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. OBJECTIVE The objective of the Management’s Discussion and Analysis is to detail material information, events, uncertainties and other factors impacting the Company and the Operating Partnership and to provide investors an understanding of “Management’s perspective.” Item 7, Management’s Discussion and Analysis (“MD&A”) highlights the critical areas for evaluating the Company’s performance which includes a discussion on the reportable segments, liquidity and capital, and critical accounting estimates. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and notes. 42 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 September 30, 2022, we owned or leased under long-term agreements approximately 2.7 million acres of timberlands located in the U.S. South (1.79 million acres), U.S. Pacific Northwest (486,000 acres) and New Zealand (417,000 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. 43 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 Asian markets, particularly in China and South Korea. 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. During 2022, global log and lumber markets have experienced increased volatility due in part to Russia’s invasion of Ukraine and subsequent sanctions placed on Russia. 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 extent of economic disruption resulting from the pandemic 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. Our Real Estate segment is impacted by changes in interest and mortgage rates. Recent increases in the federal funds interest rate by the U.S. Federal Reserve and the corresponding impact on mortgage rates will likely impact the affordability of the properties we sell. As a result, we expect that demand for our rural and development real estate properties could moderate if interest rates remain elevated or increase further. For additional information on market conditions impacting our business, see Results of Operations . CRITICAL ACCOUNTING 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. 44 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 September 30, 2022 and December 31, 2021: (acres in 000s) As of September 30, 2022 As of December 31, 2021 Owned Leased Total Owned Leased Total Southern Alabama 223 14 237 223 14 237 Arkansas — 4 4 — 4 4 Florida 348 51 399 350 51 401 Georgia 618 64 682 619 64 683 Louisiana 139 — 139 140 — 140 Oklahoma 91 — 91 92 — 92 South Carolina 16 — 16 16 — 16 Texas 221 — 221 225 — 225 1,656 133 1,789 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) 187 230 417 187 232 419 Total 2,325 367 2,692 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 September 30, 2022, legal acres in New Zealand consisted of 297,000 plantable acres and 120,000 non-productive acres. 45 The following tables detail activity for owned and leased acres in our timberland holdings by state from December 31, 2021 to September 30, 2022: (acres in 000s) Acres Owned December 31, 2021 Acquisitions Sales Other September 30, 2022 Southern Alabama 223 1 (1) — 223 Florida 350 1 (3) — 348 Georgia 619 — (1) — 618 Louisiana 140 — (1) — 139 Oklahoma 92 — (1) — 91 South Carolina 16 — — — 16 Texas 225 — (4) — 221 1,665 2 (11) — 1,656 Pacific Northwest Oregon 61 — — — 61 Washington 425 — (4) — 421 486 — (4) — 482 New Zealand (a) 187 — — — 187 Total 2,338 2 (15) — 2,325 (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 September 30, 2022 Southern Alabama 14 — — — 14 Arkansas 4 — — — 4 Florida 51 — — — 51 Georgia 64 — — — 64 133 — — — 133 Pacific Northwest Washington (b) 4 — — — 4 New Zealand (c) 232 — (2) — 230 Total 369 — (2) — 367 (a) Includes acres previously under lease that have been harvested and activity for the relinquishment of leased acres. (b) Primarily timber reservations acquired in the merger with Pope Resources. (c) Represents legal acres leased by the New Zealand subsidiary, in which we have a 77% interest. 46 RESULTS OF OPERATIONS CONSOLIDATED RESULTS The following table provides key financial information by segment and on a consolidated basis: Three Months Ended September 30, Nine Months Ended September 30, Financial Information (in millions) 2022 2021 2022 2021 Sales Southern Timber $64.5 $44.8 $207.6 $145.8 Pacific Northwest Timber 34.4 31.5 119.8 108.4 New Zealand Timber 72.5 75.6 202.7 213.7 Timber Funds (a) — 94.5 — 128.1 Real Estate Improved Development 2.3 27.8 18.8 47.4 Unimproved Development — 37.5 — 37.5 Rural 7.0 6.9 47.3 37.0 Timberland & Non-Strategic — — 11.4 — Conservation Easement — — — 3.9 Deferred Revenue/Other (b) 3.2 1.1 3.5 (3.4) Large Dispositions — 20.0 — 56.0 Total Real Estate 12.4 93.4 81.0 178.4 Trading 11.6 25.6 52.7 76.8 Intersegment Eliminations (0.1) (0.7) (0.2) (3.6) Total Sales $195.3 $364.7 $663.7 $847.6 Operating Income Southern Timber $22.5 $12.8 $76.9 $47.1 Pacific Northwest Timber 2.2 2.1 11.7 5.3 New Zealand Timber 9.3 13.3 22.7 48.0 Timber Funds (a) — 41.3 — 44.8 Real Estate (b)(c) 15.7 60.6 37.0 112.8 Trading 0.2 — 0.1 0.6 Corporate and Other (9.0) (6.7) (26.6) (22.3) Operating Income 40.9 123.3 121.7 236.2 Interest expense, interest income and other (7.8) (10.0) (25.5) (34.1) Income tax expense (1.2) (2.8) (8.1) (13.1) Net Income 31.9 110.5 88.1 189.0 Less: Net income attributable to noncontrolling interests in consolidated affiliates (d) (10.8) (32.5) (12.4) (40.8) Net Income Attributable to Rayonier, L.P. $21.1 $78.0 $75.7 $148.2 Less: Net income attributable to noncontrolling interests in the operating partnership (0.5) (2.2) (1.7) (4.3) Net Income Attributable to Rayonier Inc. $20.6 $75.8 $74.0 $143.9 Adjusted EBITDA (e) Southern Timber $36.6 $24.4 $123.7 $86.6 Pacific Northwest Timber 12.6 12.5 48.4 44.1 New Zealand Timber 15.6 19.9 40.8 68.7 Timber Funds — 0.5 — 2.8 Real Estate 8.4 63.8 58.4 97.9 Trading 0.2 — 0.1 0.6 Corporate and Other (8.6) (6.4) (25.7) (21.4) Total Adjusted EBITDA $64.7 $114.6 $245.8 $279.4 (a) The three and nine months ended September 30, 2021 includes sales and operating income of $87.1 million and $36.0 million, respectively, from Fund II Timberland Dispositions. (b) Includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue. (c) The three and nine months ended September 30, 2022 includes $16.0 million of equity income related to the multi-family apartment complex sale in Bainbridge Island, Washington. The three and nine months ended September 30, 2021 includes $14.5 million and $44.8 million, respectively, from Large Dispositions. (d) The three and nine months ended September 30, 2021 includes a $28.8 million gain from Fund II Timberland Dispositions. (e) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators . 47 Three Months Ended September 30, Nine Months Ended September 30, Southern Timber Overview 2022 2021 2022 2021 Sales Volume (in thousands of tons) Pine Pulpwood 965 793 3,098 2,524 Pine Sawtimber 449 378 1,529 1,532 Total Pine Volume 1,414 1,171 4,627 4,056 Hardwood 85 14 291 109 Total Volume 1,499 1,185 4,918 4,165 % Delivered Volume (vs. Total Volume) 47 % 47 % 43 % 40 % % Pine Sawtimber Volume (vs. Total Pine Volume) 32 % 32 % 33 % 38 % % Export Volume (vs. Total Volume) (a) 2 % 6 % 2 % 5 % Net Stumpage Pricing (dollars per ton) Pine Pulpwood $22.77 $19.14 $22.88 $18.25 Pine Sawtimber 33.31 28.06 34.40 27.62 Weighted Average Pine $26.12 $22.02 $26.69 $21.79 Hardwood 20.59 10.94 24.33 14.64 Weighted Average Total $25.80 $21.88 $26.55 $21.60 Summary Financial Data (in millions of dollars) Timber Sales $57.7 $39.3 $186.9 $127.2 Less: Cut and Haul (17.3) (10.6) (50.5) (30.9) Less: Port and Freight (1.6) (2.7) (5.7) (6.4) Net Stumpage Sales $38.8 $25.9 $130.7 $90.0 Non-Timber Sales 6.8 5.5 20.7 18.6 Total Sales $64.5 $44.8 $207.6 $145.8 Operating Income $22.5 $12.8 $76.9 $47.1 (+) Depreciation, depletion and amortization 14.1 11.6 46.8 39.5 Adjusted EBITDA (b) $36.6 $24.4 $123.7 $86.6 Other Data Period-End Acres (in thousands) 1,789 1,739 1,789 1,739 (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 . 48 Three Months Ended September 30, Nine Months Ended September 30, Pacific Northwest Timber Overview 2022 2021 2022 2021 Sales Volume (in thousands of tons) Pulpwood 59 66 214 216 Sawtimber 248 279 974 1,066 Total Volume 307 346 1,188 1,282 % Delivered Volume (vs. Total Volume) 100 % 89 % 90 % 86 % % Sawtimber Volume (vs. Total Volume) 81 % 81 % 82 % 83 % % Export Volume (vs. Total Volume) (a) 12 % 20 % 10 % 16 % Delivered Log Pricing (in dollars per ton) Pulpwood $50.74 $31.34 $44.44 $29.86 Sawtimber 117.86 107.56 112.65 97.79 Weighted Average Log Price $104.97 $92.67 $100.18 $86.08 Summary Financial Data (in millions of dollars) Timber Sales $32.6 $30.2 $115.6 $104.3 Less: Cut and Haul (13.9) (12.0) (46.7) (42.4) Less: Port and Freight (0.2) — (0.7) — Net Stumpage Sales $18.5 $18.3 $68.3 $61.9 Non-Timber Sales 1.8 1.3 4.2 4.0 Total Sales $34.4 $31.5 $119.8 $108.4 Operating Income $2.2 $2.1 $11.7 $5.3 (+) Timber write-offs resulting from a casualty event (b) 1.1 — 1.1 — (+) Depreciation, depletion and amortization 9.4 10.5 35.6 38.8 Adjusted EBITDA (c) $12.6 $12.5 $48.4 $44.1 Other Data Period-End Acres (in thousands) 486 490 486 490 Sawtimber (in dollars per MBF) (d) $860 $803 $866 $758 (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) Timber write-offs resulting from a casualty event include the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which cannot be salvaged. (c) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators . (d) Delivered Sawtimber excluding chip-n-saw. 49 Three Months Ended September 30, Nine Months Ended September 30, New Zealand Timber Overview 2022 2021 2022 2021 Sales Volume (in thousands of tons) Domestic Pulpwood (Delivered) 103 114 302 324 Domestic Sawtimber (Delivered) 221 185 544 517 Export Pulpwood (Delivered) 38 43 129 146 Export Sawtimber (Delivered) 349 326 954 973 Total Volume 712 668 1,929 1,960 % Delivered Volume (vs. Total Volume) 100 % 100 % 100 % 100 % % Sawtimber Volume (vs. Total Volume) 80 % 76 % 78 % 76 % % Export Volume (vs. Total Volume) (a) 54 % 55 % 56 % 57 % Delivered Log Pricing (in dollars per ton) Domestic Pulpwood $33.13 $43.35 $34.20 $42.29 Domestic Sawtimber 69.69 85.00 73.72 83.79 Export Sawtimber 123.07 149.68 130.71 140.89 Weighted Average Log Price $92.76 $112.65 $98.92 $108.63 Summary Financial Data (in millions of dollars) Timber Sales $66.1 $75.3 $190.9 $212.9 Less: Cut and Haul (25.8) (23.3) (71.6) (69.3) Less: Port and Freight (23.1) (26.6) (69.8) (61.7) Net Stumpage Sales $17.2 $25.4 $49.4 $81.8 Non-Timber Sales / Carbon Credits 6.4 0.2 11.9 0.8 Total Sales $72.5 $75.6 $202.7 $213.7 Operating Income $9.3 $13.3 $22.7 $48.0 (+) Depreciation, depletion and amortization 6.3 6.6 18.2 20.8 Adjusted EBITDA (b) $15.6 $19.9 $40.8 $68.7 Other Data New Zealand Dollar to U.S. Dollar Exchange Rate (c) 0.6223 0.7017 0.6479 0.7125 Net Plantable Period-End Acres (in thousands) 297 297 297 297 Export Sawtimber (in dollars per JAS m 3 ) $143.09 $174.03 $151.98 $163.81 Domestic Sawtimber (in $NZD per tonne) $123.19 $133.26 $125.16 $129.35 (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. 50 Three Months Ended September 30, Nine Months Ended September 30, Real Estate Overview 2022 2021 2022 2021 Sales (in millions of dollars) Improved Development $2.3 $27.8 $18.8 $47.4 Unimproved Development — 37.5 — 37.5 Rural 7.0 6.9 47.3 37.0 Timberland & Non-Strategic — — 11.4 — Conservation Easement — — — 3.9 Deferred Revenue/Other (a) 3.2 1.1 3.5 (3.4) Large Dispositions (b) — 20.0 — 56.0 Total Sales $12.4 $93.4 $81.0 $178.4 Acres Sold Improved Development 19.0 479.0 95.9 768.8 Unimproved Development — 359 — 359 Rural 1,809 3,260 11,194 13,379 Timberland & Non-Strategic — 34 3,966 34 Large Dispositions (b) — 8,088 — 16,622 Total Acres Sold 1,828 12,219 15,256 31,162 Gross Price per Acre (dollars per acre) Improved Development $121,106 $57,988 $196,311 $61,608 Unimproved Development — 104,579 — 104,579 Rural 3,848 2,128 4,228 2,765 Timberland & Non-Strategic — 1,297 2,874 1,297 Large Dispositions (b) — 2,479 — 3,372 Weighted Average (Total) (c) $5,064 $17,490 $5,084 $8,384 Weighted Average (Adjusted) (d) $3,848 $12,179 $3,874 $5,413 Sales (Excluding Large Dispositions) $12.4 $73.4 $81.0 $122.4 Operating Income $15.7 $60.6 $37.0 $112.8 (+) Depreciation, depletion and amortization 1.0 1.8 12.7 7.1 (+) Non-cash cost of land and improved development 3.1 15.8 20.3 22.8 (–) Gain associated with the multi-family apartment complex sale attributable to NCI (e) (11.5) — (11.5) — (–) Large Dispositions (b) — (14.5) — (44.8) Adjusted EBITDA (f) $8.4 $63.8 $58.4 $97.9 (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) Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. (c) Excludes Large Dispositions. (d) Excludes Improved Development and Large Dispositions. (e) Gain associated with the multi-family apartment complex sale attributable to NCI represents the gain recognized in connection with the sale of property by the Bainbridge Landing joint venture attributable to noncontrolling interests. (f) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators . 51 Three Months Ended September 30, Nine Months Ended September 30, Trading Overview 2022 2021 2022 2021 Sales Volume (in thousands of tons) U.S. 11 1 54 1 NZ 84 176 361 560 Total Volume 95 177 415 561 Summary Financial Data (in millions of dollars) Trading Sales $11.2 $25.1 $51.5 $75.5 Non-Timber Sales 0.4 0.4 1.2 1.3 Total Sales $11.6 $25.6 $52.7 $76.8 Operating Income $0.2 — $0.1 $0.6 Adjusted EBITDA (a) $0.2 — $0.1 $0.6 (a) Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators . 52 Three Months Ended September 30, Nine Months Ended September 30, Capital Expenditures By Segment (in millions of dollars) 2022 2021 2022 2021 Timber Capital Expenditures Southern Timber Reforestation, silviculture and other capital expenditures $5.4 $3.6 $11.5 $11.1 Property taxes 1.9 1.7 5.6 5.0 Lease payments 0.1 0.1 1.0 1.1 Allocated overhead 1.2 1.0 3.6 3.2 Subtotal Southern Timber $8.6 $6.5 $21.7 $20.4 Pacific Northwest Timber Reforestation, silviculture and other capital expenditures 2.3 2.0 7.5 6.4 Property taxes 0.3 0.3 0.8 0.8 Allocated overhead 1.3 1.1 4.0 3.5 Subtotal Pacific Northwest Timber $3.9 $3.4 $12.3 $10.7 New Zealand Timber Reforestation, silviculture and other capital expenditures 3.2 2.9 8.7 7.9 Property taxes 0.2 0.2 0.6 0.6 Lease payments 1.4 1.2 2.8 2.3 Allocated overhead 0.6 0.8 2.0 2.2 Subtotal New Zealand Timber $5.4 $5.0 $14.0 $13.1 Total Timber Segments Capital Expenditures $17.8 $14.9 $48.0 $44.2 Timber Funds (“Look-through”) (a) — 0.1 — 0.4 Real Estate 0.1 — 0.2 0.1 Total Capital Expenditures $17.9 $15.0 $48.2 $44.7 Timberland Acquisitions Southern Timber — — $3.2 $41.0 New Zealand Timber — — — 10.9 Timberland Acquisitions — — $3.2 $51.9 Real Estate Development Investments (b) $4.9 $2.9 $10.9 $9.2 (a) The three and nine months ended September 30, 2021 exclude $0.3 million and $2.8 million, respectively, 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. 53 The following tables summarize sales, operating income (loss) and Adjusted EBITDA variances for September 30, 2022 versus September 30, 2021 (millions of dollars): Sales Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Intersegment Eliminations Total Three Months Ended September 30, 2021 $44.8 $31.5 $75.6 $94.5 $93.4 $25.6 ($0.7) $364.7 Volume 6.9 (2.0) 4.8 — (38.4) (11.7) — (40.4) Price 5.8 1.9 (11.2) — (21.7) (2.3) — (27.5) Non-timber sales 1.3 0.5 6.0 — — — — 7.8 Foreign exchange (a) — — (2.4) — — — — (2.4) Other 5.7 (b) 2.5 (b) (0.3) (c) (94.5) (d) (20.9) (e) — 0.6 (f) (106.9) Three Months Ended September 30, 2022 $64.5 $34.4 $72.5 — $12.4 $11.6 ($0.1) $195.3 (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 $20.0 million of sales from a Large Disposition in Q3 2021, residential and commercial lease income, revenue true-ups and marketing fees related to Improved Development sales and deferred adjustments. (f) Includes a decrease in Intersegment elimina tions related to timberland management fees paid to us by the timber funds and reported as sales within the Timber Funds segment. Sales Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Intersegment Eliminations Total Nine Months Ended September 30, 2021 $145.8 $108.4 $213.7 $128.1 $178.4 $76.8 ($3.6) $847.6 Volume 16.3 (4.5) (3.2) — 5.8 (19.7) — (5.3) Price 24.4 10.5 (33.8) — (48.4) (4.3) — (51.6) Non-timber sales 2.1 0.2 10.9 — — (0.1) — 13.1 Foreign exchange (a) — — (4.9) — — — — (4.9) Other 19.0 (b) 5.2 (b) 20.0 (c) (128.1) (d) (54.8) (e) — 3.4 (f) (135.2) Nine Months Ended September 30, 2022 $207.6 $119.8 $202.7 — $81.0 $52.7 ($0.2) $663.7 (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) Includ es $56.0 million of sales from a Large Disposition in addition to Conservation Easement sales in the nine months ended September 30, 2021, residential and commercial lease income, revenue true-ups and marketing fees related to Improved Development sales, conservation easement sales and deferred adjustments. (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. 54 Operating Income Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Corporate and Other Total Three Months Ended September 30, 2021 $12.8 $2.1 $13.3 $41.3 $60.6 — ($6.7) $123.3 Volume 3.8 (0.7) 1.4 — (28.9) — — (24.4) Price (a) 5.8 1.9 (11.2) — (21.7) — — (25.2) Cost (1.7) (0.5) (0.3) — (1.5) 0.2 (2.3) (6.1) Non-timber income (b) 1.3 0.5 6.0 — — — — 7.8 Foreign exchange (c) — — 0.2 — — — — 0.2 Depreciation, depletion & amortization 0.5 — (0.1) — — — — 0.4 Non-cash cost of land and improved development — — — — 3.8 — — 3.8 Other (d) — (1.1) — (41.3) 3.4 — — (39.0) Three Months Ended September 30, 2022 $22.5 $2.2 $9.3 — $15.7 $0.2 ($9.0) $40.9 (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. Real Estate includes a Large Disposition in Q3 2021, gain associated with the multi-family apartment complex sale attributable to NCI, residential and commercial lease income, revenue true-ups and marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments. Pacific Northwest Timber segment includes $1.1 million in timber write-offs resulting from casualty events. Operating Income Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Corporate and Other Total Nine Months Ended September 30, 2021 $47.1 $5.3 $48.0 $44.8 $112.8 $0.6 ($22.3) $236.2 Volume 9.1 (1.2) (1.0) — 4.2 — — 11.1 Price (a) 24.4 10.5 (33.8) — (48.4) — — (47.3) Cost (5.3) (2.4) (1.7) — (3.4) (0.5) (4.3) (17.6) Non-timber income (b) 1.9 0.2 10.9 — — — — 13.0 Foreign exchange (c) — — (0.2) — — — — (0.2) Depreciation, depletion & amortization (0.3) 0.4 0.5 — (5.3) — — (4.7) Non-cash cost of land and improved development — — — — 4.9 — — 4.9 Other (d) — (1.1) — (44.8) (27.8) — — (73.8) Nine Months Ended September 30, 2022 $76.9 $11.7 $22.7 — $37.0 $0.1 ($26.6) $121.7 (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. Real Estate includes a Large Disposition in addition to Conservation Easement sales in the nine months ended September 30, 2021, a gain associated with the multi-family apartment complex sale attributable to NCI, residential and commercial lease income, revenue true-ups and marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments. Pacific Northwest Timber segment includes $1.1 million in timber write-offs resulting from casualty events. 55 Adjusted EBITDA (a) Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Corporate and Other Total Three Months Ended September 30, 2021 $24.4 $12.5 $19.9 $0.5 $63.8 — ($6.4) $114.6 Volume 6.8 (1.8) 1.7 — (38.4) — — (31.7) Price (b) 5.8 1.9 (11.2) — (21.7) — — (25.2) Cost (1.7) (0.5) (0.3) — (1.5) 0.2 (2.2) (6.0) Non-timber income (c) 1.3 0.5 6.0 — — — — 7.8 Foreign exchange (d) — — (0.5) — — — — (0.5) Other (e) — — — (0.5) 6.2 — — 5.7 Three Months Ended September 30, 2022 $36.6 $12.6 $15.6 — $8.4 $0.2 ($8.6) $64.7 (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. Real Estate includes residential and commercial lease income, revenue true-ups and marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments. Adjusted EBITDA (a) Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Corporate and Other Total Nine Months Ended September 30, 2021 $86.6 $44.1 $68.7 $2.8 $97.9 $0.6 ($21.4) $279.4 Volume 16.1 (4.0) (1.3) — 5.8 — — 16.6 Price (b) 24.4 10.5 (33.8) — (48.4) — — (47.3) Cost (5.3) (2.4) (1.7) — (3.4) (0.5) (4.3) (17.6) Non-timber income (c) 1.9 0.2 10.9 — — — — 13.0 Foreign exchange (d) — — (2.0) — — — — (2.0) Other (e) — — — (2.8) 6.5 — — 3.7 Nine Months Ended September 30, 2022 $123.7 $48.4 $40.8 — $58.4 $0.1 ($25.7) $245.8 (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. Real Estate includes Conservation Easement sales in Q2 2021, residential and commercial lease income, revenue true-ups and marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments. SOUTHERN TIMBER Third quarter sales of $64.5 million increased $19.7 million, or 44%, versus the prior year period. Harvest volumes increased 27% to 1.50 million tons versus 1.19 million tons in the prior year period , as more favorable weather conditions led to improved production. Average pine sawtimber stumpage prices increased 19% to $33.31 per ton versus $28.06 per ton in the prior year period, due to continued strong demand from sawmills as well as competition from pulp mills for chip-n-saw volume. Average pine pulpwood stumpage prices rose 19% to $22.77 per ton versus $19.14 per ton in the prior year period, driven by strong end-market demand and a favorable geographic mix. Overall, weighted-average stumpage prices (including hardwood) increased 18% to $25.80 per ton versus $21.88 per ton in the prior year period. Operating income of $22.5 million increased $9.7 million versus the prior year period due to higher net stumpage realizations ($5.8 million), higher volumes ($3.8 million), higher non-timber income ($1.3 million), and lower depletion rates ($0.5 million), partially offset by higher overhead and other costs ($1.7 million). Third quarter Adjusted EBITDA of $36.6 million was 50%, or $12.2 million, above the prior year period. Year-to-date sales of $207.6 million increased $61.8 million, or 42%, versus the prior year period. Harvest volumes increased 18% to 4.92 million tons versus 4.17 million in the prior year period, due to strong demand and favorable logging conditions. Average pine sawtimber stumpage prices increased 25% to $34.40 per ton versus 56 $27.62 per ton in the prior year period, primarily due to strong demand from sawmills, as well as competition for chip-n-saw volume from pulp mills. Average pine pulpwood stumpage prices increased 25% to $22.88 per ton versus $18.25 per ton in the prior year period, driven by strong demand due to low mill inventories at the start of the year and favorable end-market demand. Overall, weighted-average stumpage prices (including hardwood) increased 23% to $26.55 per ton versus $21.60 per ton in the prior year period. Operating income of $76.9 million increased $29.8 million versus the prior year period due to higher net stumpage realizations ($24.4 million), higher volumes ($9.1 million) and higher non-timber income ($1.9 million), partially offset by higher costs ($5.3 million) and higher depletion rates ($0.3 million). Year-to-date Adjusted EBITDA of $123.7 million was 43%, or $37.1 million, above the prior year period. PACIFIC NORTHWEST TIMBER Third quarter sales of $34.4 million increased $2.9 million, or 9%, versus the prior year period, notwithstanding a decline in harvest volumes of 11% to 307,000 tons versus 346,000 tons in the prior year period. Average delivered sawtimber prices increased 10% to $117.86 per ton versus $107.56 per ton in the prior year period, driven by continued healthy demand from domestic lumber mills as well as a favorable species mix, as a higher proportion of Douglas-fir sawtimber was harvested in the current year quarter. Average delivered pulpwood prices increased 62% to $50.74 per ton versus $31.34 per ton in the prior year period, reflecting strong end-market demand coupled with supply constraints due to fewer residuals and increased competition for a limited supply of smaller-sized logs. Operating income of $2.2 million improved $0.1 million versus the prior year period due to higher net stumpage realizations ($1.9 million) and higher non-timber income ($0.5 million), partially offset by the write-off of timber basis due to a fire in Washington ($1.1 million), lower volumes ($0.7 million), and higher overhead and other costs ($0.5 million). Third quarter Adjusted EBITDA of $12.6 million was 1%, or $0.1 million, above the prior year period. Year-to-date sales of $119.8 million increased $11.5 million, or 11%, versus the prior year period, notwithstanding a decline in harvest volumes of 7% to 1.19 million tons versus 1.28 million tons in the prior year period. Average delivered sawtimber prices increased 15% to $112.65 per ton versus $97.79 per ton in the prior year period due to strong domestic lumber demand and a favorable species mix in the current year period. Average delivered pulpwood prices increased 49% to $44.44 per ton versus $29.86 per ton in the prior year period, driven by strong end-market demand, the restart of previously idled pulp mill capacity, and the resumption of chip exports, which resulted in greater competition from pulp mills to secure supply. Operating income of $11.7 million improved $6.4 million versus the prior year period due to higher net stumpage realizations ($10.5 million), lower depletion rates ($0.4 million) and higher non-timber income ($0.2 million), partially offset by higher costs ($2.4 million), lower volumes ($1.2 million) and a write-off of timber basis as a result of a fire in Washington ($1.1 million). Year-to-date Adjusted EBITDA of $48.4 million was 10%, or $4.3 million, above the prior year period. NEW ZEALAND TIMBER Third quarter sales of $72.5 million decreased $3.1 million, or 4%, versus the prior year period. Harvest volumes increased 7% to 712,000 tons versus 668,000 tons in the prior year period, due to an increase in harvest activity following a relatively light start to the year. Average delivered prices for export sawtimber decreased 18% to $123.07 per ton versus $149.68 per ton in the prior year period, driven by reduced demand from China due to COVID-related disruptions as well as a slowdown in construction activity. Average delivered prices for domestic sawtimber decreased 18% to $69.69 per ton versus $85.00 per ton in the prior year period. The decrease in domestic sawtimber prices (in U.S. dollar terms) was primarily driven by the decline in the NZ$/US$ exchange rate (US$0.62 per NZ$1.00 versus US$0.70 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices decreased 8% versus the prior year period, reflecting additional supply that was diverted into domestic markets due to export market headwinds. Operating income of $9.3 million decreased $4.0 million versus the prior year period due to lower net stumpage realizations ($11.2 million), higher costs ($0.3 million), and higher depletion rates ($0.1 million), partially offset by higher carbon credit sales ($6.0 million), higher volumes ($1.4 million), and favorable foreign exchange impacts ($0.2 million). Third quarter Adjusted EBITDA of $15.6 million was 22%, or $4.3 million, below the prior year period. Year-to-date sales of $202.7 million decreased $11.0 million, or 5%, versus the prior year period. Harvest volumes decreased 2% to 1.9 million tons versus 2.0 million tons in the prior year period. Average delivered prices for export sawtimber decreased 7% to $130.71 per ton versus $140.89 per ton in the prior year period. The decrease in export sawtimber prices versus the prior year period was driven by reduced demand due to COVID-19 related disruptions in China and a steep decline in construction activity. Net stumpage realizations for 57 export sawtimber were further pressured by higher port and freight costs over the prior year period, driven by elevated fuel prices as well as increased demurrage charges due to port congestion. Average delivered prices for domestic sawtimber decreased 12% to $73.72 per ton versus $83.79 per ton in the prior year period. The decrease in domestic sawtimber prices (in U.S. dollars terms) was driven primarily by the decline in the NZ$/US$ exchange rate (US$0.65 per NZ$1.00 versus US$0.71 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices decreased 3% versus the prior year period due to additional supply that was diverted into domestic markets in the current year period. Operating income of $22.7 million decreased $25.3 million versus the prior year period as a result of lower net stumpage realizations ($33.8 million), lower volumes ($1.0 million), higher costs ($1.7 million) and unfavorable foreign exchange impacts ($0.2 million), partially offset by higher carbon credit sales ($10.9 million) and lower depletion rates ($0.5 million). Year-to-date Adjusted EBITDA of $40.8 million was $27.9 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 or year-to-date period in the Timber Funds segment, as will be the case going forward. The Timber Funds segment generated prior year third quarter sales of $94.5 million on harvest volumes of 61,000 tons, resulting in operating income of $41.3 million in the prior year period . The prior year quarter sales and operating income included $87.1 million and $36.0 million, respectively, from the Fund II Timberland Dispositions. The prior year quarter operating income also included a $3.7 million gain on investment in Timber Funds, which reflects the gain recognized on the sale of our investment in Timber Funds III and IV. Third quarter Adjusted EBITDA was $0.5 million in the prior year period. The Timber Funds segment generated prior year year-to-date sales of $128.1 million on harvest volumes of 380,000 tons, resulting in operating income of $44.8 million in the prior year period . The prior year period sales and operating income included $87.1 million and $36.0 million, respectively, from the Fund II Timberland Dispositions. Year-to-date operating income also included a $3.7 million gain on investment in Timber Funds, which reflects the gain recognized on the sale of our investment in Timber Funds III and IV. Year-to-date Adjusted EBITDA was $2.8 million in the prior year period. REAL ESTATE Third quarter sales of $12.4 million decreased $80.9 million versus the prior year period, while operating income of $15.7 million decreased $44.9 million versus the prior year period. Third quarter operating income included an $11.5 million gain attributable to noncontrolling interests associated with the Bainbridge Island multi-family apartment complex sale.. The prior year third quarter sales and operating income included $20.0 million and $14.5 million, respectively, from a Large Disposition. Sales and operating income declined versus the prior year period due to a lower number of acres sold (1,828 acres sold versus 12,219 acres sold in the prior year period), and a decrease in weighted-average prices ($5,064 per acre versus $7,554 per acre in the prior year period). Improved Development sales of $2.3 million included $0.8 million from the Wildlight development project north of Jacksonville, Florida and $1.5 million from the Heartwood development project south of Savannah, Georgia. Sales in Wildlight consisted of 13 residential lots ($65,000 per lot). Sales in Heartwood consisted of a 15-acre commercial parcel to be used for a healthcare campus for $1.0 million ($67,000 per acre) and 10 residential lots for $0.4 million ($44,000 per lot). This compares to prior year period Improved Development sales of $27.8 million, which included a significant sale in the Heartwood / Belfast Commerce Park. There were no Unimproved Development sales in the third quarter. This compares to prior year period sales of $37.5 million, which consisted of a 359-acre sale in Kingston, Washington for $105,000 per acre. Rural sales of $7.0 million consisted of 1,809 acres at an average price of $3,848 per acre. This compares to prior year period sales of $6.9 million, which consisted of 3,260 acres at an average price of $2,128 per acre. Third quarter Adjusted EBITDA of $8.4 million was $55.4 million below the prior year period. Year-to-date sales of $81.0 million decreased $97.4 million versus the prior year period, while operating income of $37.0 million decreased $75.9 million versus the prior year period. There were no Large Dispositions in the current year period, compared with year-to-date sales and operating income of $56.0 million and $44.8 million, respectively, from a Large Disposition in the prior year period. Sales decreased in the first nine months primarily due to lower volumes ( 15,256 acres sold versus 31,162 acres sold in the prior year period) and a decrease in 58 weighted-average prices ($5,084 per acre versus $5,711 per acre in the prior year period). Year-to-date Adjusted EBITDA of $58.4 million decreased $39.5 million versus the prior year period. TRADING Third quarter sales of $11.6 million decreased $14.0 million versus the prior year period, primarily due to lower volumes and prices. Sales volumes decreased 46% to 95,000 tons versus 177,000 tons in the prior year period, reflecting constrained export market demand. The Trading segment generated operating income of $0.2 million versus breakeven results in the prior year period. Third quarter Adjusted EBITDA of $0.2 million was above breakeven results in the prior year period. Year-to-date sales of $52.7 million decreased $24.1 million versus the prior year period, primarily due to lower volumes, as well as lower prices. Sales volumes decreased 26% to 415,000 tons versus 561,000 tons in the prior year period. The Trading segment generated operating income of $0.1 million versus operating income of $0.6 million in the prior year period. OTHER ITEMS CORPORATE AND OTHER EXPENSE / ELIMINATIONS Third quarter corporate and other operating expenses of $9.0 million increased $2.2 million versus the prior year period, primarily due to higher compensation and benefits expenses ($1.4 million) and higher legal and other overhead expenses ($0.8 million). Year-to-date corporate and other operating expenses of $26.6 million increased $4.3 million versus the prior year period, primarily due to higher compensation and benefits expenses ($2.7 million), higher legal costs ($0.4 million), higher insurance and community costs of ($0.4 million) and other overhead expenses ($0.8 million). Compensation and benefits expenses were elevated in the year-to-date period due to the accelerated realization of equity compensation expense for retirement-eligible employees. INTEREST EXPENSE Third quarter and year-to-date interest expense of $9.1 million and $26.5 million, respectively, decreased $2.2 million and $7.8 million versus the prior year period. Third quarter and year-to-date interest expense benefited from lower average outstanding debt and a lower weighted-average interest rate as compared to the prior year period. Additionally, the prior year-to-date period included a $2.2 million loss from the termination of a cash flow hedge. INCOME TAX EXPENSE Third quarter and year-to-date income tax expense of $1.2 million and $8.1 million, respectively, decreased $1.6 million and $5.1 million versus the prior year period. The New Zealand subsidiary is the primary driver of income tax expense. OUTLOOK In our Southern Timber segment, we expect continued strong demand trends across our localized markets. In our Pacific Northwest Timber segment, we expect continued strong pricing for both pulpwood and sawtimber, albeit partially offset by ongoing cost pressures. In our New Zealand Timber segment, we expect lower harvest volumes for the remainder of the year due to ongoing export market headwinds as demand from China remains constrained. In our Real Estate segment, we now anticipate that a few transactions will be deferred into early 2023, and that demand for certain rural properties will likely moderate with the recent increase in interest rates. 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. 59 SUMMARY OF LIQUIDITY AND FINANCING COMMITMENTS September 30, December 31, (millions of dollars) 2022 2021 Cash and cash equivalents (excluding Timber Funds) $260.9 $358.7 Total debt (a) 1,265.6 1,376.1 Noncontrolling interests in the operating partnership 96.2 133.8 Shareholders’ equity 1,824.7 1,815.6 Total capitalization (total debt plus permanent and temporary equity) 3,186.5 3,325.5 Debt to capital ratio 40 % 41 % Net debt to enterprise value (b)(c) 18 % 14 % (a) Total debt as of September 30, 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 $29.97 and $40.36 as of September 30, 2022 and December 31, 2021, respectively. 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 September 30, 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Shares of common stock issued under the ATM program — 1,390,968 726,248 4,698,241 Average price per share sold under the ATM program — $37.26 $41.46 $36.11 Gross proceeds from common shares issued under the ATM program — $51.8 $30.1 $169.6 60 CASH FLOWS The following table summarizes our cash flows from operating, investing and financing activities for the nine months ended September 30, 2022 and 2021: (millions of dollars) 2022 2021 Cash provided by (used for): Operating activities $209.9 $277.4 Investing activities (55.9) 69.3 Financing activities (237.6) 47.7 CASH PROVIDED BY OPERATING ACTIVITIES Cash provided by operating activities decreased $67.6 million from the prior year period primarily due to lower operating results. CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES Cash used for investing activities of $55.9 million compares to cash provided by investing activities $69.3 million of in the prior year period. This is primarily due to prior year net proceeds from Fund II timberland dispositions ($85.2 million), Large Dispositions ($54.7 million), and the sale of Timber Funds III and IV ($31.1 million), as well as higher real estate development investments ($1.8 million), higher capital expenditures ($0.7 million) and other investing activities ($0.5 million), partially offset due to lower timberland acquisitions ($48.7 million). CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES Cash used for financing activities of $237.6 million compares to cash provided by financing activities of $47.7 million in the prior year period. This is primarily due to lower net borrowings ($151.4 million), lower net proceeds from the issuance of common shares under the ATM equity offering program ($134.7 million), higher dividends paid on common shares ($9.4 million), higher share repurchases ($2.6 million) and lower proceeds from the issuance of common shares under the Company’s incentive stock plan ($2.1 million), partially offset by a make-whole payment fees on the prepayment of NWFCS debt ($6.2 million) in the prior period, lower distributions to consolidated affiliates ($3.1 million), lower debt issuance costs of ($4.8 million) and lower distributions to noncontrolling interests in the operating partnership ($0.6 million). 61 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, and repurchases of the Company’s common shares 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) $1,265.6 — — $242.6 $1,023.0 Interest payments on long-term debt (b) 291.4 14.9 94.6 87.4 94.5 Operating leases — timberland (c) 175.1 3.7 14.7 13.0 143.7 Operating leases — PP&E, offices (c) 6.9 0.4 2.1 1.1 3.3 Commitments — development projects (d) 29.8 18.3 6.9 0.5 4.1 Commitments — derivatives (e) 20.0 4.6 15.4 — — Commitments — environmental remediation (f) 11.0 0.5 7.6 1.5 1.4 Commitments — other (g) 1.7 0.2 1.4 0.1 — Total $1,801.5 $42.6 $142.7 $346.2 $1,270.0 (a) The book value of long-term debt, net of deferred financing costs and unamortized discounts, is currently recorded at $1,257.8 million on our Consolidated Balance Sheets, but upon maturity the liability will be $1,265.6 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 September 30, 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 (foreign exchange contracts). 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. We believe we have sufficient sources of funding to meet our business requirements for the next 12 months and in the longer term. 62 EXPECTED 2022 EXPENDITURES Capital expenditures in 2022 are expected to be between $78 million and $82 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 $19 million and $21 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 and Heartwood, our mixed-use development project located in Richmond Hill just south of Savannah, Georgia. Our 2022 dividend payments on Rayonier Inc. common shares and distributions to Rayonier, L.P. unitholders are expected to be approximately $165 million and $3.7 million, respectively, assuming no change in the quarterly dividend rate of $0.285 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. Full-year 2022 cash tax payments are expected to be approximatel y $15.0 million, primarily related to the New Zealand subsidiary. 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 net operating losses. 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 September 30, 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., Rayonier Inc., and Rayonier Operating Company, LLC 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. 63 The summarized balance sheet information for the consolidated obligor group of debt issued by Rayonier, L.P. for the nine months ended September 30, 2022 and year ended December 31, 2021 are provided in the table below: (in millions) September 30, 2022 December 31, 2021 Current assets $254.9 $335.8 Non-current assets 127.7 54.6 Current liabilities 21.1 146.0 Non-current liabilities 1,801.1 1,821.7 Due to non-guarantors 566.6 570.4 The summarized results of operations information for the consolidated obligor group of debt issued by Rayonier, L.P. for the nine months ended September 30, 2022 and year ended December 31, 2021 are provided in the table below: (in millions) September 30, 2022 December 31, 2021 Cost and expenses ($21.6) ($27.5) Operating loss (21.6) (27.3) Net loss (41.7) (69.7) Revenue from non-guarantors 663.7 1,109.4 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, and 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, operating income attributable to noncontrolling interests in Timber Funds, gain associated with multi-family apartment complex sale attributable to noncontrolling interests, the gain on the investment in Timber Funds, Fund II Timberland Dispositions, timber write-offs resulting from a casualty event and Large Dispositions. 64 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net Income to Adjusted EBITDA Reconciliation Net Income $31.9 $110.5 $88.1 $189.0 Operating income attributable to NCI in Timber Funds — (30.5) — (33.3) Interest, net attributable to NCI in Timber Funds — 0.1 — 0.3 Net Income (Excluding NCI in Timber Funds) 31.9 80.1 88.1 156.0 Interest, net and miscellaneous income attributable to Rayonier 7.9 11.1 25.0 33.8 Income tax expense attributable to Rayonier 1.2 2.8 8.1 13.1 Depreciation, depletion and amortization attributable to Rayonier 31.1 31.5 114.2 109.3 Non-cash cost of land and improved development 3.1 15.8 20.3 22.8 Gain associated with the multi-family apartment complex sale attributable to NCI (a) (11.5) — (11.5) — Timber write-offs resulting from a casualty event attributable to Rayonier (b) 1.1 — 1.1 — Non-operating (income)/ expense (0.1) (1.2) 0.5 — Gain on investment in Timber Funds (c) — (3.7) — (3.7) Fund II Timberland Dispositions attributable to Rayonier (d) — (7.2) — (7.2) Large Dispositions (e) — (14.5) — (44.8) Adjusted EBITDA $64.7 $114.6 $245.8 $279.4 (a) Gain associated with the multi-family apartment complex sale attributable to NCI represents the gain recognized in connection with the sale of property by the Bainbridge Landing joint venture attributable to noncontrolling interests. (b) Timber write-offs resulting from a casualty event include the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which cannot be salvaged. (c) Gain on investment in Timber Funds represents the gain recognized on the sale of rights to manage two timber funds (Funds III and IV) previously managed by the Company’s Olympic Resources Management (ORM) subsidiary, as well as its co-investment stake in both funds. (d) Fund II Timberland Dispositions represent the disposition of Fund II Timberland assets, which we managed and owned a co-investment stake in. (e) Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. 65 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 September 30, 2022 Operating income $22.5 $2.2 $9.3 — $15.7 $0.2 ($9.0) $40.9 Gain associated with the multi-family apartment complex sale attributable to NCI (a) — — — — (11.5) — — (11.5) Timber write-offs resulting from a casualty event attributable to Rayonier (b) — 1.1 — — — — — 1.1 Depreciation, depletion and amortization 14.1 9.4 6.3 — 1.0 — 0.3 31.1 Non-cash cost of land and improved development — — — — 3.1 — — 3.1 Adjusted EBITDA $36.6 $12.6 $15.6 — $8.4 $0.2 ($8.6) $64.7 September 30, 2021 Operating income $12.8 $2.1 $13.3 $41.3 $60.6 — ($6.7) $123.3 Gain on investment in Timber Funds (c) — — — (3.7) — — — (3.7) Fund II Timberland Dispositions attributable to Rayonier (d) — — — (7.2) — — — (7.2) Operating income attributable to NCI in Timber Funds — — — (30.5) — — — (30.5) Depreciation, depletion and amortization 11.6 10.5 6.6 0.7 1.8 — 0.3 31.5 Non-cash cost of land and improved development — — — — 15.8 — — 15.8 Large Dispositions (e) — — — — (14.5) — — (14.5) Adjusted EBITDA $24.4 $12.5 $19.9 $0.5 $63.8 — ($6.4) $114.6 (a) Gain associated with the apartment complex sale attributable to NCI represents the gain recognized in connection with the sale of property by the Bainbridge Landing joint venture attributable to noncontrolling interests. (b) Timber write-offs resulting from a casualty event include the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which cannot be salvaged. (c) Gain on investment in Timber Funds represents the gain recognized on the sale of rights to manage two timber funds (Funds III and IV) previously managed by the Company’s Olympic Resources Management (ORM) subsidiary, as well as its co-investment stake in both funds. (d) Fund II Timberland Dispositions represent the disposition of Fund II Timberland assets, which we managed and owned a co-investment stake in. (e) Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. 66 Nine Months Ended Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Corporate and Other Total September 30, 2022 Operating income $76.9 $11.7 $22.7 — $37.0 $0.1 ($26.6) $121.7 Gain associated with the apartment complex sale attributable to NCI (a) — — — — (11.5) — — (11.5) Timber write-offs resulting from casualty event attributable to Rayonier (b) — 1.1 — — — — — 1.1 Depreciation, depletion and amortization 46.8 35.6 18.2 — 12.7 — 0.9 114.2 Non-cash cost of land and improved development — — — — 20.3 — — 20.3 Adjusted EBITDA $123.7 $48.4 $40.8 — $58.4 $0.1 ($25.7) $245.8 September 30, 2021 Operating income $47.1 $5.3 $48.0 $44.8 $112.8 $0.6 ($22.3) $236.2 Gain on investment in Timber Funds (c) — — — (3.7) — — — (3.7) Fund II Timberland Dispositions attributable to Rayonier (d) — — — (7.2) — — — (7.2) Operating income attributable to NCI in Timber Funds — — — (33.3) — — — (33.3) Depreciation, depletion and amortization 39.5 38.8 20.8 2.2 7.1 — 0.9 109.3 Non-cash cost of land and improved development — — — — 22.8 — — 22.8 Large Dispositions (e) — — — — (44.8) — — (44.8) Adjusted EBITDA $86.6 $44.1 $68.7 $2.8 $97.9 $0.6 ($21.4) $279.4 (a) Gain associated with the multi-family apartment complex sale attributable to NCI represents the gain recognized in connection with the sale of property by the Bainbridge Landing joint venture attributable to noncontrolling interests. (b) Timber write-offs resulting from a casualty event include the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which cannot be salvaged. (c) Gain on investment in Timber Funds represents the gain recognized on the sale of rights to manage two timber funds (Funds III and IV) previously managed by the Company’s Olympic Resources Management (ORM) subsidiary, as well as its co-investment stake in both funds. (d) Fund II Timberland Dispositions represent the disposition of Fund II Timberland assets, which we managed and owned a co-investment stake in. (e) Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. 67 The following table provides a reconciliation of Cash Provided by Operating Activities to Adjusted CAD (in millions of dollars): Nine Months Ended September 30, 2022 2021 Cash provided by operating activities $209.9 $277.4 Capital expenditures (a) (48.2) (47.5) CAD attributable to NCI in Timber Funds — (12.5) Working capital and other balance sheet changes (2.9) (13.5) CAD $158.8 $203.9 Mandatory debt repayments — (325.0) CAD after mandatory debt repayments $158.8 ($121.1) Cash (used for) provided by investing activities ($55.9) $69.3 Cash (used for) provided by financing activities ($237.6) $47.7 (a) Capital expenditures exclude timberland acquisitions of $3.2 million and $51.9 million during the nine months ended September 30, 2022 and September 30, 2021, respectively. The following table provides supplemental cash flow data (in millions of dollars): Nine Months Ended September 30, 2022 2021 Purchase of timberlands ($3.2) ($51.9) Real Estate Development Investments (10.9) (9.2) Distributions to noncontrolling interests in consolidated affiliates (16.5) (19.6) LIQUIDITY FACILITIES 2022 DEBT ACTIVITY See Note 6 — Debt for additional information. 68