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Text: They are also referenced on page two of our financial supplement.
With that, let's start our teleconference with opening comments from Dave Nunes, President and CEO.
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 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 updated guidance.
We're very pleased to report our strongest quarterly adjusted EBITDA result since our separation into a pure-play timberland REIT in 2014.
We Specifically, we generated adjusted EBITDA of $115 million and pro forma earnings per share of $0.35 per share during the third quarter.
Adjusted EBITDA exceeded the prior year quarter by 71%, fueled by solid contributions across our timber segments as well as an outsized contribution from our Real Estate segment due to the closing of two significant development transactions.
We continue to capitalize on healthy domestic timber demand in the U.S., favorable log export pricing in New Zealand, and robust real estate market trends in the third quarter.
However, wet weather conditions and trucking shortages in the U.S. South constrained production during the quarter, while production in New Zealand was negatively impacted by a government-mandated shutdown in response to an outbreak of COVID-19.
Given these headwinds, we were very pleased with the results delivered by our team.
As Mark will discuss in greater detail.
Based on our performance over the first nine months of the year and our outlook for the balance of the year, we're modestly raising our full year 2021 adjusted EBITDA guidance to a range of $320 million to $330 million.
Drilling down to our different operating segments.
Our Southern Timber segment generated adjusted EBITDA of $24 million for the quarter, which was 7% below the prior year quarter.
We were encouraged to see net stumpage prices increase by 16%, but this lift in pricing was more than offset by 20% reduction in harvest volumes due to wet weather conditions and trucking shortages.
In our Pacific Northwest Timber segment, we achieved adjusted EBITDA of $13 million, an improvement of 38% from the prior year quarter.
This increase in adjusted EBITDA was driven by a 15% increase in sawmill (sic) sawtimber prices as domestic lumber markets remained favorable.
In our New Zealand Timber segment, third quarter adjusted EBITDA increased 10% year-over-year to $20 million.
Favorable pricing more than offset, a significant increase in export shipping costs as well as 14% lower production volumes due to the government-mandated shutdown, which prohibited harvest activity throughout the country during a two-week period in August.
In our Real Estate segment, we generated record adjusted EBITDA of $64 million, up from $22 million in the prior year period, as we closed on a $38 million Unimproved Development sale in Kingston, Washington, and a $25 million improved development transaction in our Belfast Commerce Park project south of Savannah, Georgia.
Switching gears from the third quarter results, I'd like to provide an update on our Timber Fund business, which we acquired last year through our merger with Pope Resources.
As we previously communicated, the private equity timber funds business was not a good long-term strategic fit for Rayonier.
I am pleased to report that we have now completed our exit from the timber fund business.
During the third quarter, as previously announced, we sold the rights to manage Timber Funds, III and IV, as well as our co-investment stake in both funds for an aggregate purchase price of roughly $36 million.
We subsequently entered into three separate agreements to sell the remaining Fund II Timberland assets for an aggregate purchase price of $157 million.
Note that one of these transactions closed on September 30, and is reflected in our third quarter financial results, while the other two transactions, closed on October five and November 1, respectively, and will be reflected in our fourth quarter financial results.
All said, based on Rayonier's 20% ownership interest in Fund II, and factoring in the repayment of Fund II debt, proceeds to Rayonier from the sale of Fund II assets, will be roughly $24 million.
In addition, we expect to receive a carried interest incentive fee with respect to Fund II of approximately $14 million.
Overall, we view this as a favorable result for the sale process, particularly given the negative impact that last year's forest fires had on roughly 10,000 acres of Fund II and Fund IV properties, in Oregon.
We believe, the successful sale of our co-investments in Funds III and IV, and as well as the properties in Fund II, represent a positive outcome for our shareholders as the wind down of the fund business allows us to simplify our operations, and allocate capital to other strategic priorities.
Let's start on page five with our financial highlights.
Sales for the quarter totaled $365 million, while operating income was $123 million, and net income attributable to Rayonier was $76 million or $0.53 per share.
On a pro forma basis, net income was $50 million or $0.35 per share.
Pro forma adjustments for the quarter were primarily associated with a large disposition in the Pacific Northwest, as well as the actions taken to exit the fund business.
As Dave touched on, third quarter adjusted EBITDA of $115 million was considerably above the prior year period, as an exceptionally strong contribution from our Real Estate segment, and year-over-year improvements in the contributions from our Pacific Northwest and New Zealand Timber segments more than offset a modestly lower contribution from our Southern Timber segment.
On the bottom of page five, we provide an overview of our capital resources and liquidity at quarter end, as well as a comparison to year-end.
Our cash available for distribution, or CAD, for the first nine months of the year was $204 million versus $124 million in the prior year period, primarily due to higher adjusted EBITDA, partially offset by higher cash taxes and capital expenditures.
A reconciliation of CAD to cash provided by operating activities, and other GAAP measures, is provided on page eight of the financial supplement.
Consistent with our nimble approach to capital allocation, we raised $52 million through our at-the-market equity offering program during the third quarter at an average price of $37.26 per share.
As previously discussed, we view the ATM program as a cost-effective tool to opportunistically raise capital, strengthen our balance sheet, and match fund bolt-on acquisitions.
Also building upon the actions taken in the second quarter to improve our debt maturity profile, and lower our weighted average borrowing cost.
In September, we opportunistically repaid the $45 million outstanding under our credit facility with Northwest Farm Credit Services, which previously -- which we had previously assumed in the Pope Resources transaction.
In sum, we closed the third quarter with $420 million of cash and $1.4 billion of debt, both of which exclude cash and debt attributable to the Timber Funds segment, which is nonrecourse to Rayonier.
Our net debt of $957 million represented 15% of our enterprise value based on our closing stock price at the end of the third quarter.
Let's start on page nine with our Southern Timber segment.
Adjusted EBITDA in the third quarter of $24 million was $2 million below the prior year quarter.
The year-over-year decline was primarily driven by lower harvest volumes, partially offset by higher net stumpage pricing.
More specifically, volume declined 20% during the third quarter as wet weather conditions, and constraints on trucking availability, hindered production throughout most of the region.
This decline in volume was partially offset by a 12% increase in average sawlog stumpage pricing compared to the prior year quarter.
At slightly over $20 per ton, third quarter pricing reflected the highest average sawlog pricing, we have registered since early 2015.
The improved pricing reflects strong demand from sawmills weather-related constraints on supply, upward pressure on ship and sell pricing, due to increased competition from pulp mills, and improved export log demand in certain markets.
Likewise, Pulpwood pricing was also at its highest level since early 2015.
Specifically, our prices climbed 23% from the prior year quarter in response to strong domestic demand, constrained supply due to wet weather conditions, and an increase in pulpwood exports to China.
Overall, weighted-average pine stumpage prices increased 16% year-over-year, despite a shift toward a higher mix of pulpwood sales as compared to the prior year quarter.
We are encouraged by the pricing gains registered during the quarter, albeit fueled in part by the wet weather conditions.
Moving forward, we believe certain southern markets are poised for stronger pricing, and believe our results continue to underscore, the relative strength of local timber market dynamics, across our footprint in the region, including proximity to the dominant work serving log export markets.
Moving to our Pacific Northwest Timber segment on page 10.
Adjusted EBITDA of $13 million was $3 million above the prior year quarter.
The year-over-year increase was largely attributable to favorable domestic lumber markets, coupled with increased export demand relative to a year ago.
As the third quarter harvest volume was flat versus the prior year quarter.
At nearly $108 per ton, our average delivered selling price during the third quarter was up 15% from the prior year quarter.
Strong pricing was generally sustained throughout the quarter as underlying log demand remained healthy, even as lumber prices receded from the record level set earlier in the year.
Meanwhile, pulpwood pricing fell 2% in the third quarter relative to prior year quarter as sawmill residuals remain plentiful, amid strong lumber production.
While domestic demand remains healthy in the Pacific Northwest, we have seen export demand from China soften over the past few months.
This softness is largely attributable to elevated log inventories in China, concerns about the country's near-term economic outlook and supply chain disruptions.
We expect some choppiness in demand for log exports from the region to continue over the near term.
However, we believe the reduced harvest of European spruce salvage logs, the continued ban on Australian log exports to China, and the ban on Russian log exports beginning in 2022, will support continued demand for logs from Pacific Northwest, particularly as inventory levels in China normalize.
I'd also like to offer a few comments regarding the wildfires that have impacted parts of the Western U.S. this year.
Fortunately, none of our properties were seriously threatened by the fires.
That said, the availability of pulpwood has constrained pricing in some areas, and there has been upward pressure on hauling costs in areas that have been directly impacted by fires.
Consistent with our previous updates on this front, our operations have not been materially impacted from the salvage efforts conducted by others, which are generally winding down.
page 11 shows results and key operating metrics for our New Zealand Timber segment.
Adjusted EBITDA in the third quarter of $20 million was $2 million above the prior year quarter.
The increase in adjusted EBITDA, was driven by much stronger domestic and export pricing, largely offset by lower harvest volumes, higher cost and reduced carbon credit sales.
Volume declined 14% in the third quarter as compared to the prior year quarter.
As the government shut down all nonessential activity across New Zealand from August 18 through August 31 due to COVID-19.
Our team in New Zealand was generally able to resume harvest operations in September, but there were some regions where restrictions continued as the government aimed to limit the spread of the delta variant.
Harvest operations have now resumed across the country, but full year 2021 volumes are expected to be modestly lower than we had previously anticipated due to the disruptions encountered in the third quarter.
Average delivered prices for export sawtimber jumped 59% in the third quarter from the prior year to $150 per ton, reflecting solid demand from China, the ban on Australian log exports to China, and the reduced level European spruce salvage logs into China.
While net stumpage realizations on export volumes were well above the prior year period levels, favorable export pricing was largely offset by a significant increase in shipping costs, as supply chain issues drove freight, and emerged costs higher.
Since reaching record levels a few months ago, there has been a pullback in pricing for radiata pine logs in response to elevated log inventories in China.
A slowdown in construction activity, adverse weather conditions, and power shortages in China, have collectively reduced the offtake from ports and resulted in pricing pressure on log exports.
While we anticipate pricing will remain favorable from a historical perspective, we expect relatively lower export pricing over the balance of the year.
We generally expect that net stumpage realizations on export volume will decline in the fourth quarter as we've seen only limited relief in shipping costs.
Shifting to the New Zealand domestic market.
Demand remains very strong, albeit constrained to some degree by COVID-related restrictions and the availability of labor.
During the third quarter, average delivered sawtimber prices increased 21% from the prior year period to $85 per ton.
Excluding the impact of foreign exchange rates, domestic sawtimber prices improved 14% versus the prior year period.
following the upward trend in the export market.
As a reminder, domestic sawtimber pricing normally follows export pricing with a lag.
Average domestic pulpwood pricing climbed 25% as compared to the prior year quarter.
As it relates to carbon credits, we continue to defer sales during the quarter.
The value of carbon credits has roughly doubled over the past year.
Moving forward, we will continue to be opportunistic in our sale of carbon credits based on our market outlook.
In sum, we are pleased with third quarter results in the New Zealand Timber segment, especially given the COVID-related disruptions, and cost pressures we encountered.
Moving forward, we remain well positioned to continue to capture market share from Australia, and Europe, in the export market as well as benefit from strong domestic demand.
However, we do anticipate a relatively lower contribution from our New Zealand operations in the fourth quarter as compared to the first three quarters of the year.
I'll now briefly discuss the results from our Timber Funds segment.
Highlighted on page 12, the Timber Funds segment generated consolidated EBITDA of $4 million in the third quarter on harvest volume of 61,000 tons.
Adjusted EBITDA, which reflects the look-through contribution from the timber funds was less than $1 million.
As Dave discussed earlier, we recently completed our exit from the Timber Funds business.
Lastly, in our Trading segment, we generated breakeven results in the third quarter, -- As a reminder, our trading activities typically generate low margins and are primarily designed to provide additional economies of scale to our feed timber export business.
As detailed on page 13, our Real Estate segment delivered exceptionally strong results in the third quarter.
Third quarter real estate sales totaled $93 million on roughly 12,000 acres sold which included a large disposition in Washington, consisting of roughly 8,100 acres.
Excluding this transaction, third quarter sales totaled $73 million on roughly 4,100 acres sold at an average price of over $17,000 per acre.
Adjusted EBITDA for the quarter was $64 million.
As Dave mentioned earlier, excluding gain on the large disposition, third quarter real estate sales -- third quarter real estate results that are record for pro forma sales, pro forma operating income, and adjusted EBITDA, since our separation into a pure-play timberland REIT in 2014.
Sales in the improved development category totaled a record high $28 million in the third quarter.
In our Richmond Hill development project, South of Savannah, Georgia, we closed a $25 million transaction for three entitled industrial parcels at the Belfast Commerce Park near the new Interstate 95 interchange that is adjacent to our property.
This transaction, coupled with the sale of a 153-acre parcel to a national industrial developer last quarter, underscores the strong demand for shovel-ready sites strategically positioned near transportation corridors and in this case, the Port of Savannah.
Meanwhile, within our Wildlight development project north of Jacksonville, Florida, we closed on 42 residential lots, to three different homebuilders, for $2.8 million in total or $66,000 per lot.
Unimproved development sales of $38 million consisted of a 359-acre sale in Kingston, Washington, for roughly $105,000 per acre.
This property known as Arborwood is a well-positioned entitled land parcel accessible by passenger ferry to Downtown Seattle, which was sold to two national homebuilders.
The property was acquired through our merger with Pope Resources last year, and we are very pleased to have successfully completed the sale at an attractive value.
The benefits of the strategic investments we've made on the real estate front over the last several years, are being increasingly realized.
The location and maturity of our development projects have allowed us to capitalize on favorable migration and demographic trends.
And looking ahead, the pipeline of future opportunities in Wildlight, Richmond Hill, and the West Puget Sound area of Washington, remains strong.
In the rural category, sales totaled just under 3,300 acres at an average price of roughly $2,100 per acre.
As we close out 2021 and look toward 2022, demand for rural land remains healthy as the space, privacy, and recreational opportunities, offered by these properties continue to attract buyers.
Lastly, we closed on a large disposition, comprising roughly 8,100 acres in Washington state during the quarter for $20 million or nearly $2,500 per acre.
This property was a nonstrategic holding, sold through a competitive bid process to a conservation-oriented buyer.
Now moving on to our outlook for the year.
Based on our strong results through the first nine months of 2021, and our expectations for the balance of the year.
We are raising our full year adjusted EBITDA guidance to a range of $320 million to $330 million, which reflects a 5% increase at the midpoint from our previous guidance, and an 8% increase at the midpoint from the original 2021 guidance we've provided in February.
In our Southern Timber segment, we now expect full year harvest volumes of 5.7 million to 5.8 million tons, as production has been constrained by regional weather conditions and trucking availability.
However, we expect that improved pricing will largely offset the decline in volumes.
Overall, we expect full year adjusted EBITDA of $118 million to $120 million in our Southern Timber segment, a slight decrease at the midpoint from prior guidance.
In our Pacific Northwest Timber segment, we are maintaining our full year volume guidance of 1.7 million to 1.8 million tons.
We expect that weighted average log pricing in the region will be lower in the fourth quarter, as compared to the exceptionally strong pricing realized during the third quarter, but will be fairly consistent with the pricing achieved, during the first half of the year.
We now expect full year adjusted EBITDA of $53 million to $55 million, a modest increase at the midpoint from prior guidance.
In our New Zealand Timber segment, we now expect full year harvest volumes of 2.5 million to 2.6 million tons as we do not expect to fully recover production loss during the third quarter due to the COVID-19 shutdown.
We further expect lower export pricing during the fourth quarter as log inventories in China remain elevated.
Overall, we now expect full year adjusted EBITDA of $75 million to $78 million, a decrease from prior guidance.
In our Real Estate segment, we now expect full year adjusted EBITDA of $101 million to $104 million, a significant increase from prior guidance.
As previously discussed, the successful completion of the Arborwood sale in Washington is the primary driver for this favorable revision.
Following an extraordinarily strong third quarter, we expect real estate closings for the balance of the year will be relatively light.
Even with lower EBITDA in the fourth quarter, the full year contribution from Real Estate segment in 2021, is poised to be well above historical levels in this segment.
While we expect continued favorable tailwinds in this business, we believe it's prudent to remind everyone, that we do not expect these outsized results in 2021, to be repeated in 2022.
Overall, we're very pleased with our financial performance through the first nine months of 2021, and believe we are well positioned to benefit from continued strength in U.S. housing market, and favorable long-term export market demand trends.
That said, we're not immune from the supply chain, and inflationary pressures, that are impacting many parts of the global economy.
Significant constraints on trucking availability, as well as higher fuel costs, and a considerable increase in fertilizer costs, are among the headwinds our industry is facing in the current environment.
We expect these challenges will likely persist into 2022.
However, our team continues to work diligently to optimize haul distances leverage our scale in both domestic, and export markets, and make prudent silviculture investment decisions tied to localized supply demand dynamics.
Further, we believe our focus on local timber market dynamics, and active portfolio management, leave us well positioned to navigate logistical challenges, and recoup the impact of cost increases in our log pricing.
On that note, active portfolio management remains central to our view of how best to create value for shareholders.
We have continued to improve our portfolio through both addition and subtraction this year.
We opportunistically recycled capital out of nonstrategic timberland holdings in Washington state and exited the timber fund business, while also closing on a total of $52 million on bolt-on acquisitions through September.
Moving forward, our balance sheet is well positioned for future growth, particularly following the actions we have taken this year, to reduce leverage, extend our debt maturity profile, and optimize our cost of capital.
I would also note that we continue to advance many of our ESG-related initiatives.
In August, we published our sustainability report as well as an updated carbon report.
With COP26 currently underway in Europe, I want to reiterate, the important role working for us can play as a natural climate change solution.
As discussed within our sustainability report, we believe the myriad environmental and social benefits offered by our lands, and the products made from our trees, leave Rayonier uniquely well positioned for a low-carbon economy.
In sum, I remain extremely grateful for the dedication of our employees, and their ability to adapt to ever-evolving market conditions, and business opportunities.
Our team remains committed to maximizing the potential of our assets, and creating long-term shareholder value through growing cash flows, and value per share over time.

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compname reports q3 earnings per share of $0.53.
q3 pro forma earnings per share $0.35.
q3 earnings per share $0.53.
expects full-year adjusted ebitda for new zealand timber segment of $75 million to $78 million, a decrease from prior guidance .

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