Rayonier Inc. REIT

Welcome, and thank you for joining Ray O'Neill's third quarter 2023 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 Mings, Vice President, Capital Markets and Strategic Planning.

Thank you and good morning. Welcome to Ray Anear's Investor Teleconference, covering third quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at rayanear.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, our CEO. Dave?

Thanks, Colin, and good morning, everyone. Before reviewing our results for the third quarter, I'd like to first discuss two announcements made concurrent with our earnings release yesterday afternoon. the executive succession plan, as well as a review of our initiatives to enhance shareholder value. Then I'll provide some high-level comments on the quarter before turning it over to Mark McHugh, President and Chief Financial Officer, to review our consolidated financial results. We'll then ask Doug Long, Executive Vice President and Chief Resource Officer, to comment on our U.S. 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 balance of the year. As announced yesterday afternoon, I'll be retiring as Chief Executive Officer of Rainier and a member of our board effective March 31st, 2024. It's been an honor and privilege to lead Rainier over the last nine years. We have remarkable people, fabulous assets, and have cultivated a culture like no other. Since emerging from the spinoff of our specialty pulp manufacturing business in 2014, we have worked to continuously improve the quality of our land and timber portfolio, invested in our people, and maintained a relentless focus on driving long-term value for our shareholders to become the leading pure play timber REIT. I'm very excited about the growth opportunities that lie ahead for the company and its next generation of leadership. As part of a multi-year succession planning process, Mark will be assuming CEO responsibilities upon my retirement, while continuing his role as President. Mark has served as our President since January of this year, while also maintaining his duties as our Chief Financial Officer, a position he's held since December 2014. Since bringing on Mark as our CFO nearly nine years ago, he has been an invaluable partner to me in running Rainier. His relentless focus on capital allocation combined with his deep understanding of the history of the timber asset class and his financial acumen have helped us to become the company we are today. He has also grown as a respected people leader during this time and has demonstrated that he's ready for this challenge. We're excited about the future of the company under his leadership. I'd also like to congratulate April Tice. who will assume the position of Senior Vice President and Chief Financial Officer effective April 1, 2024. April has served as our Vice President and Chief Accounting Officer since April 2021 and has held multiple positions of increasing responsibility within the Finance and Accounting Department since she joined Rainier in 2010. Mark and I are confident that her appointment will translate into a seamless transition for our finance organization. These announcements reflect the culmination of a well-constructed succession plan that has been a priority of the Board for the last several years, and one that I believe leaves Rainier extremely well positioned for the future. I'd now like to turn to another announcement we released yesterday, which focuses on initiatives to enhance shareholder value, as well as the steps that we have already taken to execute on this plan. We began evaluating our asset base earlier this year, looking for opportunities to reduce leverage through the sale of less strategic assets, while also allowing us to take advantage of the significant disconnect between private market Timberland values and the valuation implied by the company's share price. This valuation disconnect has significantly widened since that time, which ultimately motivated us to commit to a more transformational initiative to drive value accretion for our shareholders. Specifically, we announced a plan to target $1 billion of select asset sales over the next 18 months in order to capitalize on the historically wide disconnect between public and private market Timberland values, reinforce the strength of our balance sheet, and return meaningful capital to shareholders. Pursuant to the plan, we are adjusting our leverage target to less than or equal to three times net debt to adjusted EBITDA, which will allow us to reduce our debt costs and enhance our future capital allocation flexibility. We are confident that this plan will generate significant value accretion for our shareholders while also better positioning the company for the potential of a higher for longer interest rate environment. As an important first step in effectuating this plan, we are pleased to announce that we have entered into an agreement to sell 55,000 acres of timberland in southwest Oregon for $242 million, or $4,400 per acre, to Manulife Investment Management on behalf of clients. Expected to close in the fourth quarter of this year, the Oregon disposition will reduce our leverage and be immediately accretive to CAD per share. We originally acquired this property in 2016 with the intention to rebalance our age class profile in the Pacific Northwest as well as to gain scale in Southwest Oregon over time. However, the opportunity to increase our presence in the region has been limited by the highly competitive market for quality assets coupled with a relatively limited deal flow in the area. As a result, we believe recycling capital out of this asset, albeit a high quality property, and directing proceeds towards debt reduction is value enhancing for our shareholders. We expect that the disposition of this property will have minimal impacts on our operating cash flow over the next decade due to its relatively young age class profile and will result in a more concentrated focus on our other Pacific Northwest timberland properties in Washington. We plan to use $150 million from the Oregon disposition to pay down our only floating rate debt. This will translate into interest savings of approximately $9.3 million annually based on the current SOFR rate, making it immediately CAD accretive. The remaining proceeds from the disposition will be retained for future debt repayment or a return of capital to shareholders. Pro forma for the disposition and application of proceeds, leverage will decline to 4.2 times net debt to pro forma adjusted EBITDA. Our weighted average cost of debt will decline to approximately 2.8% and 100% of our debt will be fixed until August 2024. In addition, we expect that the disposition and application of proceeds will generate CAD per share accretion of approximately 6%. As there remains a strong bid for Timberland assets in the private market, we are in the process of identifying additional disposition targets and how best to achieve our new leverage targets while also returning capital to shareholders. We have posted a supplemental presentation to our website which outlines our initiatives to enhance shareholder value, provides additional details regarding the Oregon disposition, and illustrates the disconnect we currently see between Timberland values implied in the public markets and private market transactions. This plan underscores our keen focus on nimble capital allocation, active portfolio management, and prudent balance sheet management. Now I will switch gears and discuss our third quarter results. In the third quarter, we generated adjusted EBITDA of $79 million and pro forma net income of $19 million, or 13 cents per share. The total adjusted EBITDA generated by our timber segments collectively increased 7 percent relative to the prior year quarter, driven by higher harvest volumes in our southern timber segment and higher carbon credit sales in our New Zealand timber segment. In our real estate segment, we achieved adjusted EBITDA of $19 million, up from $8 million in the prior year quarter. Drilling down further on our operating segment results, our southern timber segment generated third quarter adjusted EBITDA of $38 million, up $1 million from the prior year period. The improvement versus the prior year period reflected a 21% increase in harvest volumes, primarily due to the acquisitions completed in late 2022, which more than offset a 17% decline in net stumpage realizations due to weaker demand and drier weather conditions. In our Pacific Northwest timber segment, third quarter adjusted EBITDA of $8 million was down $5 million from the prior year quarter, driven by a 6% reduction in harvest volumes and a 10% decline in domestic saw timber prices. Overall market conditions in the region were softer than the prior year period due to weaker domestic and export market demand. Turning to our New Zealand timber segment, third quarter adjusted EBITDA of $24 million increased $8 million versus the prior year quarter. The improved results were primarily driven by higher carbon credit revenues as we capitalized on a significant uptick in New Zealand carbon credit pricing during the quarter, partially offset by lower net stumpage realizations, reflecting weaker export and domestic markets compared to the prior year period. In our real estate segment, we generated third quarter adjusted EBITDA of $19 million, up $10 million from the prior year period, reflecting both a higher number of acres sold and stronger pricing. As Mark will detail later in the call, we are on track to achieve a higher end of our full year adjusted EBITDA guidance range, achieve the higher end of our full year adjusted EBITDA guidance range of $275 million to $300 million. With that, let me turn the call over to Mark for more details on our third quarter financial results.