Company Reports

New single-family home sales increased 4% in 2023 to 666,000 units, as homebuilders capitalized on a dearth of existing for-sale inventory while also offering more sales incentives, cutting base home prices, and building smaller homes to improve affordability. By the fourth quarter of 2023, homebuilders began to pull back on sales incentives as the average 30-year fixed mortgage rate retreated from 7.62% in October 2023 to 6.64% in January 2024. However, mortgage rates have trended higher recently, and we now forecast the average 30-year fixed rate will be 6.50% in 2024, up from our previous forecast of 6.10%. Even so, that’s lower than the 2023 average of 6.81%, and we think homebuilders won’t hesitate to increase sales incentives if needed; they still enjoyed above-average gross profit margins last year with elevated incentives. As such, in 2024, we think new-home sales will increase 9% to 730,000 units and single-family housing starts will increase 4% to 985,000 units. However, we expect total housing starts will decline roughly 5% to 1,345,000 units due to a 23% decline in multifamily starts to 360,000 units, as there’s currently approximately 1,000,000 multifamily units under construction—the largest backlog in at least 50 years.

No-moat-rated Rayonier held its investor day on Feb. 28 and offered updates on its operations and long-term outlook. Rayonier continues to navigate a challenging operating environment as weak housing and repair and remodel markets have weighed on timber demand and prices. That said, we expect single-family housing markets to recover over the next few years while demand for timberland has remained strong as investors seek alternative investments. The outlook provided on investor day does not alter our long-term outlook, and we maintain our $35 fair value estimate.

Rayonier is the second-largest timberland real estate investment trust in North America, managing about 1.8 million acres in the southern United States, 500,000 acres in the Pacific Northwest, and over 400,000 acres in New Zealand. As a REIT, Rayonier distributes its REIT income to shareholders without having to pay corporate level incomes taxes. Cash flow is generated through timber harvesting and the sale of land that it determines has higher value than if it remained in its portfolio. Unlike some of its competitors, Rayonier is a pure-play REIT. It generates most of its revenue from the sale of timber and does not produce wood or paper products. While some of its operations are subject to U.S. federal and state income taxes (New Zealand business and log trading), a majority of Rayonier’s income is tax-exempt under its REIT status.

No-moat-rated Rayonier reported fourth-quarter results well above consensus estimates due to the quick closure of the previously disclosed sale of their Oregon property to Manulife. Excluding the impact of real estate, however, Rayonier’s results were less than stellar as sales generated from Pacific Northwest and New Zealand Timber came in below our expectations. We continue to assess the positives generated by Rayonier’s continued real estate dispositions that are offset by the continued weakness experienced in the company’s core timber business. We have maintained our $35 fair value estimate.

New-home sales have rebounded since the spring of this year as sales incentives and price reductions have attracted buyers who have fewer options in the supply-constrained existing-home market. That said, homebuilder sentiment data tells us that smaller builders remain cautious. Even so, we forecast single-family starts to increase by 3% in 2024, to 0.92 million units. However, we project this increase in single-family starts will be more than offset by a 24% decline in multifamily starts, to 0.36 million units. Multifamily construction has been robust for the past three years, but a record construction backlog and higher construction and financing costs have tamed developers' appetite for new multifamily projects.

No-moat-rated Rayonier reported third-quarter results that featured multiple strategic announcements. Aside from disclosing third-quarter operating results, Rayonier announced its intention to sell $1 billion in assets over the next 18 months in an effort to enhance shareholder value. Additionally, the company announced that CFO Mark McHugh will be assuming the role of CEO effective April 1 as current CEO David Nunes is retiring after nine years in the role. While we like Rayonier’s new initiative, lumber markets remain constrained, and we expect that will last through much of next year. As such, we have maintained our $35 fair value estimate.

Rayonier is the second-largest timberland real estate investment trust in North America, managing about 1.8 million acres in the southern United States, 500,000 acres in the Pacific Northwest, and over 400,000 acres in New Zealand. As a REIT, Rayonier distributes its REIT income to shareholders without having to pay corporate level incomes taxes. Cash flow is generated through timber harvesting and the sale of land that it determines has higher value than if it remained in its portfolio. Unlike some of its competitors, Rayonier is a pure-play REIT. It generates most of its revenue from the sale of timber and does not produce wood or paper products. While some of its operations are subject to U.S. federal and state income taxes (New Zealand business and log trading), a majority of Rayonier’s income is tax-exempt under its REIT status.

New-home sales have remained resilient despite worsening housing affordability in recent months amid rising mortgage rates, with little relief in home prices in most markets. Year-to-date new-home sales through July were about even with the year-ago period, compared with a 22% decline in existing-home sales. The key to homebuilders’ relative success this year has been their ability to improve affordability by offering sales incentives, lowering base prices, and building smaller homes. According to the National Association of Home Builders, the share of builders offering incentives was 55% in August, up from 52% in July but down from 62% last year. One fourth of homebuilders reported lowering base prices by 6% on average. Homebuilders have also boosted production of speculative homes to capitalize on the tight supply of existing for-sale homes. Spec building also helps builders better manage construction cycle times and costs.

No-moat rated Rayonier reported second-quarter results that were in line with our expectations as the company continued to face substantial end market pressure. Revenue declined over 15% from a year ago, largely due to lower volumes across much of the business. Additionally, consolidated operating margins declined almost 500 basis points to 9.6% as stumpage and sawtimber prices pulled back amid unfavorable market conditions. That said, management tightened its EPS guidance range and reiterated its belief that results would rebound in the second half of the year, most notably in its real estate business as previous transactions are closed in the fourth quarter. We've increased our fair value estimate to $35 per share from $34 due to the time value of money.

Rayonier is the second-largest timberland real estate investment trust in North America, managing about 1.8 million acres in the southern United States, 500,000 acres in the Pacific Northwest, and over 400,000 acres in New Zealand. As a REIT, Rayonier distributes its REIT income to shareholders without having to pay corporate level incomes taxes. Cash flow is generated through timber harvesting and the sale of land that it determines has higher value than if it remained in its portfolio. Unlike some of its competitors, Rayonier is a pure-play REIT. It generates most of its revenue from the sale of timber and does not produce wood or paper products. While some of its operations are subject to U.S. federal and state income taxes (New Zealand business and log trading), a majority of Rayonier’s income is tax-exempt under its REIT status.

Through the first four months of 2023 (typically viewed as the “spring selling season” for homebuilders) new home sales significantly outperformed existing home sales. Indeed, April year-to-date new home sales declined roughly 10% year over year compared to over a 26% decline for existing home sales. New home sales improved sequentially during the first four months of the year, and April sales increased 11% year over year, albeit on an easy prior-year comparison (April 2022 new sales were down 24% year over year).

Rayonier reported underwhelming first-quarter results as it faced numerous end-market challenges. Compared with the year-ago period, revenue declined 19% and adjusted EBITDA dropped 44%, as weaker end-market demand and macroeconomic headwinds negatively affected the business. While most of these challenges were expected, the severity of the sawtimber and pulpwood price declines was somewhat surprising. As a result, management said it now anticipates results will be toward the lower end of guidance, but it expects some relief in the second half of the year. We've decreased our fair value estimate to $34 per share from $38 due to our expectation of lower lumber prices through 2023 than we had previously anticipated.

Rayonier is the second-largest timberland real estate investment trust in North America, managing about 1.8 million acres in the southern United States, 500,000 acres in the Pacific Northwest, and over 400,000 acres in New Zealand. As a REIT, Rayonier distributes its REIT income to shareholders without having to pay corporate level incomes taxes. Cash flow is generated through timber harvesting and the sale of land that it determines has higher value than if it remained in its portfolio. Unlike some of its competitors, Rayonier is a pure-play REIT. It generates most of its revenue from the sale of timber and does not produce wood or paper products. While some of its operations are subject to U.S. federal and state income taxes (New Zealand business and log trading), a majority of Rayonier’s income is tax-exempt under its REIT status.

U.S. home sales slowed significantly in 2022 as rising mortgage rates and elevated home prices made homeownership less affordable for more Americans. By mid-2022, the average 30-year fixed mortgage rate had increased roughly 300 basis points year over year to over 6%. According to estimates from the National Association of Home Builders, this rate increase priced out more than 16 million households. We also think higher rates and general economic uncertainty caused some qualified prospective buyers to move to the sidelines. All told, 2022 new- and existing-home sales declined 17% and 18% year over year, respectively.

Rayonier finished a challenging 2022 with relative strength despite lower lumber prices and softening demand in most of its markets. Revenue in the fourth quarter decreased 6% year over year as log prices fared better than lumber prices and its real estate business capitalized on strong timberland prices. Management provided full-year 2023 guidance, where it anticipates earnings per share between $0.36 and $0.50. We think this guidance is attainable given its outlook of higher harvest volume and lower weighted average stumpage prices. We've increased our fair value estimate to $38 from $37 per share due to time value of money.

Rayonier is the second largest timberland real estate investment trust, or REIT, in North America, managing about 1.8 million acres in the southern U.S., 500,000 acres in the Pacific Northwest, and over 400,000 acres in New Zealand. As a REIT, Rayonier distributes its REIT income to shareholders without having to pay corporate level incomes taxes. Cash flow is generated through timber harvesting and the sale of land that it determines has higher value than if it remained in its portfolio. Unlike some of its competitors, Rayonier is a pure-play REIT. The firm generates most of its revenue from the sale of timber and does not produce wood or paper products. While some of its operations are subject to U.S. federal and state income taxes (New Zealand business and log trading), a majority of Rayonier’s income is tax-exempt under its REIT status.

After analyzing recent United States housing market data and industry commentary, we've made downward revisions to our near-term outlook for new residential construction, home prices, and repair and remodel spending.

We are initiating coverage on Rayonier with a fair value estimate of $37 per share and a no-moat rating. Rayonier is the second largest timberland real estate investment trust, or REIT, in North America, managing roughly 2.7 million acres of timberland. We do not think Rayonier benefits from an economic moat as the firm does not possess structural competitive advantages. Timberlands can be immensely profitable when demand is strong, but margins deteriorate during times of weak demand. Fundamentally, timber is a commodity. Once harvested, timber is used to produce a number of derivative commodities. Building a moat in a commodity business typically necessitates a low-cost production position or a transportation cost advantage--things Rayonier, along with its North American peers, fundamentally lack.

Rayonier is the second largest timberland real estate investment trust, or REIT, in North America, managing roughly 1.8 million acres in the southern U.S., 500,000 acres in the Pacific Northwest, and over 400,000 acres in New Zealand. As a REIT, Rayonier distributes its REIT income to shareholders without having to pay corporate level incomes taxes. Cash flow is generated through timber harvesting and the sale of land that it determines has higher value than if it remained in its portfolio. Unlike some of its competitors, Rayonier is a pure-play REIT. The firm generates most of its revenue from the sale of timber and does not produce wood or paper products. While some of its operations are subject to U.S. federal and state income taxes (New Zealand business and log trading), a majority of Rayonier’s income is tax-exempt under its REIT status.

We are dropping coverage of Rayonier. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.