U.S. Markets closed

Rayonier (RYN) to Gain from Portfolio Revamp: Time to Hold?

Zacks Equity Research

We updated our research report on Rayonier Inc. RYN on May 26, 2016.

Jacksonville, FL-based Rayonier is a leading timberland real estate investment trust (REIT) which, as of Mar 31, 2016, owned or leased around 2.7 million acres of timberlands across the U.S. and New Zealand.

Early in May, Rayonier came up with better-than-expected results for first-quarter 2016. The company’s first-quarter pro forma net income per share came in at 11 cents, surpassing the Zacks Consensus Estimate of 8 cents. Also, total sales for the quarter were $134.8 million and exceeded the Zacks Consensus Estimate of $127 million.

Moreover, in a bid to give a big facelift to its Pacific Northwest timberland portfolio, Rayonier has closed two separate transactions. The first one is the acquisition of Menasha Forest Products Corporation in partnership with Atlanta-based Forest Investment Associates (“FIA”) for $263 million. Notably, the acquisition of the 61,000 acres of top-quality timberlands, situated in Oregon and Washington, will likely give a boost to the company’s sustainable yield and annual harvest.

The second deal involves the disposition of 55,000 acres of pre-merchantable timberland in Washington to FIA for around $130 million. The disposition is expected to enhance the timberland portfolio in the Pacific Northwest region by augmenting the share of merchantable timber.

These two transactions, combined, are anticipated to raise the average annual adjusted EBITDA and cash available for distribution by around $11 million and $7 million, respectively, in the next five years.  

Going forward, geographic diversity, better pricing power due to favorable demand-supply dynamics, bode well for the company. Further, disciplined acquisitions and recent developments in biogenetics & cloning, which are helping in the rapid growth of trees, are expected to drive its growth engine. But, the seasonality of the forest products industry, high volatility in timber price and wood products and foreign exchange fluctuations remain as concerns.

Moreover, in the past seven days, the Zacks Consensus Estimate for 2016 and 2017 remain unchanged at 34 cents and 41 cents, respectively. The stock presently has a Zacks Rank #3 (Hold).

Investors interested in the REIT industry may consider stocks like DCT Industrial Trust Inc. DCT, PS Business Parks Inc. PSB and Whitestone REIT WSR. Each of these stocks carries a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
 


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
RAYONIER INC (RYN): Free Stock Analysis Report
 
PS BUSINESS PKS (PSB): Free Stock Analysis Report
 
WHITESTONE REIT (WSR): Free Stock Analysis Report
 
DCT INDUSTRIAL (DCT): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research