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Rayonier's (RYN) Pope Resources Buyout Deal Valued at $554M

Zacks Equity Research

Rayonier Inc. RYN has agreed to acquire Pope Resources POPE in a cash-and-stock deal valued at $554 million, or $126.91 per unit. The move comes as part of the Rayonier’s strategy of adding high-quality timberlands in strong log markets and will enhance the long-term value for shareholders.

The company projects the transaction, which is expected to close by mid-2020, to increase its annual adjusted EBITDA by $38 million and cash available for distribution by $25 million over the next five years. Moreover, it is expected to generate accretion to cash available for distribution per share in the first full year.

Deal Terms

Per the agreement terms, Pope Resources unitholders will have the right to elect to receive 3.929 Rayonier common shares, 3.929 units of Rayonier Operating Partnership LP, or $125 in cash in exchange for each unit of Pope Resources, subject to a proration mechanism.

Deal Benefits

The acquisition seems a strategic fit for Rayonier as it will substantially enhance the scale of the company’s Pacific Northwest timberland portfolio, adding 125,000 acres of fee ownership and increasing sustainable yield by 57 MMBF (or 455,000 tons) annually. Moreover, quality of Rayonier’s Pacific Northwest portfolio gets uplift as 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. Moreover, 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 anually. The company will benefit from the reduction of overhead expenses and elimination of redundant public company costs. Also, 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.

In Conclusion

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 and better pricing power augur well. However, adverse impact of the choppy domestic market and a challenging export market is likely to keep eroding the company’s performance. Nevertheless, it is likely to get some relief from the Real Estate segment, given its expectation of strong contribution in the fourth quarter.

Also, shares of this Zacks Rank #3 (Hold) company have gained 14.2% in the past three months, outperforming 11.9% growth recorded by the industry.



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Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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