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Rayonier Inc. at Barclays Capital Industrial Select Conference - Final.

Article Excerpt
PETER RUSCHMEIER, ANALYST, LEHMAN BROTHERS: I'm Peter Ruschmeier. On behalf of Barclay's I'm very pleased to introduce our next speakers. The Rayonier management team has come down from sunny Jacksonville. I believe the first time at the Industrial Conference. We have with us today Chairman, president and CEO Lee Thomas, CFO Hans Vanden Noort and Carl Kraus of Investor Relations and Strategic Planning. Very happy they could join us today and I'll turn it over to Lee.

LEE THOMAS, CHAIRMAN, PRESIDENT & CEO, RAYONIER, INC.: Thanks, Peter. I'm going to go through a presentation here with you and then we'll open it up for questions as we go along. Obviously, you're aware of the Safe Harbor presentation that's available to you. Let's talk a minute about the basic structure of the Company because the structure of the Company is an important part of our value proposition.

We're structured as a REIT, Real Estate Investment Trust. As you probably know, we've got about 2.6 million acres of timberland, which is at the heart of our REIT, but we also have a significant taxable REIT subsidiary made up of two strong businesses. One is our real estate business and the second is our manufacturing business, which is primarily a specialty cellulose business and I'll talk about both of those in a minute.

But as a result of the fact that we've got a strong taxable REIT subsidiary we're able to put most of our debt down in that subsidiary where obviously we're able to deduct the interest cost there. We also use that subsidiary periodically when we're buying timberland. We're moving timberland up into the REIT. We're bringing timberland down with a low basis. We've upped the basis evaluation when we bring it out and then sell it. So, through a like kind exchange, an internal like kind exchange process we actually save quite a bit on taxes. The end result is we have a very tax efficient structure for our overall Company, somewhat unique to Rayonier.

The Company overall is about $1.2 billion in revenue. A significant part of our sales, particularly our manufactured products sales are to customers around the world. We've had offices in Japan and China and Europe for many, many years and do business in all the countries across the world.

Three basic strong businesses our timber business, our real estate business and our performance fibers or our specialty cellulose business. We pay a good dividend at $2 a share. Right now it's probably about a 7% yield.

You can look at our EBITDA last year. You'll see about half of it was from our performance fibers business and the other half was pretty evenly divided between our timber business and our real estate business. And as you see over the last six years that EBITDA has grown from about $300 million to a little over $400 million. You can see the performance fibers business has steadily improved. Real estate has been pretty steady. Our timber business improved until 2008 where you see EBITDA down. That was driven really by two things. One, overall pricing for timber, which was driven by housing, so timber prices have gone down.

And then secondly, we reduced our harvest volumes. One of the good things about the timber business you've got a lot of flexibility as to when you bring your product to market. We reduced the volume of saw timber. We continue to let those trees grow. Basically, you get about a 5% increase just through organic growth on an annual basis.

We think a lot about cash flows as far as our business is concerned. Cash available for distribution or CAD is basically after we've invested back in our businesses. So, it's basically our operating income. We've paid all our expenses. We've invested back in our business with our CapEx. We then pay our dividend. You can see that dividend has increased steadily over last five years and you can see we easily cover that dividend. The remaining money we would use for either paying down debt. We use it for our strategic investments and as I'll talk in a minute a number of those strategic investments are a part of our growth in our timber business, which we've been growing over the last number of years.

As far as leverage is concerned we're a pretty conservative company. We're basically a debt to market cap, total cap of about 45%. Good coverage as far as our interest expense. Good stable investment grade company. We've always been an investment grade company. You can see our debt maturities there. We've got about $122 million that is a note that comes due the very end of this year. We'll either pay that out of operating cash flows or our revolver. We've still got $150 million available under our revolver or we could term it out.

You can see that in the third quarter of 2011 we also have another note that will be due it and we have a revolver that will be due then as well. So, from a leverage point of view we've got a good bit of operating flexibility. You see a convertible exchangeable note there we had of $300 million at the very end of 2007, which was a five year note, basically that will be over at the end of 2012.

Turning to the timber...

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