Rayonier: Timber Times Two

07/16/2014 8:00 am EST


Jason Clark

Contributing Editor, The Prudent Speculator

Value investor Jason Clark looks at one of his holdings at The Prudent Speculator—a REIT with timber and forest products that has split into two operating businesses.

Rayonier (RYN) completed the planned separation of its Performance Fibers business from its Forest Resources and Real Estate businesses.

The separation occurred by means of a tax-free spin-off of 100% of the common stock of Rayonier Advanced Materials (RYAM), which contains the Performance Fibers business, with Rayonier shareholders having received one share of RYAM for every three shares of RYN held.

Rayonier is now a geographically diverse forest resources company with 2.6 million acres of high-quality timberlands, including approximately 200,000 acres well-situated for real-estate development along coastal Florida and Georgia.

The company will maintain its status as a tax-efficient real estate investment trust, will maintain its strong balance sheet and investment-grade credit profile, and will pay a competitive dividend to its shareholders.

We are still constructive on this business as we think that it is still undervalued and should derive desirable returns for investors.

We like that the timberland business has been continuing to perform well, and is well-positioned to benefit from the ongoing US housing recovery and Asian demand for North America  and New Zealand logs.

RYN's quarterly dividend following the separation is expected to be $0.30 per quarter, $1.20 per year, and the firm expects to distribute a special $0.50 per share dividend in Q3.

Meanwhile, our Target Price for RYN has been adjusted to $40 to account for the separation of the higher-growth Performance Fibers business.
Rayonier Advanced Materials is the world's leading producer of high-value specialty cellulose fibers, with proprietary cellulose chemistry expertise and manufacturing process knowledge. 

The company, which has secured a BB+/Ba2 grade credit rating, is expected to continue to generate strong cash flows and to pay a dividend (initially $0.07 per share per quarter) competitive with its peer group.

We like the firm's leading position in specialty dissolving pulp positions, and believe that-in the longer-term-RYAM will benefit from high prices and an attractive growth profile for the products.
As we await additional financial information, we have yet to finalize a Target Price for RYAM, but for the near-term at least, we think the shares are well worth holding.

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