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Diversified Timberland Portfolio & Acquisitions Aid Rayonier

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Rayonier Inc. RYN has a geographically-diversified portfolio of timberlands, with presence in some of the most productive timber-growing regions of the U.S. South, Pacific Northwest and New Zealand. Moreover, 59% of Rayonier’s U.S. Southern timberlands are positioned in the top three markets. Over the last several years, lumber production and capacity in the U.S. South has grown significantly, a trend that is expected to continue.

Though the company remains well poised to capitalize on the U.S. South export prospects, tariffs on log exports to China have hampered export market growth. Also, growth in demand for softwood pulpwood has been strong and is poised to pick up pace on the expanding oriented strand-board capacity investments. Further, the company resorts to acquisitions, in order to expand and improve the quality of its portfolio. Notably, since 2011, Rayonier has acquired timberlands worth $1.7 billion. Moreover, year-to-date acquisitions through the end of the third quarter aggregated 38,000 acres for a total value of $82 million. With a solid pipeline of opportunities, the company’s timberland acquisitions activity is expected to remain robust going into the next year as well. These acquisitions are complementary to age-class profile and improved portfolio site index and inventory stocking.

Further, Rayonier has a strong, investment grade credit profile with significant asset coverage. The company has solid adjusted EBITDA margins as well as high EBITDA-to-Free Cash Flow conversion. Moreover, backed by recurring cash generation from operations, the company maintains productivity of timberlands through replanting and silviculture. Annually, it invests nearly $35 million in silviculture and regeneration. A solid balance-sheet position also helps Rayonier maximize its shareholder value through dividend hikes and buybacks.

Also, shares of Rayonier have gained 15.7% in the past three months, outperforming 13.5% growth recorded by the industry.

However, the challenging export as well as domestic market conditions across the company’s timber segments will likely temper its growth tempo to some extent in the near term.

The company also faces stiff competition from national and local players for factors like quality and price. In addition, rise in substitute products of wood (including non-wood and engineered wood products) has been intesifying competition.

Moreover, timberland REITs have to comply with strict regulatory requirements compared with other industries. These laws and regulations, subject to frequent changes, affect the timberland REIT business.

Currently, Rayonier carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in the REIT space include Duke Realty Corporation DRE, Crown Castle International Corporation (CCI - Free Report) and Cousins Properties Incorporated CUZ. Each of these stocks carries a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Duke Realty’s funds from operations (FFO) per share estimates for the ongoing year have been revised marginally upward to $1.44 over the past month. Additionally, the stock has appreciated 35.9%, so far this year.

Crown Castle’s Zacks Consensus Estimate for 2019 FFO per share has remained unchanged at $5.97 over the past month. Moreover, the stock has rallied 26%, in the year-to-date period.

Cousins Properties’ FFO per share estimates for the current year moved 1.4% north to $2.94 over the past month. Also, the stock has gained 28.2%, so far this year.

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