Rayonier is a leading timberland real estate investment trust (“REIT”) with assets located in some of the most productive timber growing regions in the U.S. and New Zealand. Their business is to invest in timberlands and then actively manage those assets to provide both current income and attractive long-term value. As of December 31, 2014 they owned, leased or managed approximately 2.7 million acres of timberlands located in the U.S. South (1.9 million acres), U.S. Pacific Northwest (372,000 acres) and New Zealand (451,000 gross acres, or 309,000 net plantable acres). In addition, they engage in the trading of logs from New Zealand and Australia to Pacific Rim markets to support their New Zealand export operations. They also attempt to increase the value of their land by pursuing higher and better use (“HBU”) land sales opportunities.
The company is different from other publicly-traded timberland REITs in that they have invested exclusively in timberlands and do not own any pulp, paper or wood products manufacturing assets, which were spun off in 2014. Rayonier is the largest publicly traded “pure-play” timberland REIT, which provides their investors with a focused, large-scale timberland investment alternative without taking on the risks inherent in directly owning forest product manufacturing assets.
The company's geographically diverse timberland holdings are located in those core softwood producing regions of the U.S. South, Pacific Northwest and New Zealand. But their most significant timberland holdings are strategically located in the U.S. South, in close proximity to a variety of established pulp, paper and wood products manufacturing facilities, which provide a steady source of competitive demand for both pulpwood and higher-value sawtimber products.
Rayonier conducts a log trading operation in New Zealand that serves timberland owners in New Zealand and Australia by providing access to key export markets in China, South Korea and India. This operation provides the company with superior market intelligence and economies of scale, both of which add value to their New Zealand timber portfolio. It also contributes to the Company’s earnings and cash flows while requiring minimal investment.
The company also owns approximately 200,000 acres of timberlands located in the vicinity of I-95 north of Daytona Beach, FL, and south of Savannah, GA, with approximately 39,000 acres that have land use entitlements and are well positioned to capture higher sales values per acre when real estate markets begin to strengthen. These properties provide the company with opportunities to selectively add value to their portfolio through additional land use entitlements and infrastructure improvements, which management believes will allow them to periodically sell parcels of such land at favorable valuations relative to timberland values through one of their taxable REIT subsidiaries.
The company has HBU properties throughout the South with strong premiums to timberland values. They maintain a detailed land classification analysis of their holdings which allows them to identify the highest value of their lands and then capitalize on land use opportunities.
Southern Timber. As of December 31, 2014, the company's Southern timberlands acreage consisted of approximately 1.9 million acres (including approximately 273,000 acres of leased lands) located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee and Texas. Approximately two-thirds of this land supports intensively managed plantations of predominantly loblolly and slash pine. The other one-third of this land is too wet to support pine plantations, but supports productive natural stands primarily consisting of a variety of hardwood species. In the Southern region, rotation ages range from 21 to 28 years for pine plantations and from 35 to 60 years for natural hardwood stands. Key consumers of our timber include pulp, paper, wood products and biomass facilities.
Pacific Northwest Timber. As of December 31, 2014, the company's Pacific Northwest timberlands consisted of approximately 372,000 acres located in the state of Washington, of which approximately 286,000 acres were designated as productive acres, meaning land that is capable of growing merchantable timber and where the harvesting of timber is not constrained by physical, environmental or regulatory restrictions. These timberlands primarily comprise second and third rotation western hemlock and Douglas-fir, as well as a small amount of of other softwood species, such as western red cedar. A small percentage also consists of natural hardwood stands of predominantly red alder. In the Pacific Northwest, rotation ages range from 35 to 50 years. The company's product mix in the Pacific Northwest is heavily weighted to saw timber, which is sold to domestic wood products facilities as well as into exports markets primarily serving the Pacific Rim.
New Zealand Timber. As of December 31, 2014, the company's New Zealand timberlands consisted of approximately 451,000 acres (including approximately 266,000 acres of leased lands), of which approximately 309,000 acres (including approximately 174,000 acres of leased lands) were designated as productive or plantation acres, meaning land that is capable of growing merchantable timber and where the harvesting of timber is not constrained by physical, environmental or regulatory restrictions. The leased acres are generally leased through long-term arrangements including Crown Forest Licenses (“CFLs”), forestry rights and other leases. Rayonier’s wholly owned subsidiary, Rayonier New Zealand Limited (“RNZ”) serves as the manager of the New Zealand JV timberlands. Our New Zealand timberlands serve a domestic sawmilling market and also export logs to Pacific Rim markets.
For those who have read a few of the articles on this website, you've probably noticed that I've been interested in companies that invest in both farmland and timberland for quite some time. Recently Rayonier spun off all its interests in the pulp and paper business and is now a pure timberland based company. And that's the kind of company I'm interested in. In addition, the majority of Rayonier's timberland is based in the US South. I personally believe the best opportunities for making money in timberland are located in the south.
Similar to the analysis and conclusion in the articles "Betting On The Farm", "Tree Farms are Farms Too", and "The Other Timber Companies", I am completely convinced that any investment in Rayonier has to be entered into as a long term investment. And by long term I mean years, not months. Anyone with a shorter term horizon will most likely become disillusioned and/or disappointed in the short term. That said, this may just be one of the best investments of the decade if executed correctly (a big if!). Rayonier traditionally increases in value at a rate similar to the inflation rate so it's a great preserver of purchasing power over time, much like gold is. In addition, as population encroaches on today's timberland, the value of the land increases almost exponentially as its use in converted into lots for homes, businesses, golf courses, etc. And while an investor waits for the value of the land (stock) to increase, Rayonier is throwing off a very generous dividend.
Based on the information above, I have already initiated a position in Rayonier and will add to that position over the next few months. I intend to use the dividends distributed by this company to reinvest back into additional shares and then to let that position grow naturally over time. In the years ahead I'm hoping to look back on this investment and smile. A lot!