RAYONIER INC 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”) When we refer to “Rayonier” or “the Company” we mean Rayonier Inc. and its consolidated subsidiaries. References to the “Operating Partnership” mean Rayonier, L.P. and its consolidated subsidiaries. References to “we,” “us,” or “our,” mean collectively Rayonier Inc., the Operating Partnership and entities/subsidiaries owned or controlled by Rayonier Inc. and/or the Operating Partnership. References herein to “Notes to Financial Statements” refer to the Notes to Consolidated Financial Statements of Rayonier Inc. and Rayonier, L.P. included in Item 1 of this report. This MD&A is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors which may affect future results. Our MD&A should be read in conjunction with our Consolidated Financial Statements included in Item 1 of this report, our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”) and information contained in our subsequent reports filed with the Securities and Exchange Commission (the “SEC”). FORWARD-LOOKING STATEMENTS Certain statements in this document regarding anticipated financial outcomes, including our earnings guidance, if any, business and market conditions, outlook, expected dividend rate, our business strategies, including the potential effects of the ongoing global novel coronavirus (“COVID-19”) pandemic, expected harvest schedules, timberland acquisitions and dispositions, the anticipated benefits of our business strategies, and other similar statements relating to our future events, developments, or financial or operational performance or results, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “expect,” “estimate,” “believe,” “intend,” “project,” “anticipate” and other similar language. However, the absence of these or similar words or expressions does not mean that a statement is not forward-looking. While management believes that these forward-looking statements are reasonable when made, forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements. The risk factors contained in Item 1A — Risk Factors in our 2021 Form 10-K, Part II, Item 1A — Risk Factors in this report and similar discussions included in other reports that we subsequently file with the SEC, among others, could cause actual results or events to differ materially from our historical experience and those expressed in forward-looking statements made in this document. Forward-looking statements are only as of the date they are made, and we undertake no duty to update our forward-looking statements except as required by law. You are advised, however, to review any subsequent disclosures we make on related subjects in subsequent reports filed with the SEC. NON-GAAP MEASURES To supplement our financial statements presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we use certain non-GAAP measures, including “Cash Available for Distribution,” and “Adjusted EBITDA,” which are defined and further explained in Performance and Liquidity Indicators below. Reconciliation of such measures to the nearest GAAP measures can also be found in Performance and Liquidity Indicators below. Our definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP. 33 Table of Contents OUR COMPANY We are a leading timberland real estate investment trust (“REIT”) with assets located in some of the most productive softwood timber growing regions in the United States and New Zealand. We invest in timberlands and actively manage them to provide current income and attractive long-term returns to our shareholders. We conduct our business through an umbrella partnership real estate investment trust (“UPREIT”) structure in which our assets are owned by our Operating Partnership and its subsidiaries. Rayonier manages the Operating Partnership as its sole general partner. Our revenues, operating income and cash flows are primarily derived from the following core business segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate, and Trading. As of March 31, 2022, we owned or leased under long-term agreem ents approximat ely 2.7 million acres of timberlands located in the U.S. South (1.80 million acres), U.S. Pacific Northwest (486,000 acres) and New Zealand (419,000 gross acres or 297,000 net plantable acres). SEGMENT INFORMATION The Southern Timber, Pacific Northwest Timber and New Zealand Timber segments include all activities related to the harvesting of timber and other non-timber income activities, such as the licensing of properties for hunting, the leasing of properties for mineral extraction and cell towers, and carbon credit sales. Our New Zealand operations are conducted by Matariki Forestry Group, a joint venture (the “New Zealand subsidiary”), in which we maintain a 77% ownership interest. See Note 4 - Noncontrolling Interests for additional information regarding our noncontrolling interests in the New Zealand Timber segment. The Real Estate segment includes all U.S. and New Zealand land or leasehold sales disaggregated into six sales categories: Improved Development, Unimproved Development, Rural, Timberland & Non-Strategic, Conservation Easements and Large Dispositions. It also includes residential and commercial lease activity, primarily in the town of Port Gamble, Washington. The Trading segment primarily reflects log trading activities in New Zealand and Australia conducted by our New Zealand subsidiary. It also includes log trading activities conducted from the U.S. South and Pacific Northwest. Our Trading segment activities include an export services joint venture with a third-party forest manager in which Matariki Forests Trading Ltd maintains a 50% ownership interest. The Trading segment complements the New Zealand Timber segment by providing added market intelligence, increasing the scale of export operations and achieving cost savings that directly benefit the New Zealand Timber segment. This additional market intelligence also benefits our Southern and Pacific Northwest export log marketing. ENVIRONMENTAL MATTERS For a full description of our environmental matters, see Item 1 - “Business” in our Annual Report on Form 10-K for the year ended December 31, 2021 and our sustainability report located at our Responsible Stewardship webpage. 34 Table of Contents INDUSTRY AND MARKET CONDITIONS The demand for timber is directly related to the underlying demand for pulp, paper, packaging, lumber and other wood products. The significant majority of timber sold in our Southern Timber segment is consumed domestically. With a higher proportion of pulpwood, our Southern Timber segment relies heavily on downstream markets for pulp and paper, and to a lesser extent wood pellet markets. Our Pacific Northwest Timber segment relies primarily on domestic customers but also exports a significant volume of timber, particularly to China. The Southern Timber and Pacific Northwest Timber segments rely on the strength of U.S. lumber markets as well as underlying housing starts. Our New Zealand Timber segment sells timber to domestic New Zealand wood products mills and also exports a significant portion of its volume to markets in China, South Korea and India. In addition to market dynamics in the Pacific Rim, the New Zealand Timber segment is subject to foreign exchange fluctuations, which can impact the operating results of the segment in U.S. dollar terms. Global log and lumber markets were volatile during the first quarter as sanctions were placed on Russia in response to their invasion of Ukraine. While we do not expect our operations to be directly impacted by the conflict at this time, changes in global wood and commodity flows could impact the markets in which we operate. As the current COVID-19 pandemic continues to evolve, the expected duration and the extent of economic disruption it may ultimately cause remain uncertain. Local, state and national governments continue to evaluate policies and restrictions in order to mitigate the spread of COVID-19. Government-mandated shutdowns or shelter-in-place orders in markets in which we operate could negatively impact our results. Further, prolonged periods of lower overall business activity as a result of COVID-19 could cause significant damage to the underlying economy, which would likely impact timber markets. We are also subject to the risk of price fluctuations in certain of our cost components, primarily logging and transportation (cut and haul), ocean freight and demurrage costs. Other major components of our cost of sales are the cost basis of timber sold (depletion) and the cost basis of real estate sold. Depletion includes the amortization of capitalized site preparation, planting and fertilization, real estate taxes, timberland lease payments and certain payroll costs. The cost basis of real estate sold includes the cost basis in land and costs directly associated with the development and construction of identified real estate projects, such as infrastructure, roadways, utilities, amenities and/or other improvements. Other costs include amortization of capitalized costs related to road and bridge construction and software, depreciation of fixed assets and equipment, road maintenance, severance and excise taxes, fire prevention and real estate commissions and closing costs. For additional information on market conditions impacting our business, see Results of Operations . CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES The preparation of financial statements requires us to make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates. For a full description of our critical accounting policies, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K. 35 DISCUSSION OF TIMBER INVENTORY AND SUSTAINABLE YIELD See Item 1 — Business — Discussion of Timber Inventory and Sustainable Yield in our 2021 Form 10-K. OUR TIMBERLANDS Our timber operations are disaggregated into three geographically distinct segments: Southern Timber, Pacific Northwest Timber and New Zealand Timber. The following tables provide a breakdown of our timberland holdings as of March 31, 2022 and December 31, 2021: (acres in 000s) As of March 31, 2022 As of December 31, 2021 Owned Leased Total Owned Leased Total Southern Alabama 224 14 238 223 14 237 Arkansas — 4 4 — 4 4 Florida 350 51 401 350 51 401 Georgia 618 64 682 619 64 683 Louisiana 140 — 140 140 — 140 Oklahoma 92 — 92 92 — 92 South Carolina 16 — 16 16 — 16 Texas 222 — 222 225 — 225 1,662 133 1,795 1,665 133 1,798 Pacific Northwest Oregon 61 — 61 61 — 61 Washington 421 4 425 425 4 429 482 4 486 486 4 490 New Zealand (a) 187 232 419 187 232 419 Total 2,331 369 2,700 2,338 369 2,707 (a) Represents legal acres owned and leased by the New Zealand subsidiary, in which we own a 77% interest. As of March 31, 2022, legal acres in New Zealand consisted of 297,000 plantable acres and 122,000 non-productive acres. 36 The following tables detail activity for owned and leased acres in our timberland holdings by state from December 31, 2021 to March 31, 2022: (acres in 000s) Acres Owned December 31, 2021 Acquisitions Sales Other March 31, 2022 Southern Alabama 223 1 — — 224 Florida 350 1 (1) — 350 Georgia 619 — (1) — 618 Louisiana 140 — — — 140 Oklahoma 92 — — — 92 South Carolina 16 — — — 16 Texas 225 — (3) — 222 1,665 2 (5) — 1,662 Pacific Northwest Oregon 61 — — — 61 Washington 425 — (4) — 421 486 — (4) — 482 New Zealand (a) 187 — — — 187 Total 2,338 2 (9) — 2,331 (a) Represents legal acres owned by the New Zealand subsidiary, in which we have a 77% interest. (acres in 000s) Acres Leased December 31, 2021 New Leases Sold/Expired Leases (a) Other (b) March 31, 2022 Southern Alabama 14 — — — 14 Arkansas 4 — — — 4 Florida 51 — — — 51 Georgia 64 — — — 64 133 — — — 133 Pacific Northwest Washington (c) 4 — — — 4 New Zealand (d) 232 — — — 232 Total 369 — — — 369 (a) Includes acres previously under lease that have been harvested and activity for the relinquishment of leased acres. (b) Includes acres previously under lease that we have acquired as fee ownership. (c) Primarily timber reservations acquired in the merger with Pope Resources. (d) Represents legal acres leased by the New Zealand subsidiary, in which we have a 77% interest. 37 RESULTS OF OPERATIONS CONSOLIDATED RESULTS The following table provides key financial information by segment and on a consolidated basis: Three Months Ended March 31, Financial Information (in millions) 2022 2021 Sales Southern Timber $76.8 $51.7 Pacific Northwest Timber 46.3 41.5 New Zealand Timber 51.4 57.6 Timber Funds — 14.9 Real Estate Improved Development 5.0 0.3 Rural 16.9 9.8 Timberland & Non-Strategic 11.4 — Deferred Revenue/Other (a) 0.9 0.5 Total Real Estate 34.2 10.5 Trading 13.4 16.7 Intersegment Eliminations (0.1) (1.5) Total Sales $222.0 $191.4 Operating Income Southern Timber $30.3 $17.3 Pacific Northwest Timber 6.6 1.3 New Zealand Timber 5.4 14.0 Timber Funds — 1.5 Real Estate 10.2 1.7 Trading 0.4 0.2 Corporate and Other (7.6) (7.6) Operating Income 45.3 28.5 Interest expense, interest income and other (8.8) (10.0) Income tax expense (5.5) (3.5) Net Income 31.0 15.0 Less: Net income attributable to noncontrolling interests in consolidated affiliates (1.0) (3.8) Net Income Attributable to Rayonier, L.P. $30.0 $11.2 Less: Net income attributable to noncontrolling interests in the operating partnership (0.7) (0.4) Net Income Attributable to Rayonier Inc. $29.3 $10.8 Adjusted EBITDA (b) Southern Timber $48.4 $31.7 Pacific Northwest Timber 21.5 17.6 New Zealand Timber 10.4 21.2 Timber Funds — 1.0 Real Estate 24.7 5.1 Trading 0.4 0.2 Corporate and Other (7.2) (7.3) Total Adjusted EBITDA $98.1 $69.5 (a) Includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue. (b) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators . 38 Three Months Ended March 31, Southern Timber Overview 2022 2021 Sales Volume (in thousands of tons) Pine Pulpwood 1,171 843 Pine Sawtimber 622 638 Total Pine Volume 1,793 1,481 Hardwood 103 31 Total Volume 1,896 1,512 % Delivered Volume (vs. Total Volume) 35 % 36 % % Pine Sawtimber Volume (vs. Total Pine Volume) 35 % 43 % % Export Volume (vs. Total Volume) (a) 1 % 5 % Net Stumpage Pricing (dollars per ton) Pine Pulpwood $24.11 $17.10 Pine Sawtimber 35.46 27.51 Weighted Average Pine $28.05 $21.58 Hardwood 26.06 10.51 Weighted Average Total $27.94 $21.35 Summary Financial Data (in millions of dollars) Timber Sales $71.0 $44.2 Less: Cut and Haul (15.6) (9.9) Less: Port and Freight (2.4) (2.0) Net Stumpage Sales $53.0 $32.3 Non-Timber Sales 5.8 7.5 Total Sales $76.8 $51.7 Operating Income $30.3 $17.3 (+) Depreciation, depletion and amortization 18.1 14.4 Adjusted EBITDA (b) $48.4 $31.7 Other Data Period-End Acres (in thousands) 1,795 1,751 (a) Estimated percentage of export volume, which includes volumes sold to third-party exporters in addition to direct exports through our log export program. (b) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators . 39 Three Months Ended March 31, Pacific Northwest Timber Overview 2022 2021 Sales Volume (in thousands of tons) Pulpwood 76 79 Sawtimber 429 457 Total Volume 505 536 % Delivered Volume (vs. Total Volume) 82 % 78 % % Sawtimber Volume (vs. Total Volume) 85 % 85 % % Export Volume (vs. Total Volume) (a) 5 % 10 % Delivered Log Pricing (in dollars per ton) Pulpwood $37.69 $29.36 Sawtimber 105.69 90.98 Weighted Average Log Price $95.35 $81.64 Summary Financial Data (in millions of dollars) Timber Sales $45.1 $40.3 Less: Cut and Haul (16.2) (16.0) Less: Port and Freight (0.1) — Net Stumpage Sales $28.8 $24.3 Non-Timber Sales 1.1 1.3 Total Sales $46.3 $41.5 Operating Income $6.6 $1.3 (+) Depreciation, depletion and amortization 14.9 16.3 Adjusted EBITDA (b) $21.5 $17.6 Other Data Period-End Acres (in thousands) 486 507 Sawtimber (in dollars per MBF) (c) $849 $730 (a) Estimated percentage of export volume, which includes volumes sold to third-party exporters in addition to direct exports through our log export program. (b) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators . (c) Delivered Sawtimber excluding chip-n-saw. 40 Three Months Ended March 31, New Zealand Timber Overview 2022 2021 Sales Volume (in thousands of tons) Domestic Pulpwood (Delivered) 94 106 Domestic Sawtimber (Delivered) 135 159 Export Pulpwood (Delivered) 36 47 Export Sawtimber (Delivered) 250 287 Total Volume 515 599 % Delivered Volume (vs. Total Volume) 100 % 100 % % Sawtimber Volume (vs. Total Volume) 75 % 74 % % Export Volume (vs. Total Volume) (a) 56 % 56 % Delivered Log Pricing (in dollars per ton) Domestic Pulpwood $34.98 $40.15 Domestic Sawtimber 75.99 80.95 Export Sawtimber 127.59 121.65 Weighted Average Log Price $96.59 $95.70 Summary Financial Data (in millions of dollars) Timber Sales $49.7 $57.3 Less: Cut and Haul (19.1) (20.9) Less: Port and Freight (15.3) (12.0) Net Stumpage Sales $15.3 $24.4 Non-Timber Sales / Carbon Credits 1.7 0.2 Total Sales $51.4 $57.6 Operating Income $5.4 $14.0 (+) Depreciation, depletion and amortization 5.0 7.2 Adjusted EBITDA (b) $10.4 $21.2 Other Data New Zealand Dollar to U.S. Dollar Exchange Rate (c) 0.6680 0.7217 Net Plantable Period-End Acres (in thousands) 297 296 Export Sawtimber (in dollars per JAS m 3 ) $148.35 $141.45 Domestic Sawtimber (in $NZD per tonne) $125.13 $123.39 (a) Percentage of export volume includes direct exports through our log export program. (b) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators . (c) Represents the period-average rate. 41 Three Months Ended March 31, Real Estate Overview 2022 2021 Sales (in millions of dollars) Improved Development $5.0 $0.3 Rural 16.9 9.8 Timberland & Non-Strategic 11.4 — Deferred Revenue/Other (a) 0.9 0.5 Total Sales $34.2 $10.5 Acres Sold Improved Development 16.1 0.6 Rural 4,751 2,394 Timberland & Non-Strategic 3,966 — Total Acres Sold 8,734 2,395 Gross Price per Acre (dollars per acre) Improved Development $308,065 $406,452 Rural 3,567 4,079 Timberland & Non-Strategic 2,874 — Weighted Average (Total) $3,815 $4,183 Weighted Average (Adjusted) (b) $3,252 $4,079 Operating Income $10.2 $1.7 (+) Depreciation, depletion and amortization 9.1 1.6 (+) Non-cash cost of land and improved development 5.4 1.8 Adjusted EBITDA (c) $24.7 $5.1 (a) Includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue. (b) Excludes Improved Development. (c) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators . 42 Three Months Ended March 31, Trading Overview 2022 2021 Sales Volume (in thousands of tons) U.S. 17 — NZ 95 141 Total Volume 112 141 Summary Financial Data (in millions of dollars) Trading Sales $13.1 $16.2 Non-Timber Sales 0.4 0.4 Total Sales $13.4 $16.7 Operating Income $0.4 $0.2 Adjusted EBITDA (a) $0.4 $0.2 (a) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators . 43 Three Months Ended March 31, Capital Expenditures By Segment (in millions of dollars) 2022 2021 Timber Capital Expenditures Southern Timber Reforestation, silviculture and other capital expenditures $2.5 $3.3 Property taxes 1.9 1.5 Lease payments 0.7 0.8 Allocated overhead 1.3 1.2 Subtotal Southern Timber $6.3 $6.7 Pacific Northwest Timber Reforestation, silviculture and other capital expenditures 3.6 2.7 Property taxes 0.3 0.3 Allocated overhead 1.4 1.2 Subtotal Pacific Northwest Timber $5.2 $4.1 New Zealand Timber Reforestation, silviculture and other capital expenditures 2.5 2.0 Property taxes 0.2 0.2 Lease payments 0.5 0.5 Allocated overhead 0.7 0.7 Subtotal New Zealand Timber $3.9 $3.4 Total Timber Segments Capital Expenditures $15.4 $14.2 Timber Funds (“Look-through”) (a) — 0.2 Real Estate 0.2 0.1 Total Capital Expenditures $15.6 $14.5 Timberland Acquisitions Southern Timber $2.8 $29.9 Timberland Acquisitions $2.8 $29.9 Real Estate Development Investments (b) $3.1 $3.0 (a) The three months ended March 31, 2021 excludes $1.3 million of capital expenditures attributable to noncontrolling interests in Timber Funds. (b) Represents investments in master infrastructure or entitlements in our real estate development projects. Real Estate Development Investments are amortized as the underlying properties are sold and included in Non-Cash Cost of Land and Improved Development. 44 The following tables summarize sales, operating income (loss) and Adjusted EBITDA variances for March 31, 2022 versus March 31, 2021 (millions of dollars): Sales Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Intersegment Eliminations Total Three Months Ended March 31, 2021 $51.7 $41.5 $57.6 $14.9 $10.5 $16.7 ($1.5) $191.4 Volume 8.2 (1.4) (7.9) — 25.3 (3.4) — 20.8 Price 12.5 5.8 (6.2) — (2.9) 0.2 — 9.4 Non-timber sales (1.7) (0.1) 1.5 — — (0.1) — (0.4) Foreign exchange (a) — — (1.3) — — — — (1.3) Other 6.1 (b) 0.5 (b) 7.7 (c) (14.9) (d) 1.3 (e) — 1.4 (f) 2.1 Three Months Ended March 31, 2022 $76.8 $46.3 $51.4 — $34.2 $13.4 ($0.1) $222.0 (a) Net of currency hedging impact. (b) Includes variance due to stumpage versus delivered sales. (c) Includes variance due to domestic versus export sales. (d) Timber Funds segment was liquidated in 2021. (e) Includes marketing fees related to Improved Development sales and r esidential and commercial lease revenue . (f) Includes a decrease in Intersegment eliminations related to timberland management fees paid to us by the timber funds and reported as sales within the Timber Funds segment. Operating Income (Loss) Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Corporate and Other Total Three Months Ended March 31, 2021 $17.3 $1.3 $14.0 $1.5 $1.7 $0.2 ($7.6) $28.5 Volume 4.5 (0.3) (2.6) — 17.4 — — 19.0 Price (a) 12.5 5.8 (6.2) — (2.9) — — 9.2 Cost (2.1) (0.5) (0.6) — (2.8) 0.2 — (5.8) Non-timber income (b) (1.8) (0.1) 1.5 — — — — (0.4) Foreign exchange (c) — — (1.5) — — — — (1.5) Depreciation, depletion & amortization (0.1) 0.4 0.8 — (4.2) — — (3.1) Non-cash cost of land and improved development — — — — 1.0 — — 1.0 Other (d) — — — (1.5) — — — (1.5) Three Months Ended March 31, 2022 $30.3 $6.6 $5.4 — $10.2 $0.4 ($7.6) $45.3 (a) For Timber segments, price reflects net stumpage realizations (i.e., net of cut and haul and shipping costs). For Real Estate, price is presented net of cash closing costs. (b) For the New Zealand Timber segment, includes carbon credit sales. (c) Net of currency hedging impact. (d) Timber Funds segment was liquidated in 2021. 45 Adjusted EBITDA (a) Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Corporate and Other Total Three Months Ended March 31, 2021 $31.7 $17.6 $21.2 $1.0 $5.1 $0.2 ($7.3) $69.5 Volume 8.1 (1.3) (3.5) — 25.3 — — 28.6 Price (b) 12.5 5.8 (6.2) — (2.9) — — 9.2 Cost (2.1) (0.5) (0.6) — (2.8) 0.2 0.1 (5.7) Non-timber income (c) (1.8) (0.1) 1.5 — — — — (0.4) Foreign exchange (d) — — (2.0) — — — — (2.0) Other (e) — — — (1.0) — — — (1.1) Three Months Ended March 31, 2022 $48.4 $21.5 $10.4 — $24.7 $0.4 ($7.2) $98.1 (a) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators below. (b) For Timber segments, price reflects net stumpage realizations (i.e., net of cut and haul and shipping costs). For Real Estate, price is presented net of cash closing costs. (c) For the New Zealand Timber segment, includes carbon credit sales. (d) Net of currency hedging impact. (e) Timber Funds segment was liquidated in 2021. SOUTHERN TIMBER First quarter sales of $76.8 million increased $25.1 million, or 49%, versus the prior year period. Harvest volumes increased 25% to 1.90 million tons versus 1.51 million tons in the prior year period , as drier ground conditions enabled stumpage customers to ramp up production to meet strong demand. Average pine sawtimber stumpage prices increased 29% to $35.46 per ton versus $27.51 per ton in the prior year period, driven by strong domestic lumber demand coupled with elevated chip-n-saw pricing due to increased competition from pulp mills. Average pine pulpwood stumpage prices increased 41% to $24.11 per ton versus $17.10 per ton in the prior year period, reflecting strong competition across our wood baskets as customers looked to secure supply and replenish low mill inventories. Overall, weighted-average stumpage prices (including hardwood) increased 31% to $27.94 per ton versus $21.35 per ton in the prior year period. Operating income of $30.3 million increased $13.0 million versus the prior year period due to higher net stumpage realizations ($12.5 million) and higher volumes ($4.5 million), partially offset by higher costs ($2.1 million), lower non-timber income ($1.8 million) and higher depletion rates ($0.1 million). First quarter Adjusted EBITDA of $48.4 million was 53%, or $16.7 million, above the prior year period. PACIFIC NORTHWEST TIMBER First quarter sales of $46.3 million increased $4.8 million, or 11%, versus the prior year period, notwithstanding a decline in harvest volumes of 6% to 505,000 tons versus 536,000 tons in the prior year period. Average delivered sawtimber prices increased 16% to $105.69 per ton versus $90.98 per ton in the prior year period, driven by strong domestic lumber demand. Average delivered pulpwood prices increased 28% to $37.69 per ton versus $29.36 per ton in the prior year period, primarily driven by improved demand due to the restart of idled pulp mill capacity in the region . Operating income of $6.6 million improved $5.3 million versus the prior year period due to higher net stumpage realizations ($5.8 million) and lower depletion rates ($0.4 million), partially offset by higher costs ($0.5 million), lower volumes ($0.3 million) and lower non-timber income ($0.1 million). First quarter Adjusted EBITDA of $21.5 million was 22%, or $3.9 million, above the prior year period. NEW ZEALAND TIMBER First quarter sales of $51.4 million decreased $6.2 million, or 11%, versus the prior year period. Harvest volumes decreased 14% to 515,000 tons versus 599,000 tons in the prior year period , as production at the beginning of the year was deferred in response to port congestion and elevated log inventories in China. Average delivered prices for export sawtimber increased 5% to $127.59 per ton versus $121.65 per ton in the prior year period. The increase in export sawtimber prices versus the prior year period reflected the ability of log exporters to partially pass on higher costs to customers, as well as the newly implemented restriction on competing log imports into China from Russia. However, favorable export pricing was more than offset by higher shipping and demurrage costs due to ongoing supply chain and port congestion issues. Average delivered prices for domestic sawtimber decreased 6% to $75.99 per ton versus $80.95 per ton in the prior year period. The decrease in 46 domestic sawtimber prices (in U.S. dollar terms) was driven by the decline in the NZ$/US$ exchange rate (US$0.67 per NZ$1.00 versus US$0.72 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices improved 1% versus the prior year period . Operating income of $5.4 million decreased $8.6 million versus the prior year period due to lower net stumpage realizations ($6.2 million), lower volumes ($2.6 million), higher costs ($0.6 million) and unfavorable foreign exchange impacts ($1.5 million), partially offset by higher carbon credit sales ($1.5 million) and lower depletion rates ($0.8 million). First quarter Adjusted EBITDA of $10.4 million was 51%, or $10.8 million, below the prior year period. TIMBER FUNDS During 2021, we sold the rights to manage Fund III and Fund IV, as well as our ownership interests in both funds, and we completed the liquidation of Fund II timberland assets. As such, we had no sales, operating income or Adjusted EBITDA in the current quarter in the Timber Funds segment, as will be the case going forward. In the prior year period the Timber Funds segment generated first quarter sales of $14.9 million on harvest volumes of 145,000 tons, resulting in operating income of $1.5 million . Adjusting for the portion of the Timber Funds segment attributable to noncontrolling interests, pro forma sales and pro forma operating income were $3.0 million and $0.4 million , respectively. First quarter Adjusted EBITDA was $1.0 million in the prior year period. REAL ESTATE First quarter sales of $34.2 million increased $23.7 million versus the prior year period, while operating income of $10.2 million increased $8.5 million versus the prior year period. Higher segment results in the current year period were driven by a significant increase in the number of acres sold (8,734 acres sold versus 2,395 acres sold in the prior year period), partially offset by a decrease in weighted-average prices ($3,815 per acre versus $4,183 per acre in the prior year period). Improved Development sales of $5.0 million included $3.6 million from the Wildlight development project north of Jacksonville, Florida and $1.4 million from the Richmond Hill development project (which has now been branded as Heartwood) south of Savannah, Georgia. Sales in Wildlight consisted of 52 residential lots, reflecting an average price of $70,000 per lot or $339,000 per acre. Sales in Richmond Hill (Heartwood) included ten residential lots for $0.4 million (an average price of $44,000 per lot or $251,000 per acre) and a 4-acre commercial property for $0.9 million ($246,000 per acre). This compares to prior year period Improved Development sales of $0.3 million. There were no Unimproved Development sales in the first quarter or the prior year period. Rural sales of $16.9 million consisted of 4,751 acres at an average price of $3,567 per acre. This compares to prior year period sales of $9.8 million, which consisted of 2,394 acres at an average price of $4,079 per acre. Timberland & Non-Strategic sales of $11.4 million consisted of 3,966 acres at an average price of $2,874 per acre. There were no Timberland & Non-Strategic sales in the prior year period. First quarter Adjusted EBITDA of $24.7 million was $19.6 million above the prior year period. TRADING First quarter sales of $13.4 million decreased $3.2 million versus the prior year period primarily due to lower volumes, partially offset by higher prices. Sales volumes decreased 21% to 112,000 tons versus 141,000 tons in the prior year period, reflecting elevated log inventories in China and constrained export market demand. The Trading segment generated operating income of $0.4 million versus $0.2 million in the prior year period. OTHER ITEMS CORPORATE AND OTHER EXPENSE / ELIMINATIONS First quarter corporate and other operating expenses of $7.6 million were flat versus the prior year period. INTEREST EXPENSE First quarter interest expense of $8.3 million decreased $1.7 million versus the prior year period due to lower average outstanding debt and lower borrowing costs. INCOME TAX EXPENSE First quarter income tax expense of $5.5 million increased $2.1 million versus the prior year period. The New Zealand subsidiary is generally the primary driver of income tax expense, although the increase in the first quarter was attributable to the retirement of an installment note in the taxable REIT subsidiary. 47 OUTLOOK In our Southern Timber segment, we anticipate lower quarterly harvest volumes for the remainder of the year as compared to the first quarter, as we experienced above-average stumpage removals to start the year. Also, while we expect net stumpage realizations to remain above prior year levels, we anticipate modestly lower weighted-average prices for the remainder of the year as compared to the first quarter due to higher mill inventories, a higher proportion of thinning volume, and a less favorable geographic mix. In our Pacific Northwest Timber segment, we expect lower quarterly harvest volumes for the balance of the year following strong removals in the first quarter. We further expect that weighted-average log prices will remain near first quarter levels for the balance of the year, driven by continued strong sawtimber demand and improving pulpwood markets. In our New Zealand Timber segment, we expect increased quarterly harvest volumes for the balance of the year. While a significant level of uncertainty remains around the ongoing COVID-19 related disruptions in China, we expect that once demand stabilizes, constrained log supplies will drive export sawtimber prices higher. We further expect that domestic sawtimber and pulpwood pricing will remain relatively flat for the remainder of the year. In our Real Estate segment, we anticipate lower quarterly results for the remainder of the year following a strong first quarter. LIQUIDITY AND CAPITAL RESOURCES Our principal source of cash is cash flow from operations, primarily the harvesting of timber and sales of real estate. As an UPREIT, our main use of cash is dividends and unitholder distributions. We also use cash to maintain the productivity of our timberlands through replanting and silviculture. Our operations have generally produced consistent cash flow and required limited capital resources. Short-term borrowings have helped fund working capital needs while acquisitions of timberlands generally require funding from external sources or Large Dispositions. SUMMARY OF LIQUIDITY AND FINANCING COMMITMENTS March 31, December 31, (millions of dollars) 2022 2021 Cash and cash equivalents (excluding Timber Funds) $256.5 $358.7 Total debt (a) 1,254.1 1,376.1 Noncontrolling interests in the operating partnership 136.2 133.8 Shareholders’ equity 1,881.6 1,815.6 Total capitalization (total debt plus permanent and temporary equity) 3,271.9 3,325.5 Debt to capital ratio 38 % 41 % Net debt to enterprise value (b)(c) 14 % 14 % (a) Total debt as of March 31, 2022 and December 31, 2021 reflects principal on long-term debt, gross of deferred financing costs and unamortized discounts. (b) Net debt is calculated as total debt less cash and cash equivalents. (c) Enterprise value based on market capitalization (including Rayonier, L.P. “OP” units) plus net debt based on Rayonier’s share price of $41.12 and $40.36 as of March 31, 2022 and December 31, 2021, respectively. 48 AT-THE-MARKET (“ATM”) EQUITY OFFERING PROGRAM On September 10, 2020, we entered into a distribution agreement with a group of sales agents through which we may sell common shares, from time to time, having an aggregate sales price of up to $300 million. As of March 31, 2022, $1.0 million remains available for issuance under the program. The following table outlines common share issuances pursuant to our ATM program (dollars in millions): Three Months Ended March 31, 2022 2021 Shares of common stock issued under the ATM program 726,248 1,107,814 Average price per share sold under the ATM program $41.46 $33.31 Gross proceeds from common shares issued under the ATM program $30.1 $36.9 CASH FLOWS The following table summarizes our cash flows from operating, investing and financing activities for the three months ended March 31, 2022 and 2021: (millions of dollars) 2022 2021 Cash provided by (used for): Operating activities $49.7 $53.9 Investing activities (18.9) (44.4) Financing activities (134.7) (13.8) CASH PROVIDED BY OPERATING ACTIVITIES Cash provided by operating activities decreased $4.2 million from the prior year period primarily due to changes in working capital, partially offset by higher operating results. CASH USED FOR INVESTING ACTIVITIES Cash used for investing activities decreased $25.5 million from the prior year period primarily due to lower timberland acquisitions ($27.1 million) and lower capital expenditures ($0.2 million), partially offset by other investing activities ($1.7 million) and higher real estate development investments ($0.1 million). CASH USED FOR FINANCING ACTIVITIES Cash used for financing activities increased $120.9 million from the prior year period primarily due to lower net borrowings ($122.9 million), lower net proceeds from the issuance of common shares under the ATM equity offering program ($1.6 million), higher dividends paid on common shares ($2.0 million), lower proceeds from the issuance of common shares under the Company’s incentive stock plan ($0.6 million) and higher share repurchases ($0.1 million), partially offset by lower distributions to consolidated affiliates ($6.0 million), and lower distributions to noncontrolling interests in the operating partnership ($0.3 million). 49 FUTURE USES OF CASH We expect future uses of cash to include working capital requirements, principal and interest payments on long-term debt, lease payments, capital expenditures, real estate development investments, timberland acquisitions, dividends on Rayonier Inc. common shares and distributions on Rayonier, L.P. units, distributions to noncontrolling interests, repurchases of the Company’s common shares and to satisfy other commitments. Significant long-term uses of cash include the following (in millions): Future uses of cash (in millions) Total Payments Due by Period 2022 2023-2024 2025-2026 Thereafter Long-term debt (a) $1,252.0 — — $252.0 $1,000.0 Current maturities of long-term debt (b) 2.1 2.1 — — — Interest payments on long-term debt (b) 207.1 24.5 57.1 52.9 72.6 Operating leases — timberland (c) 188.6 7.3 15.0 14.4 151.9 Operating leases — PP&E, offices (c) 9.0 1.4 2.3 1.3 4.0 Commitments — development projects (d) 25.8 17.8 3.5 0.6 3.9 Commitments — derivatives (e) 37.6 8.5 18.9 6.9 3.3 Commitments — environmental remediation (f) 11.3 0.7 7.7 1.5 1.4 Commitments — other (g) 1.2 0.6 0.5 0.1 — Total $1,734.7 $62.9 $105.0 $329.7 $1,237.1 (a) The book value of long-term debt, net of deferred financing costs and unamortized discounts, is currently recorded at $1,243.7 million on our Consolidated Balance Sheets, but upon maturity the liability will be $1,252.0 million. See Note 6 - Debt for additional information. (b) Projected interest payments for variable-rate debt were calculated based on outstanding principal amounts and interest rates as of March 31, 2022. (c) Excludes anticipated renewal options. (d) Commitments — developmental projects primarily consists of payments expected to be made on our Wildlight and Heartwood projects. (e) Commitments — derivatives represent payments expected to be made on derivative financial instruments (interest rate swaps and forward-starting interest rate swaps). See Note 7 — Derivative Financial Instruments and Hedging Activities for additional information. (f) Commitments — environmental remediation represents our estimate of potential liability associated with environmental contamination and Natural Resource Damages in Port Gamble, Washington. See Note 11 - Environmental and Natural Resource Damage Liabilities for additional information. (g) Commitments — other includes other purchase obligations. We expect to fund future uses of cash with a combination of existing cash balances, cash generated by operating activities, the remaining issuances available under the Company’s ATM Program, Large Dispositions and the use of our revolving credit facilities. EXPECTED 2022 EXPENDITURES Capital expenditures in 2022 are expected to be between $81 million and $84 million, excluding any strategic timberland acquisitions we may make. Capital expenditures are expected to primarily consist of seedling planting, fertilization and other silvicultural activities, property taxes, lease payments, allocated overhead and other capitalized costs. Aside from capital expenditures, we may also acquire timberland as we actively evaluate acquisition opportunities. We anticipate real estate development investments in 2022 to be between $23 million and $25 million, net of reimbursements from community development bonds. Expected real estate development investments are primarily related to Wildlight, our mixed-use community development project located north of Jacksonville, Florida; Heartwood, our mixed-use development project located in Richmond Hill just south of Savannah, Georgia; development properties in the town of Port Gamble, Washington; and development projects in Gig Harbor, Kingston and Bremerton, Washington. Our 2022 dividend payments on Rayonier Inc. common shares and distributions to Rayonier, L.P. unitholders are expected to be approximately $158 million and $3.6 million, respectively, assuming no change in the quarterly 50 dividend rate of $0.27 per share or partnership unit, or material changes in the number of shares or partnership units outstanding. Future share repurchases, if any, will depend on the Company’s liquidity and cash flow, as well as general market conditions and other considerations including capital allocation priorities. We have no mandatory pension contribution requirements in the current year. First quarter cash tax payments were elevated due to the required timing of tax payments for our New Zealand subsidiary following the full utilization of its NOLs. Full-year 2022 cash tax payments are expected to be approximatel y $17.0 million, primarily related to the New Zealand subsidiary. OFF-BALANCE SHEET ARRANGEMENTS We utilize off-balance sheet arrangements to provide credit support for certain suppliers and vendors in case of their default on critical obligations, and collateral for outstanding claims under our previous workers’ compensation self-insurance programs. These arrangements consist of standby letters of credit and surety bonds. As part of our ongoing operations, we also periodically issue guarantees to third parties. Off-balance sheet arrangements are not considered a source of liquidity or capital resources and do not expose us to material risks or material unfavorable financial impacts. See Note 12 — Guarantees for details on the letters of credit and surety bonds as of March 31, 2022. SUMMARY OF GUARANTOR FINANCIAL INFORMATION In May 2021, Rayonier, L.P. issued $450 million of 2.75% Senior Notes due 2031 (the “Senior Notes due 2031”). Rayonier TRS Holdings Inc., and Rayonier Inc. agreed to irrevocably, fully and unconditionally guarantee jointly and severally, the obligations of Rayonier, L.P. in regards to the Senior Notes due 2031. As a general partner of Rayonier, L.P., Rayonier Inc. consolidates Rayonier, L.P. and has no material assets or liabilities other than its interest in Rayonier, L.P. These notes are unsecured and unsubordinated and will rank equally with all other unsecured and unsubordinated indebtedness from time to time outstanding. Rayonier, L.P. is a limited partnership, in which Rayonier Inc. is the general partner. The operating subsidiaries of Rayonier, L.P. conduct all of our operations. Rayonier, L.P.’s most significant assets are its interest in operating subsidiaries, which have been eliminated in the table below to eliminate intercompany transactions between the issuer and guarantors and to exclude investments in non-guarantors. As a result, our ability to make required payments on the notes depends on the performance of our operating subsidiaries and their ability to distribute funds to us. There are no material restrictions on dividends from the operating subsidiaries. The summarized balance sheet information for the consolidated obligor group of debt issued by Rayonier, L.P. for the three months ended March 31, 2022 and year ended December 31, 2021 are provided in the table below: (in millions) March 31, 2022 December 31, 2021 Current assets $257.6 $335.8 Non-current assets 75.6 54.6 Current liabilities 20.1 146.0 Non-current liabilities 1,800.6 1,821.7 Due to non-guarantors 565.6 570.4 The summarized results of operations information for the consolidated obligor group of debt issued by Rayonier, L.P. for the three months ended March 31, 2022 and year ended December 31, 2021 are provided in the table below: (in millions) March 31, 2022 December 31, 2021 Cost and expenses ($6.5) ($27.5) Operating loss (6.5) (27.3) Net loss (16.2) (69.7) Revenue from non-guarantors 222.0 1,109.4 51 PERFORMANCE AND LIQUIDITY INDICATORS The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity, and ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures of financial results: Adjusted Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (“Adjusted EBITDA”) and Cash Available for Distribution (“CAD”). These measures are not defined by Generally Accepted Accounting Principles (“GAAP”), and the discussion of Adjusted EBITDA and CAD is not intended to conflict with or change any of the GAAP disclosures described above. Management uses CAD as a liquidity measure. CAD is a non-GAAP measure of cash generated during a period that is available for common share dividends, distributions to operating partnership unitholders, distributions to noncontrolling interests, repurchase of the Company’s common shares, debt reduction, timberland acquisitions and real estate development investments. CAD is defined as cash provided by operating activities adjusted for capital spending (excluding timberland acquisitions and real estate development investments), CAD attributable to noncontrolling interests in Timber Funds, working capital and other balance sheet changes. CAD is not necessarily indicative of the CAD that may be generated in future periods. Management uses Adjusted EBITDA as a performance measure. Adjusted EBITDA is a non-GAAP measure that management uses to make strategic decisions about the business and that investors can use to evaluate the operational performance of the assets under management. It excludes specific items that management believes are not indicative of the Company’s ongoing operating results. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, depletion, amortization, the non-cash cost of land and improved development, non-operating income and expense and operating income attributable to noncontrolling interests in Timber Funds. We reconcile Adjusted EBITDA to Net Income for the consolidated Company and to Operating Income for the segments, as those are the most comparable GAAP measures for each. The following table provides a reconciliation of Net Income to Adjusted EBITDA for the respective periods (in millions of dollars): Three Months Ended March 31, 2022 2021 Net Income to Adjusted EBITDA Reconciliation Net Income $31.0 $15.0 Operating income attributable to NCI in Timber Funds — (1.1) Interest, net attributable to NCI in Timber Funds — 0.1 Net Income (Excluding NCI in Timber Funds) 31.0 14.0 Interest, net and miscellaneous income attributable to Rayonier 8.2 9.9 Income tax expense attributable to Rayonier 5.5 3.5 Depreciation, depletion and amortization attributable to Rayonier 47.4 40.3 Non-cash cost of land and improved development 5.4 1.8 Non-operating expense 0.6 — Adjusted EBITDA $98.1 $69.5 52 The following tables provide a reconciliation of Operating Income by segment to Adjusted EBITDA by segment for the respective periods (in millions of dollars): Three Months Ended Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Corporate and Other Total March 31, 2022 Operating income $30.3 $6.6 $5.4 — $10.2 $0.4 ($7.6) $45.3 Depreciation, depletion and amortization 18.1 14.9 5.0 — 9.1 — 0.3 47.4 Non-cash cost of land and improved development — — — — 5.4 — — 5.4 Adjusted EBITDA $48.4 $21.5 $10.4 — $24.7 $0.4 ($7.2) $98.1 March 31, 2021 Operating income $17.3 $1.3 $14.0 $1.5 $1.7 $0.2 ($7.6) $28.5 Operating income attributable to NCI in Timber Funds — — — (1.1) — — — (1.1) Depreciation, depletion and amortization 14.4 16.3 7.2 0.6 1.6 — 0.3 40.3 Non-cash cost of land and improved development — — — — 1.8 — — 1.8 Adjusted EBITDA $31.7 $17.6 $21.2 $1.0 $5.1 $0.2 ($7.3) $69.5 The following table provides a reconciliation of Cash Provided by Operating Activities to Adjusted CAD (in millions of dollars): Three Months Ended March 31, 2022 2021 Cash provided by operating activities $49.7 $53.9 Capital expenditures (a) (15.6) (15.8) CAD attributable to NCI in Timber Funds — (4.6) Working capital and other balance sheet changes 30.4 13.8 CAD $64.5 $47.3 Mandatory debt repayments (2.1) — CAD after mandatory debt repayments $62.4 $47.3 Cash used for investing activities ($18.9) ($44.4) Cash used for financing activities ($134.7) ($13.8) (a) Capital expenditures exclude timberland acquisitions of $2.8 million and $29.9 million during the three months ended March 31, 2022 and March 31, 2021, respectively. The following table provides supplemental cash flow data (in millions): Three Months Ended March 31, 2022 2021 Purchase of timberlands ($2.8) ($29.9) Real Estate Development Investments (3.1) (3.0) Distributions to noncontrolling interests in consolidated affiliates (2.7) (8.7) LIQUIDITY FACILITIES 2022 DEBT ACTIVITY See Note 6 — Debt for additional information. 53