Rayonier Inc. REIT

Welcome and thank you for joining Rainier's third quarter 2022 teleconference call. At this time, all participants are in a listen-only mode. During the question and answer session, please press star 1 on your telephone keypad. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I will turn the meeting over to Mr. Colin Ming, Vice President, Capital Markets and Strategic Planning.

Thank you and good morning. Good morning. Welcome to Ray and Nir's investor teleconference covering third quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at rayandnir.com. I would like to remind you that in these presentations, we include forward-looking statements made pursuant to the safe harbor provisions of federal securities laws. Our earnings release and forms 10-K and 10-Q filed with the SEC list some of the factors that may cause actual results to differ materially from the forward-looking statements we may make. They are also referenced on page two of our financial supplement. Throughout these presentations, we will also discuss non-GAAP financial measures, which are defined and reconciled to the nearest GAAP measures in our earnings release and supplemental materials. With that, let's start our teleconference with opening comments from Dave Nunes, President and CEO. Dave?

Thanks, Colin. Good morning, everyone. First, I'll make some high-level comments before turning it over to Mark McHugh, Senior Vice President and Chief Financial Officer, to review our consolidated financial results. Then we'll ask Doug Long, Senior Vice President, Forest Resources, to comment on our US and New Zealand timber results. And following the review of our timber segments, Mark will discuss our real estate results as well as our outlook for the remainder of 2022. Before discussing our results for the quarter, I'd like to first highlight the acquisitions in the US South that we announced yesterday afternoon concurrent with our earnings release. Specifically, we announced that we've entered into two separate agreements to acquire approximately 172,400 acres of high-quality commercial timberlands located in Texas, Georgia, Alabama, and Louisiana for an aggregate purchase price of $474 million from Manulife Investment Management, a leading timber investment manager. Approximately 80 percent of the acreage consists of fee ownership, while the remaining 20 percent consists of a long-term lease. We are very excited about these additions to our portfolio as they comprise a well-stocked and highly productive timberlands located in some of the strongest timber markets in the U.S. South. It's extremely rare to come across an acquisition opportunity with this unique combination of quality, scale, and fit with our existing portfolio. For the acquired fee lands, 72% are plantable with an average express site index of 73 feet. This translates to a sustainable yield of approximately 670,000 tons per year or 4.8 tons per acre per year, which is well above industry average productivity levels. The fee properties also have a mature age class profile and an extraordinarily high level of merchantable timber inventory. The average plantation age is 18 years and the average stocking is 54 tons per acre. of which 66% is grade product. Based on these factors, along with the expected contribution from the leased properties, we anticipate an annual average harvest level of approximately 860,000 tons from the acquisitions over the next decade and an increase in our U.S. South sustainable yield of 11% to 7 million tons per year. In addition to strong productivity characteristics, and inventory stocking, the properties are also located in some of the best markets in the U.S. South. Specifically, based on Timber Mart South composite stumpage pricing, the acre-weighted average market ranking of the acquisitions is 4.9 out of 22 markets, representing an average composite price that is roughly 30 percent above the median composite price in the U.S. South in the third quarter of 2022. Putting all of this together, we expect that the acquisitions will contribute average annual adjusted EBITDA of roughly $25 million to our southern timber segment over the next 10 years, with additional upside potential from higher and better use real estate sales and natural climate solutions. This represents a timber-only EBITDA multiple of 19x, which compares favorably with public market trading multiples. the implied multiple on the Nacreve Timberland Index, and multiples which we've seen other U.S. South assets transact recently. We expect to close the acquisitions before year-end, and we anticipate financing the acquisitions with cash on hand, as well as a $250 million term loan through the farm credit system. As discussed in the past, our strategy to acquire high-quality properties located in strong markets as we believe this improves optionality and ultimately contributes to better long-term financial returns. Following these acquisitions, our U.S. South timberland portfolio will total 2 million acres, of which 72 percent will be in the top quartile markets, as measured by Timber Mart South composite stumpage pricing. We believe that the U.S. South overall is well positioned to capture increased market share of North American lumber production as well as global fiber and wood chip markets. We further believe that the strongest regional markets in the U.S. South are well positioned to capture favorable relative pricing gains for both saw log and pulpwood products going forward, given their competitive and diverse customer mix, balanced timber inventories relative to demand, and strong pricing tension. In sum, We believe that these acquisitions represent an excellent fit with our capital allocation strategy and a compelling use of our balance sheet capacity. We look forward to integrating the properties into our portfolio and managing them for long-term value creation. Now I'd like to switch gears and discuss our third quarter results. We achieved earnings per share of 15 cents and adjusted EBITDA of $65 million in the third quarter. Adjusted EBITDA was 44% below the prior year quarter, as two significant development transactions drove exceptionally strong real estate results in the prior year period. Notably, total adjusted EBITDA in our timber segments increased 14% versus the prior year quarter, as favorable results in our southern timber segment more than offset a lower contribution from our New Zealand timber segment. Drilling down further on our operating segments, our southern timber segment generated a just-a-dee-ba-dah of $37 million in the third quarter, which was 50 percent above the prior year period. Weighted average net stumpage realizations increased by 18 percent, driven by strong demand for both pulpwood and saw timber, while favorable logging conditions further contributed to a 27 percent increase in harvest volumes. More broadly, our southern timber segment continued to benefit from our concentration and scale in some of the most tensioned log markets across the U.S. South, as well as strong contractor relationships, which have allowed us to successfully navigate a challenging supply chain and cost environment. In our Pacific Northwest timber segment, we achieved adjusted EBITDA of $13 million, up 1% from the prior year quarter, the year-over-year increase was primarily attributable to 13% higher weighted average log prices, partially offset by higher costs and an 11% reduction in harvest volumes. Our operations in the region continued to benefit from favorable supply-demand dynamics as domestic lumber markets, export markets, and pulpwood markets competed for a limited supply of logs. In sum, our U.S. timber segments continue to generate strong financial performance and pricing gains in the third quarter, driven by favorable end-market demand as well as localized supply tension. And both segments remain on pace to achieve record full-year adjusted EBITDA. Conversely, our New Zealand timber segment continues to contend with a challenging operating environment, particularly in the export market. Third quarter adjusted EBITDA of $16 million declined 22% from the prior year period. While port inventories in China have gradually declined to a more normalized level, demand continues to be constrained by lockdown measures in response to COVID-19 outbreaks, as well as a slowdown in the construction market. In our real estate segment, we generated adjusted EBITDA of $8 million, down from $64 million in the prior year period, as the prior year period benefited from the closing of two significant development transactions. While we expect that the timing of land sales will remain lumpy quarter to quarter, we remain encouraged by the continued strong pricing for rural land in our markets, as well as the positive momentum across both our wildlife and heartwood development projects. As Mark will discuss in greater detail later in the call, we remain on track to achieve our full-year adjusted EBITDA guidance of $310 to $330 million, with our southern timber and Pacific Northwest timber segments both expected to post record years in 2022. With that, let me turn it over to Mark for more details on our third quarter financial results.