Rayonier (NYSE:) is the second-largest REIT specialized in timber, with ~2.5 million acres of timberland in the United States and New Zealand. We can see below how 68% of their Adjusted EBITDA comes from timber (especially in the South), while 32% is represented by real estate, such as their Wildlight community in Florida. Rayonier IR The stock is down nearly 20% over the past 12 months, although lumber prices recovered significantly during this time (which also impacts timber and vice versa, although timber tends to be more stable for reasons I’ll mention below). This comes as a result of a mix between tariff uncertainties, delayed rate cuts, and perhaps a negative opinion from the market about the company’s portfolio rebalancing and long-term plans, as I’ll mention below. However, with potential improvements in demand both locally and in China, recovering commodity prices, RYN’s own developments into higher-potential related industries, and their portfolio rebalancing, I believe there might be good potential in Rayonier at current prices. Rayonier IR Rayonier is undergoing a series of significant changes, recently announcing the strategic decision to sell the entities that hold its entire 77% joint venture interest in New Zealand for $710 million, focusing on US-based growth opportunities growing forward. They say that the proceeds will be used for leverage reductions, buybacks, and a that I’ll mention later. After this transaction, Rayonier will be sitting on a whopping ~$1 billion in cash, so there is definitely massive potential for a $3.81 billion market cap company. Rayonier IR This comes after the company (already $1.45 billion to date) back in 2023 to reduce debt and return capital to shareholders, potentially unlocking some value by selling at market prices instead of the prices they’re valued at. This way, they reduce the “little to no premium above timberland hold value” non-strategic assets and generate money for the higher value-added, better long-term potential assets. Rayonier IR As a result, we’ve seen some more dispositions in OR, WA, and OK before, all of which were sold at very significant multiples of 30-45x timber EBITDA. They also highlight the significant public-private valuation disparity, as the company traded at ~24.8x 2024’s EBITDA recently compared to the recent dispositions that were sold for nearly twice that much in some cases. Seeking Alpha Something that can be seen as an issue by the market is the company’s volatility. We can see an overall flat revenue in 2016-2018, followed by significant jumps since the pandemic, while the operating income was much more volatile. In a way, we can’t really treat them as a “normal” REIT like Realty Income (), who generally come with quite a lot of predictability and stability, because RYN is a commodity producer. Seeking Alpha On top of that, with all the divestitures we’ve seen in recent years and the costs/gains generated, RYN’s numbers are also varying a lot, especially since they are downsizing. Still, the free cash flow has been very solid in the past couple of years, with above-average timber prices definitely helping. This is more of a way to get leverage to the commodity plus their own developments (will mention them below) with a very solid dividend, offering quite a unique way to get exposure to the commodity’s future. Rayonier IR Their EBITDA per acre is also significantly and consistently above the NCREIF South average, with the 2024 number being nearly 2 times higher, as the company’s numbers remained stable while the general market fell after a record 2023. Rayonier IR Rayonier IR Financially, based on their , we see an overall very impressive position for a REIT following all their recent divestitures, with the current assets well above the current liabilities and a lot of cash and cash equivalents. As mentioned, they expect to have ~$1 billion in cash after the New Zealand transaction is complete, but the proceeds will be used for various things, including a significant dividend. On a $3.81 billion market cap, $1.95 billion in equity is not really significant, but keep in mind the disparity they mentioned, as well as the fact that the balance sheet is backward-looking, as it does not account for the current net asset value (NAV), which is likely much higher since the assets likely appreciated in value over time. Rayonier IR The debt profile is also very attractive, with only $1.04 billion in long-term debt overall, spread very well between 2026, 2028, 2029, and 2031. As it’s common with REITs, they won’t even need to repay this debt using the proceeds, as that is something they can keep refinancing - perhaps at even better rates if we see interest rate cuts. Their next earnings report is expected to be released on August 6th, and EPS is expected to decline by 37.5% YoY, with revenue down 25.8% YoY and an EBITDA expected to be in the range of $30 million to $40 million (full-year guidance of $215 million to $235 million) as a result of the NZ divestiture. Probably the number one aspect I’ll pay attention to is going to be the way they plan to spend this money, and I think announcing a significant buyback program (especially since they have the money for it) could help boost market sentiment. Dividends & Buybacks Seeking Alpha Following a recent dividend announcement, the base yield currently stands at about 4.56%. As a mention, this is not a cut compared to last year, but as I showed earlier, they had another divestiture back in 2024, for which they paid a special dividend. The was a 75-25% split between stock and cash, as the company wanted to retain financial flexibility and do it in a tax-efficient manner. This is why the per share amount is lower, but their total amount paid is actually higher. About that, as mentioned above, they announced both potential buybacks following the New Zealand divestiture, as well as a $1 to $1.4 dividend per share, expected to be paid later this year once the transaction is complete. That by itself represents a yield of ~4.2% to 5.88%, meaning we could be looking at a total dividend yield of ~10% from the current price if we include the special one. Paired with share buybacks, the NZ transaction could be quite interesting overall, but we’ll likely get full details about the ways they want to spend that capital soon. Risks & Opportunities Rayonier IR A big opportunity for them comes from the fact that Rayonier is repositioning itself for the future as a land resources company, with the core timber business fueling and representing the pathway for their growth businesses, such as real estate development and land-based solutions. Rayonier IR Such solutions include repurposing their lower-value timberland into wind or solar projects, while carbon capture and even carbon credits could represent long-term profitability enhancements. We’re talking about such as leasing underground pore space for CO2 sequestration, leasing land for large-scale solar farms, and even uses such as biomass or wind power generation. Rayonier IR In the image above, they show the economics of option-to-lease conversions in solar. The initial phase implies only an option with no impact to timber operations, during which the feasibility studies and permitting generally are complete (3-5 years, which costs about 1x the timber EBITDA over this period, so a nice extra income even if the option is not used), after which the developer can choose to enter into a long-term lease lasting even 25 years, with options to extend and annual rent payments and CPI escalators just as with normal real estate, also paying the timber recovery value to the landowner and potentially generating significant amounts of EBITDA, much more than what timber itself would’ve done. What’s even better here is that from 2021 to 2024, Rayonier’s acres under option increased about 5.5 times, getting to 39,000 acres at the end of last year. Rayonier IR Another opportunity that I’m very happy to see them mention are carbon credits, which they see as one of the longer-term opportunities. By 2050, they expect the issuance of carbon credits by year to grow 16 times from 2020, with this number expected to be 6x by 2030 and more than double by 2025. Carbon credits are basically a way for companies to offset their pollution by paying companies such as Rayonier for the carbon credits they gain by removing carbon from the atmosphere, basically helping the companies that pollute to technically reach net zero. In many areas, this is already mandated by law (it varies from state to state, with California covering about 85% of their total greenhouse gas emissions through the program), with future regulation implying lower and lower emission limits, basically forcing companies to pay more and more for their CO2, which is a reason why I’m really happy to see RYN mention this. Rayonier IR The company sees immense value creation compared to their base timberland business. Real estate, solar and carbon capture, and storage could offer very significant growth in their revenues and margins, especially since timberland is a key strategic asset that actually comes with a significant moat. After all, we’re talking about a biological asset that takes years to grow until harvesting is optimal, remaining a key part of our economy to this date. This biological asset also comes with an interesting perspective. Technically, their timber is inventory, but they don’t have to sell (and cut) it if the prices aren’t attractive enough. By waiting, their inventory literally grows by itself, as the trees also grow in size (3-5% average growth per year in general), giving Rayonier an optionality to delay harvest - so, basically, an “on the stump” storage that makes timber more stable in price, as the supply is easily adjustable to the demand. Rayonier IR Also, I briefly mentioned their Wildlight community in Florida in the beginning, and that gets me to another opportunity. The company can develop/host prime-quality real estate on their land, offering several advantages for people willing to pay for a more quiet, “town in nature” community, surrounded by timberland, and with a health/wellness focus. This can come at a premium compared to general urban real estate. For Rayonier, developing this type of community is another way to diversify their revenue while converting lower-value timberland into prime-quality real estate, so likely a double-win for them. Their current real estate projects could only be the beginning, and Rayonier is highlighting the high-value real estate development pipeline they already own, with about 120,000 acres with development potential, half of which are already entitled or in planning, while the other half remains part of their longer-term pipeline. Rayonier IR As a note, Wildlight started in 2016, so you can see how long such a project can really take, especially since we’re talking about a high-quality community with >50% of it being dedicated to open space and conservation and a current buildout of ~24,000 residential units - so not a tiny project at all. With the entitlements received in 2023 for their Phase 2, RYN says that they support 20+ years of development at current absorption rates, as Phase 2 comes with about 5 times the footprint of the initial phase. This comes on top of Heartwood, a project started in 2021, which, despite being much younger and smaller, has already generated nearly identical revenue to date - perhaps showing both better actions from the management and reputation gained thanks to Wildlight. Rayonier IR As they say, timberland and timber itself come with strong trends supporting them in the long term. On top of the global energy transition leading to decarbonization trends and higher use of renewable wood-based products, the US market itself (which they are now fully focused on following the sale of the New Zealand assets) presents an undersupplied housing market when it comes to timber, as well as favorable demographic and migration trends, as Rayonier points out. Still, in the near term, their number one opportunity should be rate cuts. Lower interest rates will help them directly by reducing the interest on their debt (especially variable/refinanced one in the future), but also allow them to develop in a more active environment since rate cuts will boost the economy by increasing disposable budgets and lowering the cost/burden of debt. And one final point regarding tariffs: being a US-based producer, tariffs/trade wars/etc. - especially on Canada - could actually be great for Rayonier. Not only would they result in higher timber prices since Canada is a top producer and exporter, but it could also help Rayonier score a better premium since they’re a local producer, with the potential to see a friendlier policy towards “made in America” products. I don’t think a trade war with Canada (or anyone else, actually) is the end goal, but while they last, Rayonier could enjoy the environment. Peer Comparison Seeking Alpha Compared to competitors such as PotlatchDeltic (), Weyerhaeuser () - the largest timber REIT - and the smaller Acadian Timber (), we see that RYN is traded relatively equally to their peers in most valuation metrics. The only one with better ratios and a ~50% higher dividend is Acadian, which I think is a smaller player to also look into. I believe the main differentiator here is Rayonier’s plans for the future, and their divestitures could be very important in that, as they’re going to soon sit on a very significant amount of money. Rayonier IR Another important difference here is that, as they mention, peers such as WY and PCH only generate ~40% of their EBITDA from land-based operations, while the rest comes from manufacturing/other. In this regard, Rayonier would be the only “pure play” timber REIT - at least in their size - which is important if we’re looking specifically for this kind of exposure. Valuation Author's For Rayonier's DCF valuation, I'm using a starting adjusted free cash flow of $200 million in 2025 to account for current timber prices and lower numbers following the divestitures. This FCF is projected to grow at a 4% CAGR for the first 5 years to account for their higher-value initiatives while not being too optimistic, followed by a 3% CAGR for the subsequent 5 years. Assuming a 2% terminal growth rate and a WACC of 6.5% - in line with - and considering $136 million in net debt (after the New Zealand sale) along with 156 million shares outstanding, the resulting DCF model yields an enterprise value of ~$4.94 billion. After subtracting net debt, this leads to an equity value of ~$4.81 billion, or an intrinsic value per share of about $30.82. That suggests an upside of ~31% from the current price, but I have to mention that they could see significantly better growth, depending on commodity prices and the management’s decisions of how to deploy the capital. If you think about it, having $1 billion in cash after the NZ sale will mean that over 25% of this company’s market cap is in cash, while no significant debt maturity is coming, so we’re looking at massive investment potential for a REIT. Conclusions Overall, I believe Rayonier is a Buy now given the company’s potential, timber’s relatively unique economics, financials, and long-term exposure to potentially higher-value trends. With their real estate pipeline, green trends such as carbon capture, storage, and contracts, as well as solar/wind leasing options, we might see even better results than the ones expected in the DCF, especially since the company will depend less and less on timber volatility, which in itself is a relatively stable commodity with optionality whether to harvest or now.

Rayonier: This Undervalued Timber REIT Is Planting Seeds For Future Gains (NYSE:RYN)

Rayonier, a second-largest timber REIT in the U.S. and New Zealand, is undergoing strategic divestitures and portfolio rebalancing to unlock value. The company sold its New Zealand joint venture for $710 million, generating $1 billion in cash, and is focusing on U.S. growth opportunities. It is diversifying into real estate development, solar projects, and carbon credits, while maintaining a strong balance sheet and dividend yield. The company's timberland assets and long-term growth strategies position it for potential future gains.