53 slides from Rayonier Inc. Reit's investor presentation, Jun 11, 2014
Slide 1: Investor Presentation June 2014
Investor Presentation June 2014
Slide 2: Safe Harbor Statement
Safe Harbor Statement 2 Certain statements in this document regarding anticipated financial outcomes including earnings guidance, if any, business and market conditions, outlook and other similar statements relating to Rayonier’s future events, developments or financial or operational performance or
Slide 3: Table of Contents
Table of Contents The Separation 5 Business Overview 9 Forest Resources 15 Real Estate 27 Value Proposition 37 Financial Review 40 Appendix 44 3
Slide 4: The Separation
The Separation
Slide 5: Strategic Rationale for the Separation
Strategic Rationale for the Separation 5 Separation will create two independent, industry-leading public companies Different Markets, Drivers and Value Creation Strategies More Efficient Allocation of Capital Distinct Investment Identities Enhanced Strategic and Management Focus Positions each bes
Slide 6: Completion of technically demanding CSE • Additional K tons of cellulose specialties capacity
6 Completion of technically demanding CSE • Additional 190K tons of cellulose specialties capacity • High quality of cellulose specialties produced on converted line; achieved ahead of schedule • Excellent progress in qualifying new production with customers Acquired additional interest in New Z
Slide 7: Two Companies with Strong Financial Profiles
Two Companies with Strong Financial Profiles 7 Sales Revenue by segment Segment EBITDA* (% Margin) CapEx Net debt $1.7B $0.7B $1.0B Forest Resources 22% Perf. Fibers 61% Real Estate 9% Trading & Other 8% $641M (38%) $159M ~$1.5B Forest Resources 57% Real Estate 22% Trading & Other 21% Cellulose spec
Slide 8: Business Overview
• An international real estate investment trust (REIT) committed to creating value through excellence in our core businesses: – Forest resources – Real estate • A responsible steward of the land, managing every acre towards its highest and best use to achieve optimal value Business Overview
Slide 9: Rayonier: Best-in-class land resources REIT
Rayonier: Best-in-class land resources REIT 9 • Third-largest timber REIT with 2.6 million acres of high-quality timberland • Advantageous REIT structure • Geographic diversity - U.S. Southeast and Gulf states, Pacific Northwest, New Zealand • $700 million invested in high-quality timberlands since
Slide 10: Highly productive, geographically diversified land resources
Highly productive, geographically diversified land resources 10 Florida/Georgia Coastal Corridor Washington - 377,000 acres, access to strong export markets ~ 800,000 acres, sawlog and pulpwood ~ 1.1 million acres, sawlog and pulpwood; Florida + Georgia Coastal Corridor HBU 313,000 acres, manage and
Slide 11: Premium portfolio generates strong cash flow
Premium portfolio generates strong cash flow 11 Timberlands diversified across significant number of micro markets End-market optionality in all geographic regions EBITDA growth driven by several factors • Increased prices and improved sawlog/pulpwood mix from housing improvement • Increased U
Slide 12: Rayonier leadership, post-separation
Rayonier leadership, post-separation 12 Richard D. Kincaid*, Chairman John A. Blumberg Governor John Ellis (Jeb) Bush* Dod A. Fraser Scott R. Jones Senator Blanche L. Lincoln V. Larkin Martin* David L. Nunes, CEO David W. Oskin* Dave Nunes – Chief Executive Officer Lynn Wilson
Slide 13: Strategy leverages best-in-class assets
Strategy leverages best-in-class assets Forest Resources: • Optimize highly productive timberlands with proven disciplined approach, leveraging micro- market supply/demand dynamics • Grow core timberland ownership over time • Increase timber yields through advanced silvicultural practices and indu
Slide 14: Forest Resources
Forest Resources
Slide 15: EBITDA growth drivers for Forest Resources
EBITDA growth drivers for Forest Resources 15 Improving housing market driving increasing U.S. lumber production and sawlog pricing North American supply dynamics also drive higher sawlog demand in U.S. South Strong Asian export demand Mountain pine beetle impact reduces British Columbia log
Slide 16: End-market optionality provides reliable cash flow
Sawlog Markets Pulp Markets Lumber Paper and packaging Plywood Absorbant materials Biomass End-market optionality provides reliable cash flow Improving housing outlook drives return to historical sawlog/pulpwood mix of 50/50 Pacific Northwest and New Zealand timberlands located near ports to supply
Slide 17: Demand expected to drive sawlog prices higher
Demand expected to drive sawlog prices higher 17 $/ton Housing starts millions Historic U.S. housing starts Bank of America/Merrill Lynch Pine sawlog stumpage price (TMS) Rayonier pine sawlog stumpage price forecast 0 10 20 30 40 50 60 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Slide 18: Urban growth fueling demand for logs
18 0 50 100 150 200 250 300 350 1985 1990 1995 2000 2005 2010 2015 2020 2025 Urban households Housing stocks, units MM Shortage of 35 – 45 M China’s urban housing demand outstrips supply Housing consumes 80% of softwood logs and lumber Urban housing shortage estimated to be 35–45M units in 2012
Slide 19: China softwood log deficit expected to grow
19 21.1 10.3 13.4 8.5 13.23.4 6.2 2.4 3.1 2.0 2.7 0 5 10 15 20 25 30 35 40 45 2007 2012 2017 Other Australia Canada USA NZ Russia 0 10 20 30 40 50 60 70 80 2012 2017 Demand Domestic Supply Imports (Gap) m i l l i o n s o f M 3 Source: RISI m i l l i o n s o f M 3 China softwood log deficit expected
Slide 20: Structural decline in Canadian supply
Structural decline in Canadian supply 20 British Columbia (BC) timber and lumber supply projected to decline significantly due to mountain pine beetle epidemic • Over 43 million acres dead or dying timberland • Estimated 53% of merchantable pine volume in BC has been killed • Expect ~58% of mercha
Slide 21: U.S. sawmill capacity increasing
U.S. sawmill capacity increasing due to higher lumber demand and reduced Canadian supply 21 2005 U.S. lumber production 43.2 New Capacity Investments US South -> 2.2 BBF US West -> 0.9 BBF 25.9 10.3 3.9 0.9 2.2 Dismantled5.1 l u m b e r p r o d u c t i o n B B F Source: FEA, Rayonier research Produc
Slide 22: Advanced silvicultural practices increase harvest yield
22 Through a rotation, harvest volume should increase 20%, 33 tons/acre, with revenue increase of $675/acre at 2014 prices Site Management 0% 10% 20% 30% 40% 50% 60% 70% 2008-2009 2010-2011 2012-2013 2014-2015 Genetics Industry leader in control mass pollination plantings Future Southeast planti
Slide 23: Favorable supply/demand dynamics in timberland micro-markets
Local market supply / demand dynamics determine price Logs typically travel less than 100 miles Supply / demand conditions vary widely across the region Sawlog price increases expected to exceed 30% in key markets over next 7 to 10 years *Source: USDA FIA; Rayonier research **Most current FI
Slide 24: Disciplined approach to portfolio value optimization
3 * Represents timberland owned, leased or managed by Rayonier and real estate properties ** Includes acquisition of 237K acres by the New Zealand JV, which Rayonier manages and (as of April 2013) holds a 65% ownership interest *** Includes termination of management agreement in Australia in 2007 an
Slide 25: New Zealand joint venture
Hawke’s Bay Bay of Plenty 313K acres of plantations • 5 Regions, 67 Forests • 131K acres fee land • Remainder crown license In 2013 Rayonier acquired additional interest in Matariki JV for $140M, increasing ownership from 26% to 65% Revenue of ~US$300 million (incl. log trading) expected in 20
Slide 26: Real Estate
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Slide 27: Real Estate strategy
27 Optimize our portfolio with a disciplined land classification system that manages every acre toward its ultimate highest and best use (HBU) Monetize non-strategic timberlands at best possible value Collaborate with conservation organizations to identify lands with ecological, historical, or
Slide 28: Our approach: market recreation/residential properties
Our approach: market recreation/residential properties 28 Land Characteristics Evaluation Market Assessment Conceptual Program Conceptual Site Planning Site Specific Planning Land Use Entitlements Regulatory Permitting Enabling Infrastructure Land Enhancement & Amenities Marketing & Sales Site Devel
Slide 29: Rural land products create value
Rural land products create value 29 Land classified as rural has intrinsic attributes that position the property to generate a premium over its value for timber production and non-timber income Attributes Rural Residential Rural Recreation Conservation Frontage on a maintained road or access conveni
Slide 30: Rural land products
Rural land products 30 Location Escambia, AL Irwin, GA Marion, FL Polk, TX Classification Non-strategic Rural rec Core timberland Conservation Rural rec Rural res Parcel size 3,220 4,486 2,493 41 Intended use Investment Ag conversion Hunting Residence Timber 42% non- plantable Merch pine reserved Pa
Slide 31: Significant HBU acres in Florida + Georgia Coastal Corridor
Significant HBU acres in Florida + Georgia Coastal Corridor 31 2 0 0 M I L E S +/- 200,000 acres; largest landowner in the region Approximately 40 miles of water frontage Approximately 250 miles of road and highway frontage Land holdings at five interchanges on I-95 and two planned future in
Slide 32: The Southeast is poised to grow
The Southeast is poised to grow 32 Populous region (60 million) and is developing as the country’s second industrial hub, after the Great Lakes Since 2000, population growth has been more than 2X the Northeast, a trend projected to continue in the next decade Low cost of living makes the South
Slide 33: Our approach: position development HBU for sales/ventures
Our approach: position development HBU for sales/ventures 33 Land Classification Land Management Regional Market Assessment Conceptual Program & Strategy Project Market Assessment Program Development Land Use Entitlements Conceptual Master Planning Marketing Sales Ventures Project Specific Planning
Slide 34: Multiple approaches to HBU development
Multiple approaches to HBU development 34 Undeveloped/ Unentitled Undeveloped/ Entitled Horizontal Development/ Entitled Vertical Development Lower HigherTime/Risk Higher Lower Value Sales Ventures
Slide 35: Development projects
35 Project Belfast Commerce Centre St. Johns North East Nassau Market Street Location Bryan Co, GA St. Johns Co, FL Nassau Co, FL Market Characteristics Port of Savannah's growth driving industrial sector Strong market driving 50% of new home sales of Jacksonville MSA Emerging market Market Segment
Slide 36: Value Proposition
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Slide 37: Competitive dividend funded by core, recurring cash flow
Competitive dividend funded by core, recurring cash flow 37 (1) EBITDA reflects normalized corporate expenses of ~$20 million, which excludes spin-related expenses. EBITDA is a non-cash measure defined and reconciled in the Appendix. Attractive, sustainable and growing dividend is a strategic prio
Slide 38: Shareholder value creation
Shareholder value creation from attractive dividend, growing cash flow and land appreciation 38 Premium portfolio generates significant and reliable cash flow • Outlook for increased EBITDA from volume increases and housing market recovery Attractive asset class with track record of steady appre
Slide 39: Financial Review
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Slide 40: Historical RYN superior performance
Historical RYN superior performance (includes Performance Fibers business) 40 214 267 364 401 410 363 0 100 200 300 400 500 2009 2010 2011 2012 2013 LTM $ millions 367 406 547 601 565 497 0 100 200 300 400 500 600 700 2009 2010 2011 2012 2013 LTM $ millions 1.05 1.48 2.11 2.11 2.42 1.99 0.00 0.50 1.
Slide 41: 2014 Financial Guidance
2014 Financial Guidance ($ millions) 41 2013 Sales 669 5 - 8% Operating Income (1) Forest Resources 81 30 - 35% Real Estate 56 Comparable EBITDA (1)(2) Forest Resources 180 15 - 20% Real Estate 73 Comparable CapEx 63 DD&A 116 65 - 70 115 - 120 2014 Guidance (1) Excludes corporate expenses. Aft
Slide 42: Longer-term Outlook
Longer-term Outlook 42 Forest Resources • Volume − Completed timberland acquisitions add harvest volume as age profile matures − Advanced silviculture practices − Sustained strong demand in China for logs from Pacific Northwest and New Zealand • Mix – Improved Southeast sawlog vs. pulpwood harvest
Slide 43: Appendix
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Slide 44: Gulf States and Atlantic Regions
Gulf States and Atlantic Regions 1.9 million acres in eight states Diverse management regimes and species mix increase harvest flexibility • Slash pine 43% • Loblolly pine 53% • Hardwood 4% Adjusted harvest mix to meet strong pulpwood demand Typical Current • Pulp/OSB 50% 67% • Sawmills 50% 33
Slide 45: Northern Region
Northern Region 377K acres in coastal Washington • Hemlock 51% • Douglas-fir 36% • Valuable minor species 13% Proximity to five ports Harvest mix • Domestic pulpwood 15% • Domestic sawlogs 55% • Export (China and Korea) 30% Value-added income • $3 million for the 12 months ended March 31, 20
Slide 46: Mountain Pine Beetle epidemic will reduce BC production
46 Current MPB epidemic expected to kill 58% of BC Lodgepole Pine Annual allowable cut projected to decline 20-25% to 50–60 mm³ Harvest levels will decline after damaged timber salvaged Significant investment by Canadian lumber producers in the Southeast in 2013 Mountain Pine Beetle (MPB) ep
Slide 47: Biomass market
Biomass market 47 Wood pellet demand increase driven by European energy policy Key recent start-ups • German Pellets Texas, LLC (TX) • Westervelt Renewable Energy (AL) • American Renewables LLC (FL) Key recent announcements - Green Circle (MS) Rayonier holdings of 1.9 million acres in the US
Slide 48: REIT Technical / Other Considerations
REIT Technical / Other Considerations 48 Key REIT Definitions / Parameters REIT Taxable Income – REITs are required to distribute 90% of their taxable income (excluding capital gains and certain other income) in order to maintain REIT status; any amount not distributed by the REIT is taxed at corp
Slide 49: Definitions of Non-GAAP Measures
Definitions of Non-GAAP Measures 49 EBITDA is defined as earnings before interest, taxes, depreciation, depletion and amortization. EBITDA is a non-GAAP measure used by our Chief Operating Decision Maker, existing shareholders and potential shareholders to measure how the Company is performing rel
Slide 50: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures 50 ($ in millions) Forest Resources Real Estate Performance Fibers Other Corporate & Eliminations Total 2009 Operating income $7 $56 $184 ($3) $175 $419 Depreciation, depletion and amortization 70 24 58 – 6 158 Loss from discontinued operations (1) – – – – (9) (9)
Slide 51: Reconciliation of Non-GAAP Measures (cont'd.)
Reconciliation of Non-GAAP Measures (cont’d.) 51 ($ in millions) Forest Resources Real Estate Performance Fibers Other Corporate & Eliminations Total 2011 Operating income $47 $47 $298 $1 ($36) $357 Depreciation, depletion and amortization 63 12 56 – 5 136 Loss from discontinued operations (1) – – –
Slide 52: Reconciliation of Non-GAAP Measures (cont'd.)
Reconciliation of Non-GAAP Measures (cont’d.) 52 ($ in millions) Forest Resources Real Estate Performance Fibers Other Corporate & Eliminations Total 2013 Operating income $81 $56 $311 $2 ($27) $423 Depreciation, depletion and amortization 99 17 75 – 1 192 Loss from discontinued operations (1) – – –
Slide 53: Reconciliation of Non-GAAP Measures (cont'd.)
Reconciliation of Non-GAAP Measures (cont’d.) 53 LTM 2013 2012 2011 2010 2009 Operating Income (1) 373$ 423$ 401$ 357$ 279$ 419$ Gain related to consolidation of New Zealand JV (16) (16) - - - - Gain on sale of portion of New Zealand JV interest - - - - (12) - Separation costs 6 3 - - - - Increase i