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Rayonier (RYN) Accomplishes Pope Resources Acquisition

Zacks Equity Research

Rayonier Inc. RYN recently completed the acquisition of acquire Pope Resources.The move is in sync with the company’s strategy of adding high-quality timberlands in strong log markets and will enhance the long-term value for shareholders.

Moreover, Rayonier has assumed $45 million of Pope Resources’ term credit facility. This comprised a number of tranches with maturity dates ranging from 2025 to 2036 and weighted average interest rate of 4.1%.

Per the agreement terms of this cash-and-stock transaction, Pope Resources unitholders had the right to elect to receive 3.929 Rayonier common shares (the “Stock election”), 3.929 units of the operating partnership of Rayonier (the “Opco Election”), or $125 in cash (the “Cash Election”) in exchange for each unit of Pope Resources, subject to a proration mechanism.

The total consideration paid by Rayonier to acquire all of the outstanding limited partnership units of Pope Resources (excluding units already owned by Rayonier) and the general partnership interests of Pope Resources comprises $169.5 million of cash, 7.1 million common shares of Rayonier and 4.6 million Opco units of Rayonier L.P.

The acquisition is a strategic fit for Rayonier as it will substantially enhance the scale of the company’s Pacific Northwest timberland portfolio. According to Rayonier’s prior announcement about the deal in January, the buyout leads to adding 125,000 acres of fee ownership and increasing sustainable yield by 57 MMBF (or 455,000 tons) annually. Moreover, the quality of Rayonier’s Pacific Northwest portfolio gets uplift, as the proportion of Douglas-fir merchantable inventory will increase from 60% to 68%. The move adds to the geographic and log market diversity, as well as increases the proportion of ground-based logging, with significantly lower operating costs.

The acquisition will also result in adding 17,000 “look-through” acres from timber fund business as well as offer the scope to capitalize on regional expertise in silvicultural practices, log marketing and logistics. Furthermore, the move will solidify the pipeline of value-added HBU and real estate development opportunities, including projects in Gig Harbor, Port Gamble, Kingston and Bainbridge Island in the west Puget Sound area.

The acquisition will lead to expected synergies of $5 million annually. The company will benefit from the reduction of overhead expenses and elimination of redundant public company costs. Additionally, there is an opportunity to lower debt through portfolio optimization and large dispositions. Further, the umbrella partnership real estate investment trust (“UPREIT”) structure provides tax deferral option for Pope unitholders, while facilitating future timberland buyouts prospects for Rayonier.

Rayonier owns a portfolio of timberlands in some of the most productive timber-growing regions of the U.S. South, Pacific Northwest and New Zealand. Strategic acquisitions also augur well. However, the company has revised its full-year outlook on the coronavirus pandemic and related uncertainties.

Shares of this Zacks Rank #3 (Hold) company have lost 23.2% so far in the year, slightly wider than 22.2% decline recorded by the industry.

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