thousands) | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :-------------------- | :------------- | :---------------- | :--------- | :--------- | | Total Current Assets | $279,944 | $316,958 | ($37,014) | -11.7% | | Total Assets | $3,569,757 | $3,647,585 | ($77,828) | -2.1% | | Total Current Liabilities | $113,756 | $140,277 | ($26,521) | -18.9% | | Long-Term Debt, Net | $1,361,985 | $1,365,773 | ($3,788) | -0.3% | | Total Capital | $1,845,647 | $1,877,602 | ($31,955) | -1.7% | Consolidated Statements of Changes in Capital Total capital decreased due to unit distributions and foreign currency translation adjustments, partially offset by net income and pension gains Rayonier, L.P. Consolidated Statements of Changes in Capital (Three Months Ended March 31, 2024) | Item (in thousands) | Amount | | :------------------ | :---------- | | Balance, January 1, 2024 | $1,877,602 | | Net income | $2,306 | | Distributions on units ($0.285 per unit) | ($43,374) | | Conversion of units into common shares | $11,511 | | Pension and postretirement benefit plans | $9,562 | | Foreign currency translation adjustment | ($16,951) | | Cash flow hedges | $2,966 | | Balance, March 31, 2024 | $1,845,647 | Consolidated Statements of Cash Flows (Rayonier, L.P.) Operating cash flow decreased, investing cash flow decreased, and financing cash flow significantly increased due to higher unit distributions Rayonier, L.P. Consolidated Statements of Cash Flows (Three Months Ended March 31) | Activity (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :---------------------- | :---------- | :---------- | :--------- | :--------- | | Operating Activities | $52,298 | $63,951 | ($11,653) | -18.2% | | Investing Activities | ($24,049) | ($32,199) | $8,150 | -25.3% | | Financing Activities | ($75,087) | ($43,061) | ($32,026) | 74.4% | | Change in cash, cash equivalents and restricted cash | ($47,794) | ($11,671) | ($36,123) | 309.5% | | Balance, end of period | $160,580 | $103,736 | $56,844 | 54.8% | - Distributions on units increased to $73.343 million in Q1 2024, including an additional $30.2 million distribution[37] Notes to Consolidated Financial Statements Note 1. BASIS OF PRESENTATION This note details the basis of financial statement presentation, Rayonier Inc.'s ownership, and the expected impact of new accounting standards - Financial statements are prepared under GAAP and SEC rules for interim reporting[41] - Rayonier Inc. holds a 98.6% interest in the Operating Partnership as of March 31, 2024, and controls its management[43] - New accounting standards (ASU 2023-07 on Segment Reporting and ASU 2023-09 on Income Tax Disclosures) are not expected to materially impact consolidated financial statements upon adoption[45][46][47] Note 2. SEGMENT AND GEOGRAPHICAL INFORMATION This note details segment performance evaluation, showing a 6.1% sales decrease but a 52.6% operating income increase - Financial performance is evaluated using segment operating income and Adjusted EBITDA; asset information is not reported by segment[49][51] Segment Sales (Three Months Ended March 31, in thousands) | Segment | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | :--------- | | Southern Timber | $69,978 | $71,842 | ($1,864) | -2.6% | | Pacific Northwest Timber | $25,192 | $34,419 | ($9,227) | -26.8% | | New Zealand Timber | $45,700 | $44,105 | $1,595 | 3.6% | | Real Estate | $15,564 | $16,276 | ($712) | -4.4% | | Trading | $11,774 | $12,569 | ($795) | -6.3% | | Total | $168,097 | $179,082 | ($10,985) | -6.1% | Segment Operating Income (Loss) (Three Months Ended March 31, in thousands) | Segment | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | :--------- | | Southern Timber | $23,005 | $22,223 | $782 | 3.5% | | Pacific Northwest Timber | ($4,360) | ($3,543) | ($817) | 23.1% | | New Zealand Timber | $7,430 | ($663) | $8,093 | -1220.7% | | Real Estate | ($128) | $883 | ($1,011) | -114.5% | | Trading | $41 | $341 | ($300) | -88.0% | | Corporate and Other | ($9,778) | ($8,619) | ($1,159) | 13.4% | | Total Operating Income | $16,210 | $10,622 | $5,588 | 52.6% | Note 3. REVENUE Total revenue from contracts decreased by 6.1%, driven by lower timber sales, while deferred revenue increased due to a new carbon contract - Total revenue from contracts with customers decreased by 6.1% to $167.808 million in Q1 2024 compared to $178.837 million in Q1 2023[63] Revenue from Contracts with Customers by Product Type (Three Months Ended March 31, in thousands) | Product Type | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :--------- | :--------- | | Total Timber Sales | $138,586 | $151,812 | ($13,226) | -8.7% | | Total Non-Timber Sales | $13,947 | $10,994 | $2,953 | 26.9% | | Total Real Estate Sales | $15,275 | $16,031 | ($756) | -4.7% | | Total Revenue from Contracts with Customers | $167,808 | $178,837 | ($11,029) | -6.2% | - Deferred revenue, current and non-current, increased primarily due to a carbon capture and storage contract entered into in Q1 2024[59][60] Note 4. NONCONTROLLING INTERESTS This note details noncontrolling interests in Matariki Forestry Group and the Operating Partnership, which decreased due to unit conversions and distributions - Rayonier maintains a 77% controlling interest in Matariki Forestry Group, consolidating its balance sheet and results[68] - Noncontrolling interests in the operating partnership relate to third-party ownership of redeemable operating partnership units, which are economic equivalents to Rayonier common shares[4][69] Noncontrolling Interests in the Operating Partnership (Three Months Ended March 31, in thousands) | Item | 2024 | 2023 | | :------------------------------------ | :-------- | :-------- | | Beginning noncontrolling interests | $81,651 | $105,763 | | Conversions of redeemable OP units to common shares | ($11,511) | ($23,881) | | Net income attributable to noncontrolling interests | $20 | $174 | | Distributions to noncontrolling interests | ($597) | ($861) | | Total noncontrolling interests | $69,589 | $82,461 | Note 5. EARNINGS PER SHARE AND PER UNIT Basic and diluted EPS and EPU decreased to $0.01, primarily due to lower net income attributable to Rayonier Inc. and unitholders Earnings Per Common Share (Three Months Ended March 31) | Metric | 2024 | 2023 | | :------------------------------------ | :------ | :------ | | Net income attributable to Rayonier Inc. | $1,357 | $8,300 | | Basic EPS | $0.01 | $0.06 | | Diluted EPS | $0.01 | $0.06 | Earnings Per Unit (Three Months Ended March 31) | Metric | 2024 | 2023 | | :------------------------------------ | :------ | :------ | | Net income available to unitholders | $1,377 | $8,474 | | Basic EPU | $0.01 | $0.06 | | Diluted EPU | $0.01 | $0.06 | - The weighted average shares outstanding for diluted EPS increased to 151,376,049 in 2024 from 151,079,129 in 2023, including dilutive effects from stock options, performance shares, restricted shares, and operating partnership units[73] Note 6. DEBT Total principal debt was $1.369 billion, with $293 million available under the Revolving Credit Facility, and all debt covenants were met Debt Composition (as of March 31, 2024, in thousands) | Debt Type | Amount | | :-------------------------------------- | :---------- | | Senior Notes due 2031 (2.75% fixed) | $450,000 | | 2015 Term Loan due 2028 (7.01% variable) | $350,000 | | 2021 Incremental Term Loan due 2029 (6.96% variable) | $200,000 | | 2016 Incremental Term Loan due 2026 (7.06% variable) | $200,000 | | 2022 Incremental Term Loan due 2027 (7.01% variable) | $100,000 | | New Zealand subsidiary shareholder loans | $68,685 | | Total Principal Debt | $1,368,685 | - The company had $293.0 million in available borrowings under its Revolving Credit Facility as of March 31, 2024[83] - Rayonier was in compliance with all debt covenants, including an interest coverage ratio of 11.7 to 1 (requirement 2.5 to 1) and a debt to net worth plus debt ratio of 43% (not to exceed 65%)[85] Note 7. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES The company uses derivatives to mitigate foreign currency and interest rate risks, with interest rate products generating comprehensive income in Q1 2024 - The company uses derivative financial instruments (foreign currency exchange/option contracts and interest rate swaps) to manage foreign currency and interest rate risks[86] Impact of Derivatives on Consolidated Statements of Income and Comprehensive Income (Loss) (Three Months Ended March 31, in thousands) | Derivative Type | Income Statement Location | 2024 | 2023 | | :------------------------ | :------------------------------ | :-------- | :-------- | | Foreign currency exchange contracts | Other comprehensive (loss) income | ($5,490) | $3,813 | | | Other operating income (expense), net | $459 | ($2,429) | | Foreign currency option contracts | Other comprehensive (loss) income | ($1,638) | ($270) | | | Other operating income (expense), net | $8 | — | | Interest rate products | Other comprehensive (loss) income | $15,041 | ($9,660) | | | Interest expense, net | ($7,278) | ($3,463) | - As of March 31, 2024, the notional amount of outstanding interest rate swaps was $850 million, and forward-starting interest rate swaps was $200 million[103] Note 8. FAIR VALUE MEASUREMENTS This note details the fair value hierarchy for financial instruments, with no Level 3 assets or liabilities, and fixed-rate debt valued using Level 2 inputs - The company uses a three-level hierarchy for fair value measurements, with no Level 3 assets or liabilities as of March 31, 2024[106][107] Fair Value of Financial Instruments (as of March 31, 2024, in thousands) | Asset (Liability) | Carrying Amount | Fair Value (Level 1) | Fair Value (Level 2) | | :------------------------------------ | :-------------- | :------------------- | :------------------- | | Cash and cash equivalents | $159,903 | $159,903 | — | | Long-term debt | ($1,361,985) | — | ($1,299,434) | | Interest rate swaps | $46,586 | — | $46,586 | | Forward-starting interest rate swaps | $16,959 | — | $16,959 | | Foreign currency exchange contracts | ($2,116) | — | ($2,116) | | Noncontrolling interests in the operating partnership | $69,589 | — | $69,589 | - Fair value of fixed-rate debt is based on quoted market prices for similar terms and maturities, while variable-rate debt's carrying value approximates fair value[111] Note 9. CONTINGENCIES The company is involved in various lawsuits and claims, but management does not expect a material adverse effect on its financial position - The company is a defendant in various lawsuits and claims arising in the normal course of business[115] - Management does not anticipate a material adverse effect on financial position, results of operations, or cash flow from these contingencies[115] Note 10. ENVIRONMENTAL AND NATURAL RESOURCE DAMAGE LIABILITIES Environmental and NRD liabilities increased to $19.074 million due to revised cost estimates, with no material adverse effect expected - Environmental and NRD liabilities increased by $2.667 million to $19.074 million at March 31, 2024, reflecting revised cost estimates for Port Gamble, WA[117] - Upland mill site cleanup and NRD restoration are expected within one to two years, with monitoring continuing for 15 to 20 years[118] - Despite potential increases in liability, the resolution of uncertainties is not expected to have a material adverse effect on consolidated financial position or liquidity[119] Note 11. GUARANTEES The company provides $16.981 million in financial guarantees, including letters of credit and surety bonds, with no liabilities recorded Financial Commitments (as of March 31, 2024, in thousands) | Commitment Type | Maximum Potential Payment | | :-------------------- | :------------------------ | | Standby letters of credit | $6,996 | | Surety bonds | $9,985 | | Total | $16,981 | - Standby letters of credit support real estate construction and insurance agreements, while surety bonds secure performance obligations for operational activities and development projects[121][122] - No liabilities have been recorded for these financial commitments as they are dependent on the company's own performance[123] Note 12. HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS HBU timberlands and real estate development investments increased to $106.403 million, reflecting strategic land transfers and infrastructure improvements - HBU timberlands and real estate development investments increased to $106.403 million at March 31, 2024, from $105.595 million at December 31, 2023[126] - The company transfers HBU timberlands to taxable REIT subsidiaries for land-use entitlement, development, or marketing activities, and invests in infrastructure improvements[125] Changes in HBU Timberlands and Real Estate Development Investments (in thousands) | Item | Land and Timber | Development Investments | Total | | :------------------------------------ | :-------------- | :---------------------- | :---------- | | Total Balance at December 31, 2023 | $88,685 | $43,248 | $131,933 | | Capitalized real estate development investments | — | $7,850 | $7,850 | | Intersegment transfers | $9,442 | — | $9,442 | | Total Balance at March 31, 2024 | $97,801 | $47,559 | $145,360 | | Non-current portion at March 31, 2024 | $83,733 | $22,670 | $106,403 | Note 13. INVENTORY Total inventory increased to $43.541 million, primarily driven by a rise in real estate inventory Inventory Composition (in thousands) | Inventory Type | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Real estate inventory | $38,957 | $26,338 | | Log inventory | $4,405 | $4,490 | | Carbon unit inventory | $179 | $189 | | Total inventory | $43,541 | $31,017 | - The increase in total inventory is mainly attributable to a $12.619 million rise in real estate inventory[128] Note 14. OTHER OPERATING INCOME (EXPENSE), NET Other operating income, net, improved to $271 thousand, primarily due to a gain on foreign currency remeasurement Other Operating Income (Expense), Net (Three Months Ended March 31, in thousands) | Item | 2024 | 2023 | | :------------------------------------ | :------ | :-------- | | Gain (loss) on foreign currency remeasurement, net of cash flow hedges | $242 | ($2,484) | | Gain on sale or disposal of property and equipment | $10 | $2 | | Miscellaneous income (expense), net | $19 | ($34) | | Total | $271 | ($2,516) | Note 15. EMPLOYEE BENEFIT PLANS The company terminated its Defined Benefit Plan, incurring a $5.7 million non-cash pension settlement charge in Q1 2024 - The Defined Benefit Plan was terminated in February 2023, and the unfunded plan in July 2023[135] - In March 2024, the remaining Defined Benefit Plan liability was settled, leading to a $5.7 million pre-tax non-cash pension settlement charge[135] - The unfunded plan will be settled with approximately $1.2 million in lump sum cash payments in 2024, expected to result in additional non-cash pension settlement charges[136] Note 16. INCOME TAXES As a REIT, Rayonier Inc. generally avoids federal income tax, reporting an income tax benefit of $0.832 million in Q1 2024 - Rayonier Inc. operates as a REIT and generally avoids U.S. federal/state income tax, with taxable income from the Operating Partnership passed through to unitholders[139] - The company's tax expense is mainly from its TRS and New Zealand timber operations[140] Income Tax Benefit (Expense) (Three Months Ended March 31, in thousands) | Item | 2024 | 2023 | | :------------------------ | :------ | :-------- | | Income tax benefit (expense) | $832 | ($1,039) | | Annualized effective tax rate after discrete items | 9.8% | 7.9% | - The Q1 2024 income tax benefit includes a $1.2 million benefit related to the pension settlement[141] Note 17. ACCUMULATED OTHER COMPREHENSIVE INCOME AOCI decreased to $22.370 million, primarily due to foreign currency translation losses, partially offset by cash flow hedge gains Changes in AOCI (Three Months Ended March 31, 2024, in thousands) | Component | Balance, Dec 31, 2023 | Net Other Comprehensive (Loss) Income | Balance, Mar 31, 2024 | | :-------------------------------------- | :-------------------- | :------------------------------------ | :-------------------- | | Foreign currency translation (losses) gains | ($19,533) | ($16,178) | ($35,711) | | Cash flow hedges | $55,846 | $4,070 | $59,916 | | Employee benefit plans | ($9,616) | $9,562 | ($54) | | Total Rayonier Inc. | $24,651 | ($2,281) | $22,370 | - A $4.5 million pension settlement charge (net of tax) was reclassified from AOCI to net income during Q1 2024[146] - A net gain of approximately $22.5 million from derivatives designated as cash flow hedges is expected to be reclassified into earnings within the next 12 months[100] Note 18. RESTRICTED CASH Restricted cash decreased to $677 thousand, primarily held in escrow for contractual obligations related to real estate sales - Restricted cash includes proceeds from like-kind exchange (LKE) sales deposited with a third-party intermediary and cash held in escrow for contractual obligations[149] Restricted Cash (Three Months Ended March 31, in thousands) | Item | 2024 | 2023 | | :------------------------------------ | :------ | :------ | | Restricted cash deposited with LKE intermediary | — | $1,646 | | Restricted cash held in escrow | $677 | $3,316 | | Total restricted cash | $677 | $4,962 | Note 19. ASSETS HELD FOR SALE Assets held for sale totaled $10.025 million, with no impairment recognized as their basis was less than fair value - Assets held for sale were $10.025 million at March 31, 2024, and $9.932 million at December 31, 2023[151] - No impairment was recognized as the basis in these properties was less than their fair value, including costs to sell[151] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operations, and liquidity, highlighting varied segment performance, industry trends, and non-GAAP measures Company Overview Rayonier is a timberland REIT managing 2.7 million acres across three regions, operating through an UPREIT structure - Rayonier is a timberland REIT with approximately 2.7 million acres in the U.S. South (1.85 million), U.S. Pacific Northwest (418,000), and New Zealand (422,000 gross acres)[159] - Core business segments are Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate, and Trading[159] - The company operates through an UPREIT structure, with assets owned by the Operating Partnership[159] Industry and Market Conditions Timber markets are influenced by macroeconomic factors, with varied regional performance and real estate benefiting from demographic trends - Southern Timber benefited from weather-related constraints on competing supply, increasing harvest volumes and net stumpage realizations[166] - Pacific Northwest Timber experienced pressure on delivered log prices due to weaker domestic demand and reduced export market tension[166] - New Zealand Timber's export market demand and prices were negatively impacted by lower construction activity in China and foreign exchange fluctuations[166] - Real Estate improved development projects (Wildlight, Heartwood) are benefiting from favorable migration and demographic trends, mitigating the impact of higher interest rates[168] Timberland Holdings Total timberland holdings were 2.689 million acres, a slight decrease from year-end 2023, primarily due to small owned-acre sales Timberland Holdings (acres in thousands, as of March 31, 2024) | Region | Owned | Leased | Total | | :---------------- | :---- | :----- | :---- | | Southern | 1,756 | 93 | 1,849 | | Pacific Northwest | 414 | 4 | 418 | | New Zealand | 188 | 234 | 422 | | Total | 2,358 | 331 | 2,689 | - Total owned acres decreased by 3,000 acres in the Southern region due to sales in Louisiana, South Carolina, and Texas[176] - New Zealand leased acres increased by 1,000 acres due to adjustments from land mapping reviews[177] Results of Operations by Segment Consolidated sales decreased, but operating income and Adjusted EBITDA increased, with varied performance across timber and real estate segments Southern Timber Southern Timber sales decreased by 3% despite higher harvest volumes, but operating income and Adjusted EBITDA increased due to favorable costs Southern Timber Key Metrics (Three Months Ended March 31, in millions) | Metric | 2024 | 2023 | Change ($) | Change (%) | | :-------------------------- | :---------- | :---------- | :--------- | :--------- | | Sales | $70.0 | $71.8 | ($1.8) | -2.5% | | Total Volume (k tons) | 2,007 | 1,893 | 114 | 6.0% | | Weighted Average Total Net Stumpage Pricing ($/ton) | $23.07 | $24.03 | ($0.96) | -4.0% | | Operating Income | $23.0 | $22.2 | $0.8 | 3.6% | | Adjusted EBITDA | $44.8 | $42.8 | $2.0 | 4.7% | - Harvest volumes increased due to weather-related constraints on competing supply[206] - Lower net stumpage realizations were primarily due to a less favorable geographic mix[206] Pacific Northwest Timber Pacific Northwest Timber sales decreased by 27% with lower harvest volumes and prices, resulting in an operating loss and reduced Adjusted EBITDA Pacific Northwest Timber Key Metrics (Three Months Ended March 31, in millions) | Metric | 2024 | 2023 | Change ($) | Change (%) | | :-------------------------- | :---------- | :---------- | :--------- | :--------- | | Sales | $25.2 | $34.4 | ($9.2) | -26.7% | | Total Volume (k tons) | 317 | 384 | (67) | -17.5% | | Weighted Average Log Price ($/ton) | $78.54 | $88.17 | ($9.63) | -10.9% | | Operating Loss | ($4.4) | ($3.5) | ($0.9) | 25.7% | | Adjusted EBITDA | $4.7 | $7.1 | ($2.4) | -33.8% | - Harvest volume decrease was primarily due to a large disposition completed in Oregon in late 2023[207] - Delivered sawtimber prices decreased due to weaker domestic demand, reduced export market tension, and an unfavorable species mix[207] New Zealand Timber New Zealand Timber sales increased by 4%, with operating income significantly improving due to foreign exchange, carbon credit income, and no prior-year write-offs New Zealand Timber Key Metrics (Three Months Ended March 31, in millions) | Metric | 2024 | 2023 | Change ($) | Change (%) | | :-------------------------- | :---------- | :---------- | :--------- | :--------- | | Sales | $45.7 | $44.1 | $1.6 | 3.6% | | Total Volume (k tons) | 480 | 481 | (1) | -0.2% | | Weighted Average Log Price ($/ton) | $87.87 | $90.99 | ($3.12) | -3.4% | | Operating Income (Loss) | $7.4 | ($0.7) | $8.1 | -1157.1% | | Adjusted EBITDA | $11.4 | $6.1 | $5.3 | 86.9% | - Operating income significantly improved due to favorable foreign exchange impacts ($3.4 million), higher carbon credit income ($3.3 million), and the absence of a $2.3 million timber write-off in the prior year[209] - Average delivered prices for export sawtimber decreased by 4% due to weaker construction demand in China[208] Real Estate Real Estate sales decreased by 4.3% due to fewer acres sold and lower prices, resulting in an operating loss for the segment Real Estate Key Metrics (Three Months Ended March 31, in millions) | Metric | 2024 | 2023 | Change ($) | Change (%) | | :-------------------------- | :---------- | :---------- | :--------- | :--------- | | Total Sales | $15.6 | $16.3 | ($0.7) | -4.3% | | Total Acres Sold | 1,933 | 2,087 | (154) | -7.4% | | Weighted Average Gross Price per Acre ($/acre) | $5,774 | $6,200 | ($426) | -6.9% | | Operating (Loss) Income | ($0.1) | $0.9 | ($1.0) | -111.1% | | Adjusted EBITDA | $4.6 | $6.6 | ($2.0) | -30.3% | - Improved Development sales decreased to $1.8 million (6.0 acres) from $4.8 million (27.9 acres) in the prior year[211] - Rural sales increased to $8.7 million (1,498 acres at $5,828/acre) from $6.5 million (1,531 acres at $4,245/acre)[212] Trading Trading segment sales decreased by 6.3% due to lower prices, resulting in breakeven operating results for the quarter Trading Key Metrics (Three Months Ended March 31, in millions) | Metric | 2024 | 2023 | Change ($) | Change (%) | | :-------------------------- | :---------- | :---------- | :--------- | :--------- | | Total Sales | $11.8 | $12.6 | ($0.8) | -6.3% | | Total Volume (k tons) | 105 | 105 | — | 0.0% | | Operating Income | — | $0.3 | ($0.3) | -100.0% | | Adjusted EBITDA | — | $0.3 | ($0.3) | -100.0% | - The decrease in sales was primarily attributable to lower prices[214] Other Items Corporate expenses increased, interest expense decreased, and other income included a pension settlement charge and legal costs - Corporate and other operating expenses increased by $1.2 million, driven by higher compensation and benefits and professional services fees[215] - Interest expense decreased by $2.0 million due to lower average outstanding debt[216] - Interest and other miscellaneous (expense) income, net, included a $5.7 million pension settlement charge and $1.3 million in legal settlement costs in Q1 2024, compared to $9.1 million in net recoveries in Q1 2023[217] - The Q1 2024 income tax benefit of $0.8 million was primarily due to a $1.2 million tax benefit from the pension termination and settlement[218] Outlook The company anticipates varied segment performance, with lower Southern Timber volumes, improving Pacific Northwest prices, and higher Real Estate transactions - Southern Timber expects lower quarterly harvest volumes and modestly decreasing pine stumpage realizations for the rest of 2024, but higher non-timber income[220] - Pacific Northwest Timber anticipates increased harvest volumes and modestly increasing weighted-average delivered log prices in the second half of the year[221] - New Zealand Timber expects higher quarterly harvest volumes, a modest near-term decline in log prices followed by a rebound, and full-year carbon credit sales comparable to the prior year[222] - Real Estate expects higher transaction volume and operating results in the second quarter[223] Liquidity and Capital Resources The company is pursuing a $1 billion disposition target, with operating cash flow decreasing and financing cash flow increasing due to higher dividends - The company is progressing towards a $1 billion disposition target, marketing 115,000 acres in Washington and identifying 100,000 acres in the U.S. South[225] - Strategic alternatives are being evaluated for the New Zealand joint venture interest[225] Summary of Liquidity and Financing Commitments (in millions) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $159.9 | $207.7 | | Total debt | $1,368.7 | $1,372.7 | | Debt to capital ratio | 42% | 41% | | Net debt to enterprise value | 19% | 19% | Cash Flow Summary (Three Months Ended March 31, in millions) | Activity | 2024 | 2023 | | :---------------------- | :------ | :------ | | Operating activities | $52.3 | $64.0 | | Investing activities | ($24.0) | ($32.2) | | Financing activities | ($75.1) | ($43.1) | - Expected 2024 capital expenditures are $83-88 million, and real estate development investments are $30-34 million[240][241] Performance and Liquidity Indicators This section defines and reconciles non-GAAP measures, with Adjusted EBITDA increasing by 2.7% and CAD by 21% in Q1 2024 - Adjusted EBITDA is a non-GAAP performance measure, excluding non-operating items, used to evaluate operational performance[251] - Cash Available for Distribution (CAD) is a non-GAAP liquidity measure, representing cash available for dividends, debt reduction, and investments[250] Adjusted EBITDA Reconciliation (Three Months Ended March 31, in millions) | Metric | 2024 | 2023 | | :-------------------------- | :------ | :------ | | Net Income | $2.3 | $7.4 | | Interest, net and miscellaneous income | $7.7 | $11.2 | | Income tax (benefit) expense | ($0.8) | $1.1 | | Depreciation, depletion and amortization | $37.1 | $37.6 | | Non-cash cost of land and improved development | $3.0 | $4.2 | | Timber write-offs resulting from casualty events | — | $2.3 | | Non-operating expense (income) | $7.0 | ($9.1) | | Adjusted EBITDA | $56.2 | $54.7 | Cash Available for Distribution (CAD) Reconciliation (Three Months Ended March 31, in millions) | Metric | 2024 | 2023 | | :-------------------------- | :------ | :------ | | Cash provided by operating activities | $52.3 | $64.0 | | Capital expenditures | ($18.9) | ($18.7) | | Net cost (recovery) on legal settlements | $1.3 | ($9.1) | | Working capital and other balance sheet changes | $2.1 | ($5.8) | | CAD | $36.8 | $30.4 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company manages interest rate, commodity, and foreign exchange risks using derivatives, with variable debt fully hedged and fixed debt sensitive to rate changes - The company uses derivatives to mitigate interest rate and foreign currency exchange rate risks, not for speculation[260] - As of March 31, 2024, $850 million of U.S. long-term variable rate debt was fully hedged with interest rate swaps, neutralizing the impact of a one-percentage point change in interest rates on payments[261][262] - A hypothetical one-percentage point increase/decrease in prevailing interest rates would result in a corresponding decrease/increase in the fair value of fixed-rate debt of approximately $24 million and $26 million, respectively[263] - Foreign currency exchange rate risk, mainly from the New Zealand subsidiary's U.S. dollar-denominated export sales, is managed through natural hedges and derivative contracts (notional amounts of $127 million in exchange contracts and $106 million in option contracts)[268][269] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Rayonier Inc.'s disclosure controls and procedures were effective as of March 31, 2024[273] - Rayonier, L.P.'s disclosure controls and procedures were effective as of March 31, 2024[277] - No material changes in internal control over financial reporting occurred during Q1 2024 for either entity[274][278] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section incorporates legal proceedings information by reference from Note 9 (Contingencies) and Note 10 (Environmental Liabilities) - Information on legal proceedings is incorporated by reference from Note 9 (Contingencies) and Note 10 (Environmental and Natural Resource Damage Liabilities) of the financial statements[279] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Rayonier Inc. issued 350,376 common shares for Operating Partnership units; no share repurchases occurred in Q1 2024 - Rayonier Inc. issued 350,376 common shares in exchange for Operating Partnership units in Q1 2024[280] - No shares were repurchased under the $100 million share repurchase program in Q1 2024; $87.7 million remains available[281] - Rayonier, L.P. had no unregistered sales of equity securities, but 350,376 units were redeemed by limited partners for Rayonier Common Stock[283][284] Item 5. Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q1 2024 - No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024[285] Item 6. Exhibits This section lists all exhibits filed with Form 10-Q, including CEO/CFO certifications and iXBRL financial information - Exhibits include CEO and CFO certifications for both Rayonier Inc. and Rayonier, L.P. (Exhibits 31.1-31.4 and 32.1-32.2)[287] - Financial information is filed in Inline Extensible Business Reporting Language (iXBRL) as Exhibits 101 and 104[287] SIGNATURES This section contains the official signatures for Rayonier Inc. and Rayonier, L.P., certifying the report's submission - The report is signed by April Tice, Senior Vice President and Chief Financial Officer, on behalf of both Rayonier Inc. and Rayonier, L.P.[290] - The signing date for the report is May 3, 2024[290]