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Rayonier To Invest In Forest Resources
Rayonier (NYSE:RYN) will selectively add to its core timberland holdings and continue to optimize the yield on these assets. The company also plans to divest the assets in this business that it considers to be non-strategic.
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Forest Resources
Rayonier has 2.7 million acres of timberland in its portfolio, with a concentration of these assets in the Southern United States. Most of the timberland holdings are in the Atlantic and Gulf Coast regions of the United States, where the company has approximately 1.8 million acres. The company has 128,000 acres in upstate New York, as well as holdings in Washington and New Zealand.
In the Pacific Northwest, Rayonier has 398,000 acres of timberland in Washington and expects to take advantage of strong growth in demand from China. The company estimates that China's gap between domestic supply and demand for softwood will increase by 10% per year and reach sixty million cubic meters by 2015. Through the holdings in New Zealand, Rayonier owns 317,000 acres of timberland, in a joint venture. The company will also use these holdings to supply China with imports.
With access to five ports to export its product, and also deferring approximately 25% of its harvesting in this region over the last few years, Rayonier is now ramping up volume to meet demand.
Acquisitions
Rayonier's latest acquisition of timberland was announced in Sept. 2011, with the company purchasing 250,000 acres for $330 million. The land is spread across Louisiana, Mississippi, Alabama and Oklahoma.
Silviculture
Silviculture refers to the growing and cultivation of trees, in a manner that increases productivity in the long term. Rayonier has implemented these practices to manage the company's timberland, and plans to continue with this strategy with the expectation of increasing its timberland volume per acre, over time, and moving the average site index from 68 to 73. The site index refers to the total height that dominant trees grow to, on a particular plot at a specified age.
EBITDA Growth
Rayonier estimates that adjusted EBITDA from Forest Services can reach over $200 million per year, in the 2014 to 2016 time frame. The company expects to report $110 million in adjusted EBITDA in 2011.
Housing Rebound
Like many other companies, Rayonier would benefit from a rebound in housing starts, which would stimulate demand and raise prices for its products. The company estimates that every $10 per ton increase in prices for Pine sawlogs, would lead to a $20 million jump in adjusted EBITDA.
Other Operators
Other companies that have large land holdings in the United States include Potlatch Corp. (NASDAQ:PCH), which has 1.45 million acres, and Weyerhaeuser (NYSE:WY), which has more than six million acres in its portfolio. Some companies have been selling down land holdings for years. MeadWestvaco Corporation (NYSE:MWV), for example, owned 3.2 million acres in 2002, but over the last nine years has sold down its holdings to only 730,000 acres.
The Bottom Line
Investors can now add Rayonier and the timberland sector to the list of industries dependent on growth from China and the rest of Asia. This growing dependence makes one wonder whether the real financial crisis will start if this growth ever goes away. (For additional reading, take a look at Timber Investments Cut Down Portfolio Risk.)
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Forest Resources
Rayonier has 2.7 million acres of timberland in its portfolio, with a concentration of these assets in the Southern United States. Most of the timberland holdings are in the Atlantic and Gulf Coast regions of the United States, where the company has approximately 1.8 million acres. The company has 128,000 acres in upstate New York, as well as holdings in Washington and New Zealand.
In the Pacific Northwest, Rayonier has 398,000 acres of timberland in Washington and expects to take advantage of strong growth in demand from China. The company estimates that China's gap between domestic supply and demand for softwood will increase by 10% per year and reach sixty million cubic meters by 2015. Through the holdings in New Zealand, Rayonier owns 317,000 acres of timberland, in a joint venture. The company will also use these holdings to supply China with imports.
With access to five ports to export its product, and also deferring approximately 25% of its harvesting in this region over the last few years, Rayonier is now ramping up volume to meet demand.
Acquisitions
Rayonier's latest acquisition of timberland was announced in Sept. 2011, with the company purchasing 250,000 acres for $330 million. The land is spread across Louisiana, Mississippi, Alabama and Oklahoma.
Silviculture refers to the growing and cultivation of trees, in a manner that increases productivity in the long term. Rayonier has implemented these practices to manage the company's timberland, and plans to continue with this strategy with the expectation of increasing its timberland volume per acre, over time, and moving the average site index from 68 to 73. The site index refers to the total height that dominant trees grow to, on a particular plot at a specified age.
EBITDA Growth
Rayonier estimates that adjusted EBITDA from Forest Services can reach over $200 million per year, in the 2014 to 2016 time frame. The company expects to report $110 million in adjusted EBITDA in 2011.
Housing Rebound
Like many other companies, Rayonier would benefit from a rebound in housing starts, which would stimulate demand and raise prices for its products. The company estimates that every $10 per ton increase in prices for Pine sawlogs, would lead to a $20 million jump in adjusted EBITDA.
Other Operators
Other companies that have large land holdings in the United States include Potlatch Corp. (NASDAQ:PCH), which has 1.45 million acres, and Weyerhaeuser (NYSE:WY), which has more than six million acres in its portfolio. Some companies have been selling down land holdings for years. MeadWestvaco Corporation (NYSE:MWV), for example, owned 3.2 million acres in 2002, but over the last nine years has sold down its holdings to only 730,000 acres.
The Bottom Line
Investors can now add Rayonier and the timberland sector to the list of industries dependent on growth from China and the rest of Asia. This growing dependence makes one wonder whether the real financial crisis will start if this growth ever goes away. (For additional reading, take a look at Timber Investments Cut Down Portfolio Risk.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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