Rayonier Inc. (Ryn): Bull Case Theory
We met A strong paper Subscack by Waterboy Investing at Rayonier Inc. (Ryn). This article summarizes the Bulls paper on Ryn. Rayonier Inc. (Ryn)’s share was trading at $25.06 as of April 16thth. According to Yahoo Finance, Ryn’s follow-up P/E was 10.49 and 44.05, respectively.
Aerial view of the forested areas of Timberland Real Estate Investment Trusts in the southern United States and the Pacific Northwest.
Timberland-centric REIT, Rayonier (Ryn), presents a huge upside down attractive investment opportunity with its underlying asset value, clear strategic direction and deep discounts on multiple long-term catalysts. The company owns 1.75 million acres in the southern United States and 308,000 acres in the Pacific Northwest. In a recent move in line with the strategy to unlock value, Rayonier sold a 77% stake in the New Zealand joint venture for $710 million. The sales represent a significant step towards the company’s $1 billion asset sales target, bringing total cumulative processing revenue to $1.45 billion. Following the transaction, Rayonier’s net debt was reduced to $132.7 million.
The Back of the Envelope NAV calculations allocate $2,475 per acre, $3,500 for US Southern assets and $3,500 for Pacific Northwest holdings, resulting in a current market capitalization of $3.8 billion and an estimated NAV of $5.27 billion. This means $33.77 per NAV per NAV against the $24.38 share price, reflecting a 27.8% discount, or a potential upside of 38.5%. Management appears to be confident in this valuation gap, which has approved a $300 million share buyback program, which is equivalent to 7.9% of its market capitalization.
Rayonier generated roughly $230 million in timber-related cash flow (from New Zealand) last year, but has evolved beyond the purely play timber business. It has transformed into a growing land resource company that is exposed to opportunities for higher and slapping use (HBU) such as solar development, carbon capture and storage (CCS), real estate, etc. According to CEO Mark McHugh, converting 1% of the company’s land into these high-value uses at highs worth 10-15 times it could lead to an increase of 10-15% for the entire company.
Land values for rural HBUs rose sharply, with average selling prices rising from $2,763 (2015-17) to $4,468 (2021-24), with a premium increase from 55% to 117% over Timberland values. Rayonier is 39,000 acres in 2024, up from 27,000 a year ago. CCS leases rose in 2024 from 26,000 in 2023 to 154,000 acres, including a 59,000 acre lease with Exxon Mobil. Additionally, Wildlight and Heartwood Development Projects each surpasses $100 million in cumulative revenue, with 26,700 acres supporting 37,000 residential units and 44 million square feet of commercial development.