Rayonier Inc: Form 10-Q for the period ended Mar 31, 2024

When we refer to “Rayonier” or “the Company” we mean Rayonier Inc. and its consolidated subsidiaries. References to the “Operating Partnership” mean Rayonier, L.P. and its consolidated subsidiaries. References to “we,” “us,” or “our,” mean collectively Rayonier Inc., the Operating Partnership and entities/subsidiaries owned or controlled by Rayonier Inc. and/or the Operating Partnership. References herein to “Notes to Financial Statements” refer to the Notes to Consolidated Financial Statements of Rayonier Inc. and Rayonier, 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 ended December 31, 2023 (the “2023 Form 10-K”) and information contained in our subsequent reports filed with the Securities 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, 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 2023 Form 10-K, 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 in the 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 the Operating Partnership and to provide investors an understanding of “Management’s perspective.” Item 2, Management’s Discussion and Analysis highlights the critical areas for evaluating our 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.

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 March 31, 2024, we owned or leased under long-term agreements approximately 2.7 million acres of timberlands located in the U.S. South (1.85 million acres), U.S. Pacific Northwest (418,000 acres) and New Zealand (422,000 gross acres or 297,000 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 value-added activities such as the licensing of properties for hunting, the leasing of properties for mineral extraction and cell towers, the sale of carbon credits, and revenue from land-based solutions such as carbon capture and storage, solar, and wind energy. Our New Zealand operations are conducted by Matariki 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 all U.S. and New 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 of Port Gamble, Washington.

The Trading segment primarily reflects log trading activities in New Zealand and Australia conducted by our New Zealand subsidiary. It also includes log trading activities conducted from the U.S. South and Pacific Northwest. Our Trading segment activities include an export services joint venture with a third-party forest manager in which Matariki 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 the New Zealand Timber segment. This additional market intelligence also benefits our Southern and Pacific Northwest export log marketing.

ENVIRONMENTAL MATTERS

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, 2023 and our sustainability report located at our Responsible Stewardship webpage.

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 timber to China and Japan. The Southern Timber and Pacific Northwest Timber segments rely on the strength of U.S. lumber markets as well as underlying housing starts. Our New Zealand Timber segment sells timber to domestic New Zealand wood products mills and also exports a significant portion of its volume to Asian markets, particularly in China and South Korea. In addition to market dynamics in the Pacific Rim, the New Zealand Timber segment is subject to foreign exchange fluctuations, which can impact the operating results of the segment in U.S. dollar terms.

Pricing in our timber segments is influenced by macroeconomic factors, including residential construction activity, and can also vary considerably on a local level based on weather, the available inventory of logs, mill demand, and export market access. In our Southern Timber segment, weather-related constraints on competing supply benefited first quarter harvest volumes and net stumpage realizations. In our Pacific Northwest Timber segment, weighted-average delivered log prices remain under pressure due to weaker domestic demand and reduced export market tension. In our New Zealand Timber segment, lower levels of construction activity in China continue to negatively impact export market demand and prices.

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.

Our Real Estate segment is exposed to changes in interest and mortgage rates as higher rates could negatively impact buyer demand for the properties we sell. However, our improved development projects, specifically Wildlight, our development project north of Jacksonville, Florida, and Heartwood, our development project south of Savannah, Georgia, continue to benefit from favorable migration and demographic trends, which have thus far outweighed the impacts of higher interest rates.

For additional information on market conditions impacting our business, see Results of Operations.

CRITICAL ACCOUNTING 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 2023 Form 10-K.

ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

See Note 1 — Basis of Presentation for a summary of recently issued accounting standards.

DISCUSSION OF TIMBER INVENTORY AND SUSTAINABLE YIELD

See Item 1 — Business — Discussion of Timber Inventory and Sustainable Yield in our 2023 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 of March 31, 2024 and December 31, 2023:

(a) Represents legal acres owned and leased by the New Zealand subsidiary, in which we own a 77% interest. As of March 31, 2024, legal acres in New Zealand consisted of 297,000 plantable acres and 125,000 non-productive acres.

The following tables detail activity for owned and leased acres in our timberland holdings by state from December 31, 2023 to March 31, 2024:

(a) Represents legal acres owned by the New Zealand subsidiary, in which we have a 77% interest.

(a) Includes adjustments for land mapping reviews.

(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.

RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

The following table provides key financial information by segment and on a consolidated basis:

(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) The three months ended March 31, 2023 includes $2.3 million of timber write-offs resulting from casualty events.

(c) The three months ended March 31, 2024 includes $5.7 million of pension settlement charges and $1.3 million of net costs associated with legal settlements. The three months ended March 31, 2023 includes $9.1 million of net recoveries associated with legal settlements.

(d) The three months ended March 31, 2024 includes a $1.2 million income tax benefit related to the pension settlement.

(e) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.

(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) Consists of sales from carbon capture and storage (“CCS”), solar and wind energy contracts.

(c) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.

(a) Includes volumes sold to third-party exporters.

(b) Estimated percentage of export volume, which includes volumes sold to third-party exporters in addition to direct exports through our log export program.

(c) Pricing is reported on a CFR basis (i.e., inclusive of export costs and freight).

(d) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.

(e) Delivered Sawtimber excluding chip-n-saw.

(a) Percentage of export volume reflects direct exports through our log export program.

(b) Prior period has been restated to reclassify certain export related costs from cut and haul to port and freight.

(c) Timber write-offs resulting from casualty events includes the write-off of merchantable and pre-merchantable timber volume damaged by casualty events that cannot be salvaged.

(d) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.

(e) Represents the period-average rate.

(a) Reflects land with capital invested in infrastructure improvements.

(b) Includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue.

(c) Excludes Improved Development.

(d) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.

(a) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.

(a) 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 and Improved Development.

The following tables summarize sales, operating income (loss) and Adjusted EBITDA variances for March 31, 2024 versus March 31, 2023 (millions of dollars):

(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) Includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue.

(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 Southern Timber segment, includes income from carbon capture and storage (“CCS”), solar and wind energy contracts. For the New Zealand Timber segment, includes income from carbon credit sales.

(c) Net of currency hedging impact.

(d) New Zealand Timber includes $2.3 million of timber write-offs resulting from casualty events in Q1 2023. Real Estate includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue.

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(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 Southern Timber segment, includes income from carbon capture and storage (“CCS”), solar and wind energy contracts. For the New Zealand Timber segment, includes income from carbon credit sales.

(d) Net of currency hedging impact.

(e) Real Estate includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue.

SOUTHERN TIMBER

First quarter sales of $70.0 million decreased $1.9 million, or 3%, versus the prior year period. Harvest volumes increased 6% to 2.01 million tons versus 1.89 million tons in the prior year period, as we benefited from weather-related constraints on competing supply. Average pine sawtimber stumpage realizations decreased 3% to $30.62 per ton versus $31.57 per ton in the prior year period, primarily due to a less favorable geographic mix. Average pine pulpwood stumpage realizations decreased 2% to $16.89 per ton versus $17.32 per ton in the prior year period, which was also primarily driven by an unfavorable geographic mix. Overall, weighted-average net stumpage realizations (including hardwood) decreased 4% to $23.07 per ton versus $24.03 per ton in the prior year period. Non-timber sales of $9.1 million decreased 3% versus the prior year period, as lower pipeline easement revenues were partially offset by growth in our land-based solutions business. Operating income of $23.0 million increased $0.8 million versus the prior year period due to favorable costs ($1.7 million) and higher volumes ($1.5 million), partially offset by lower net stumpage realizations ($1.9 million) and lower non-timber income ($0.5 million). First quarter Adjusted EBITDA of $44.8 million was 5%, or $2.0 million, above the prior year period.

PACIFIC NORTHWEST TIMBER

First quarter sales of $25.2 million decreased $9.2 million, or 27%, versus the prior year period. Harvest volumes decreased 17% to 317,000 tons versus 384,000 tons in the prior year period, primarily due to the Large Disposition we completed in Oregon in late 2023. Average delivered prices for domestic sawtimber decreased 9% to $84.31 per ton versus $93.12 per ton in the prior year period due to a combination of weaker demand from domestic lumber mills, reduced export market tension, and an unfavorable species mix, as a lower proportion of Douglas-Fir sawtimber was harvested in the current year period. Average delivered pulpwood prices decreased 39% to $29.31 per ton versus $48.23 per ton in the prior year period, as supply constraints and strong end-market demand significantly benefited the prior year period. An operating loss of $4.4 million versus an operating loss of $3.5 million in the prior year period was driven by lower net stumpage realizations ($0.4 million), higher depletion expense ($0.3 million), and lower volumes ($0.2 million). First quarter Adjusted EBITDA of $4.7 million was 34%, or $2.4 million, below the prior year period.

NEW ZEALAND TIMBER

First quarter sales of $45.7 million increased $1.6 million, or 4%, versus the prior year period. Sales volumes of 480,000 tons were relatively flat versus the prior year period. Average delivered prices for export sawtimber decreased 4% to $108.72 per ton versus $112.97 per ton in the prior year period, driven by weaker construction demand in China. Average delivered prices for domestic sawtimber declined 5% to $68.13 per ton versus $71.58 per ton in the prior year period. The decrease in domestic sawtimber prices was primarily driven by weaker domestic demand and decreased competition from export markets, coupled with the decline in the NZ$/US$ exchange rate (US$0.62 per NZ$1.00 versus US$0.63 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices decreased 3% versus the prior year period. First quarter non-timber / carbon credit sales totaled $3.5 million versus $0.3 million in the prior year period. Operating income of $7.4 million increased $8.1 million versus the prior year period due to favorable foreign exchange impacts ($3.4 million), higher carbon credit income ($3.3 million), the prior year write-off of timber basis due to a tropical cyclone casualty event ($2.3 million), lower costs ($0.5 million), and lower depletion rates ($0.3 million), partially offset by lower net stumpage realizations ($1.7 million). First quarter Adjusted EBITDA of $11.4 million was 88%, or $5.4 million, above the prior year period.

REAL ESTATE

First quarter sales of $15.6 million decreased $0.7 million versus the prior year period, while operating loss of $0.1 million decreased $1.0 million versus the prior year period. Sales and operating income decreased versus the prior year period due to fewer acres sold (1,933 acres sold versus 2,087 acres sold in the prior year period) and lower weighted-average prices ($5,774 per acre versus $6,200 per acre in the prior year period), partially offset by favorable deferred revenue adjustments.

Improved Development sales of $1.8 million consisted of two transactions in the Heartwood development project south of Savannah, Georgia, including a 3.1-acre multi-tenant retail parcel for $1.0 million ($321,000 per acre) and 18 finished residential lots for $0.8 million (a base price before true-up of $46,000 per lot or $284,000 per acre). This compares to Improved Development sales of $4.8 million in the prior year period.

Rural sales of $8.7 million consisted of 1,498 acres at an average price of $5,828 per acre. This compares to prior year period sales of $6.5 million, which consisted of 1,531 acres at an average price of $4,245 per acre.

Timberland & Non-Strategic sales of $0.6 million consisted of a 430-acre transaction for $1,421 per acre. This compares to prior year period sales of $1.6 million, which consisted of a 528-acre transaction for $3,100 per acre.

First quarter Adjusted EBITDA of $4.6 million decreased $2.0 million versus the prior year period.

TRADING

First quarter sales of $11.8 million decreased $0.8 million versus the prior year period, primarily due to lower prices. Sales volumes of 105,000 tons remained flat versus the prior year period. The Trading segment generated breakeven results versus operating income of $0.3 million in the prior year period.

OTHER ITEMS

CORPORATE AND OTHER EXPENSE / ELIMINATIONS

First quarter corporate and other operating expenses of $9.8 million increased $1.2 million versus the prior year period, primarily due to higher compensation and benefits expenses and professional services fees. Compensation and benefits expenses were elevated versus the prior year quarter primarily due to the acceleration of equity compensation expense for retirement-eligible employees.

INTEREST EXPENSE

First quarter interest expense of $9.7 million decreased $2.0 million versus the prior year period, primarily due to lower average outstanding debt.

INTEREST AND OTHER MISCELLANEOUS (EXPENSE) INCOME, NET

First quarter interest and other miscellaneous (expense) income includes a $5.7 million pension settlement charge and $1.3 million of net costs associated with legal settlements. The prior year period includes $9.1 million of net recoveries associated with legal settlements.

INCOME TAX BENEFIT (EXPENSE)

First quarter net income tax benefit of $0.8 million versus income tax expense of $1.1 million in the prior year period was primarily due to a $1.2 million tax benefit associated with the pension termination and settlement.

OUTLOOK

In our Southern Timber segment, we anticipate lower quarterly harvest volumes for the remainder of the year. We expect that pine stumpage realizations will decrease modestly over the remainder of the year due to a less favorable geographic mix and a relatively higher proportion of thinning volume. Further, we continue to expect higher non-timber income for full-year 2024 relative to full-year 2023 driven by growth in our land-based solutions business.

In our Pacific Northwest Timber segment, we expect harvest volumes to increase during the second half of the year. We believe that market conditions have generally stabilized, and we expect that end-market demand will improve modestly over the course of the year. We further expect weighted-average delivered log prices will increase modestly into the second half of the year as mill inventories continue to normalize.

In our New Zealand Timber segment, we anticipate higher quarterly harvest volumes for the remainder of the year. We expect weighted-average log prices to decline modestly in the near term before rebounding in the second half of the year due to lower expected log supply into China. Following the recent pull back in carbon credit pricing, we now anticipate the full-year contribution from carbon credit sales to be comparable with the prior year.

In our Real Estate segment, we expect higher transaction volume and operating results in the second quarter.

LIQUIDITY 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.

UPDATE ON INITIATIVES TO ENHANCE SHAREHOLDER VALUE

We are continuing to make progress toward our $1 billion disposition target, and we are actively evaluating several large-scale transactions. Specifically, we are currently marketing approximately 115,000 acres in Washington state, and we have further identified approximately 100,000 acres in the U.S. South that may be suitable for disposition. In addition, we are evaluating strategic alternatives for our New Zealand joint venture interest and have engaged a financial advisor to assist us with this process. We expect to provide additional information as it becomes available.

SUMMARY OF LIQUIDITY AND FINANCING COMMITMENTS

(a) Total debt as of March 31, 2024 and December 31, 2023 reflects principal on long-term debt, gross of deferred financing costs and unamortized discounts.

(b) Net debt is calculated as total debt less cash and cash equivalents.

(c) Enterprise value based on market capitalization (including Rayonier, L.P. “OP” units) plus net debt based on Rayonier’s share price of $33.24 and $33.41 as of March 31, 2024 and December 31, 2023, respectively.

AT-THE-MARKET (“ATM”) EQUITY OFFERING PROGRAM

On November 4, 2022 we entered into a new 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 (the “2022 ATM Program”). As of March 31, 2024, $269.7 million remains available for issuance under the 2022 ATM Program.

The following table outlines common share issuances pursuant to our ATM program (dollars in millions):

CASH FLOWS

The following table summarizes our cash flows from operating, investing and financing activities for the three months ended March 31, 2024 and 2023:

CASH PROVIDED BY OPERATING ACTIVITIES

Cash provided by operating activities decreased $11.7 million from the prior year period primarily due to changes in working capital.

CASH USED FOR INVESTING ACTIVITIES

Cash used for investing activities decreased $8.2 million from the prior year period due to lower cash used for timberland acquisitions ($8.7 million) and lower real estate development investments ($2.3 million), partially offset by lower proceeds from other investing activities ($2.7 million) and higher capital expenditures ($0.1 million).

CASH USED FOR FINANCING ACTIVITIES

Cash used for financing activities increased $32.0 million from the prior year period. This is primarily due to higher dividends paid on common shares ($30.1 million), higher distributions to noncontrolling interests in consolidated affiliates ($1.7 million), and higher distributions to noncontrolling interests in the operating partnership ($0.3 million).

FUTURE USES OF CASH

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 on Rayonier Inc. common shares and distributions on Rayonier, L.P. units, distributions to noncontrolling interests, and repurchases of the Company’s common shares to satisfy other commitments.

Significant long-term uses of cash include the following (in millions):

(a) The book value of long-term debt, net of deferred financing costs and unamortized discounts, is currently recorded at $1,362.0 million on our Consolidated Balance Sheets, but upon maturity the liability will be $1,368.7 million. See Note 6 - Debt for additional information.

(b) Projected interest payments for variable-rate debt were calculated based on outstanding principal amounts and interest rates as of March 31, 2024 and excludes the impact of hedging.

(c) Excludes anticipated renewal options.

(d) Commitments — derivatives represent payments expected to be made on derivative financial instruments (foreign exchange contracts). See Note 7 — Derivative Financial Instruments and Hedging Activities for additional information.

(e) Commitments — environmental remediation represents our estimate of potential liability associated with environmental contamination and Natural Resource Damages in Port Gamble, Washington. See Note 10 - Environmental and Natural Resource Damage Liabilities for additional information.

(f) Commitments — other includes $1.2 million related to the pension plan termination. See Note 15 - Employee Benefit Plans for additional information.

We expect to fund future uses of cash with a combination of existing cash balances, cash generated by operating activities, the remaining issuances available under the Company’s ATM Program, Large Dispositions and the use of our revolving credit facilities. We believe we have sufficient sources of funding to meet our business requirements for the next 12 months and in the longer term.

EXPECTED 2024 EXPENDITURES

Capital expenditures in 2024 are expected to be between $83 million and $88 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 2024 to be between $30 million and $34 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 of Jacksonville, Florida and Heartwood, our mixed-use development project located in Richmond Hill just south of Savannah, Georgia.

Our 2024 dividend payments on Rayonier Inc. common shares and distributions to Rayonier, L.P. unitholders, excluding the additional dividend and distribution paid on January 12, 2024 to shareholders of record on December 29, 2023, are expected to be approximately $171 million and $2 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 made cash contributions in 2024 of $2.7 million in order to fund the Defined Benefit Plan on a plan termination basis. Additionally, we anticipate settling the Excess Benefit Plan with lump sum payments upon termination of the Defined Benefit Plan with cash contributions of approximately $1.2 million. See Note 15 — Employee Benefit Plans for additional information.

Full-year 2024 cash tax payments are expected to be between $5.0 million and $8.0 million, primarily related to the New Zealand subsidiary.

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 11 — Guarantees for details on the letters of credit and surety bonds as of March 31, 2024.

SUMMARY OF GUARANTOR FINANCIAL INFORMATION

In May 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., and Rayonier Operating Company, LLC agreed to irrevocably, fully and unconditionally guarantee jointly and severally, the obligations of Rayonier, L.P. in regards to the Senior Notes due 2031. As a general partner of Rayonier, L.P., Rayonier Inc. consolidates Rayonier, L.P. and has no material assets or liabilities other than its interest in Rayonier, 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 which Rayonier Inc. is the general partner. The operating subsidiaries of Rayonier, L.P. conduct all of our operations. Rayonier, L.P.’s most significant assets are its interest in operating subsidiaries, which have been excluded 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.

The summarized balance sheet information for the consolidated obligor group of debt issued by Rayonier, L.P. for the three months ended March 31, 2024 and year ended December 31, 2023 are provided in the table below:

(in millions)

The summarized results of operations information for the consolidated obligor group of debt issued by Rayonier, L.P. for the three months ended March 31, 2024 and year ended December 31, 2023 are provided in the table below:

(in millions)

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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) 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, timber write-offs resulting from casualty events and Large Dispositions.

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):

(a) The three months ended March 31, 2024 includes a $1.2 million income tax benefit related to the pension settlement.

(b) Timber write-offs resulting from casualty events includes the write-off of merchantable and pre-merchantable timber volume damaged by casualty events which cannot be salvaged.

(c) The three months ended March 31, 2024 includes $5.7 million of pension settlement charges and $1.3 million of net costs associated with legal settlements. The three months ended March 31, 2023 includes $9.1 million of net recoveries associated with legal settlements.

The following tables provide a reconciliation of Operating Income (Loss) by segment to Adjusted EBITDA by segment for the respective periods (in millions of dollars):

(a) Timber write-offs resulting from casualty events includes the write-off of merchantable and pre-merchantable timber volume damaged by casualty events which cannot be salvaged.

The following table provides a reconciliation of Cash Provided by Operating Activities to Adjusted CAD (in millions of dollars):

(a) Capital expenditures exclude timberland acquisitions and real estate development investments.

(b) Net cost (recovery) on legal settlements reflects the net loss (gain) from litigation regarding insurance claims.

The following table provides supplemental cash flow data (in millions of dollars):

LIQUIDITY FACILITIES

2024 DEBT ACTIVITY

See Note 6 — Debt for additional information.

We are exposed to various market risks, including changes in interest rates, commodity prices and foreign exchange rates. Our objective is to minimize the economic impact of these market risks. We use derivatives in accordance with policies and procedures approved by the Audit Committee of the Board of Directors. Derivatives are managed by a senior executive committee whose responsibilities include initiating, managing and monitoring resulting exposures. We do not enter into financial instruments for trading or speculative purposes.

Interest Rate Risk

We are exposed to interest rate risk through our variable rate debt due to changes in SOFR. However, we use interest rate swaps to manage our exposure to interest rate movements on our term credit agreements by swapping existing and anticipated future borrowings from floating rates to fixed rates. As of March 31, 2024, we had $850 million of U.S. long-term variable rate debt outstanding on our term credit agreements.

The notional amount of outstanding interest rate swap contracts with respect to our term credit agreements at March 31, 2024 was also $850 million. The $350 million 2015 Term Loan Agreement matures in April 2028, with the associated interest rate swaps maturing in August 2024. We have entered into forward starting interest rate swaps to cover $200 million of the 2015 Term Loan Agreement through the extended maturity date. The 2016 Incremental Term Loan Agreement and associated interest rate swaps mature in May 2026, and the 2021 Incremental Term Loan Agreement and associated interest rate swaps mature in June 2029. We have entered into an interest rate swap agreement to cover $100 million of borrowings under the 2022 Incremental Term Loan Agreement through the maturity date in December 2027. At this current borrowing and derivatives level, a hypothetical one-percentage point increase/decrease in interest rates would result in no corresponding increase/decrease in interest payments and expense over a 12-month period.

The fair market value of our fixed interest rate debt is also subject to interest rate risk. The estimated fair value of our fixed rate debt at March 31, 2024 was $449.4 million compared to the $518.7 million principal amount. We use interest rates of debt with similar terms and maturities to estimate the fair value of our debt. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. A hypothetical one-percentage point increase/decrease in prevailing interest rates at March 31, 2024 would result in a corresponding decrease/increase in the fair value of our fixed rate debt of approximately $24 million and $26 million, respectively.

We estimate the periodic effective interest rate on our U.S. long-term fixed and variable rate debt to be approximately 2.7% after consideration of interest rate swaps and estimated patronage and excluding unused commitment fees on the revolving credit facility.

The following table summarizes our outstanding debt, interest rate swaps and average interest rates, by year of expected maturity and their fair values at March 31, 2024:

(Dollars in thousands)

(a) Excludes estimated patronage refunds.

(b) Interest rates as of March 31, 2024.

(c) Average daily SOFR rate as of March 31, 2024 based on a 30-day look back period.

Foreign Currency Exchange Rate Risk

The New Zealand subsidiary’s export sales are predominately denominated in U.S. dollars, and therefore its cash flows are affected by fluctuations in the exchange rate between the New Zealand dollar and the U.S. dollar. This exposure is partially managed by a natural currency hedge, as ocean freight payments and shareholder distributions are also paid in U.S. dollars. We manage any excess foreign exchange exposure through the use of derivative financial instruments.

Foreign Exchange Exposure

At March 31, 2024, the New Zealand subsidiary had foreign currency exchange contracts with a notional amount of $127 million and foreign currency option contracts with a notional amount of $106 million outstanding related to foreign export sales. The amount hedged represents a portion of forecasted U.S. dollar denominated export timber and log trading sales proceeds over the next 36 months and next 2 months, respectively.

The following table summarizes our outstanding foreign currency exchange rate risk contracts at March 31, 2024:

(Dollars in thousands)

54

Rayonier Inc.

DISCLOSURE CONTROLS AND PROCEDURES

Rayonier’s management is responsible for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934 (the “Exchange Act”), are designed with the objective of ensuring information required to be disclosed by the Company in reports filed under the Exchange Act, such as this quarterly report on Form 10-Q, is (1) recorded, processed, summarized and reported or submitted within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Because of the inherent limitations in all control systems, no control evaluation can provide absolute assurance that all control exceptions and instances of fraud have been prevented or detected on a timely basis. Even systems determined to be effective can provide only reasonable assurance that their objectives are achieved.

Based on an evaluation of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, concluded the design and operation of the disclosure controls and procedures were effective as of March 31, 2024.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

In the quarter ended March 31, 2024, based upon the evaluation required by Rule 13a-15(d) under the Exchange Act, there were no changes in our internal control over financial reporting that would materially affect or are reasonably likely to materially affect our internal control over financial reporting.

Rayonier, L.P.

DISCLOSURE CONTROLS AND PROCEDURES

The Operating Partnership is responsible for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934 (the “Exchange Act”), are designed with the objective of ensuring information required to be disclosed by Rayonier, L.P. in reports filed under the Exchange Act, such as this quarterly report on Form 10-Q, is (1) recorded, processed, summarized and reported or submitted within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including Rayonier’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Because of the inherent limitations in all control systems, no control evaluation can provide absolute assurance that all control exceptions and instances of fraud have been prevented or detected on a timely basis. Even systems determined to be effective can provide only reasonable assurance that their objectives are achieved.

Based on an evaluation of the Operating Partnership’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q, our management, including Rayonier’s Chief Executive Officer and Chief Financial Officer, concluded the design and operation of the disclosure controls and procedures were effective as of March 31, 2024.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

In the quarter ended March 31, 2024, based upon the evaluation required by Rule 13a-15(d) under the Exchange Act, there were no changes in internal control over financial reporting that would materially affect or are reasonably likely to materially affect internal control over financial reporting.