RAYONIER INC (RYN) FY 2021 MD&A

Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OBJECTIVE

The objective of the Management’s Discussion and Analysis is to detail material information, events, uncertainties and other factors impacting the Company and the Operating Partnership and to provide investors an understanding of “Management’s perspective.” Item 7, Management’s Discussion and Analysis (MD&A) highlights the critical areas for evaluating the Company’s performance which includes a discussion on the reportable segments, liquidity and capital, and critical accounting estimates. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and notes.

EXECUTIVE SUMMARY

OUR COMPANY

We are a leading timberland real estate investment trust (“REIT”) with assets located in some of the most productive softwood timber growing regions in the U.S. and New Zealand. Our revenues, operating income and cash flows are primarily derived from the following core business segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Timber Funds, Real Estate and Trading. We own or lease under long-term agreements approximately 2.7 million acres of timberland and real estate in Alabama, Arkansas, Florida, Georgia, Louisiana, Oklahoma, Oregon, South Carolina, Texas and Washington. We also have a 77% ownership interest in Matariki Forestry Group, a joint venture (“New Zealand subsidiary”), that owns or leases approximately 419,000 gross acres (296,000 net plantable acres) of timberlands in New Zealand.

Across our timberland management segments, we sell standing timber (primarily at auction to third parties) and delivered logs. Sales from our timber segments include all activities related to the harvesting of timber and other value-added activities such as the licensing of properties for hunting and the leasing of properties for mineral extraction and cell towers. We believe we are the second largest publicly-traded timberland REIT and the fourth largest private timberland owner in the United States. Our Real Estate business manages all property sales and seeks to maximize the value of our properties that are more valuable for development, recreational or residential uses than for growing timber, and opportunistically sells non-strategic timberlands. Our Trading segment, primarily consisting of activity by the New Zealand subsidiary, markets and sells timber owned or acquired from third parties in New Zealand and Australia. We also engage in log trading activities from the U.S. South and U.S. Pacific Northwest.

CURRENT YEAR DEVELOPMENTS

During 2021, we acquired approximately 103,000 acres of timberlands for $179.1 million. For additional information on acquisitions, see Note 5 - Timberland Acquisitions. Additionally, as discussed in Note 7 - Noncontrolling Interests, we sold the rights to manage Timber Fund III & IV, as well as our ownership interests in both funds. We also completed the liquidation of Fund II timberland assets. As a result, Timber Fund III and IV balance sheets and results of operations are only included in our consolidated financial statements through the date of the sale. As of December 31, 2021, we continue to manage and maintain a 20% ownership interest in Fund II, which is scheduled to terminate in March 2023. Prior to the termination of Fund II, the remaining capital will be distributed to Fund II investors. See Note 7 - Noncontrolling Interests and Note 8 - Variable Interest Entities for additional information.

INDUSTRY AND MARKET CONDITIONS

The demand for timber is directly related to the underlying demand for pulp, paper, packaging, lumber and other wood products. The significant majority of timber sold in our Southern Timber segment is consumed domestically. With a higher proportion of pulpwood, our Southern Timber segment relies heavily on downstream markets for pulp and paper, and to a lesser extent wood pellet markets. Our Pacific Northwest Timber segment relies primarily on

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domestic customers but also exports a significant volume of timber, particularly to China. The Southern Timber and Pacific Northwest Timber segments rely on the strength of U.S. lumber markets as well as underlying housing starts. Our New Zealand Timber segment sells timber to domestic New Zealand wood products mills and also exports a significant portion of its volume to markets in China, South Korea and India. In addition to market dynamics in the Pacific Rim, the New Zealand Timber segment is subject to foreign exchange fluctuations, which can impact the operating results of the segment in U.S. dollar terms.

As the current COVID-19 pandemic continues to evolve, the expected duration and the extent of economic disruption it may ultimately cause remain uncertain. Local, state and national governments continue to evaluate policies and restrictions in order to mitigate the spread of COVID-19. Government-mandated shutdowns or shelter-in-place orders in markets in which we operate could negatively impact our results. Further, prolonged periods of lower overall business activity as a result of COVID-19 could cause significant damage to the underlying economy, which would likely impact timber markets.

In 2021, pricing in the U.S. South improved versus the prior year, with increases in both pulpwood and sawtimber prices. Both pulpwood and sawtimber pricing tend to be driven by local market supply and demand dynamics, which vary considerably based on the available inventory of logs, local market mill demand, and access to export markets. In the Pacific Northwest, average log prices for 2021 were higher when compared to the prior year, primarily driven by improved sawtimber pricing resulting from strong domestic demand and increased market tension due to higher levels of export activity to China. In New Zealand, average log prices for 2021 were higher than the prior year, which reflected strong domestic demand, the ability of log exporters to pass higher costs on to customers as well as the restriction on competing log imports into China from Australia.

We are subject to the risk of price fluctuations in certain of our cost components, primarily logging and transportation (cut and haul), ocean freight and demurrage costs. In 2021, each of our timber segments experienced upward pressure on these cost components, with the most significant increase experienced in ocean freight and demurrage costs in our New Zealand Timber segment. Other major components of our cost of sales are the cost basis of timber sold (depletion) and the cost basis of real estate sold. Depletion includes the amortization of capitalized site preparation, planting and fertilization, real estate taxes, timberland lease payments and certain payroll costs. The cost basis of real estate sold includes the cost basis in land and costs directly associated with the development and construction of identified real estate projects, such as infrastructure, roadways, utilities, amenities and/or other improvements. Other costs include amortization of capitalized costs related to road and bridge construction and software, depreciation of fixed assets and equipment, road maintenance, severance and excise taxes, fire prevention and real estate commissions and closing costs.

In Real Estate, overall demand and pricing for HBU properties remained exceptionally strong in 2021. This was driven in part by historically low mortgage rates coupled with higher demand for rural land since the outset of the pandemic. In addition, we saw increased interest in our improved development properties, specifically Wildlight, our development project north of Jacksonville, Florida, and Richmond Hill, our development project south of Savannah, Georgia.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

The preparation of financial statements requires us to establish accounting policies and make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities in our Annual Report on Form 10-K. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates.

CAPITALIZED COSTS INCLUDED IN TIMBER BASIS

Timber is stated at the lower of cost or market value. Costs relating to acquiring, planting and growing timber, including real estate taxes, site preparation and direct support costs relating to facilities, vehicles and supplies, are capitalized. A portion of timberland lease payments are capitalized based on the proportion of acres with merchantable timber volume remaining to be harvested under the lease term, and the residual portion of the lease payments are expensed as incurred. Payroll costs are capitalized for time spent on timber growing activities, while interest or any other intangible costs are not capitalized.

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MERCHANTABLE INVENTORY AND DEPLETION COSTS AS DETERMINED BY TIMBER HARVEST MODELS

An annual depletion rate is established for each particular region by dividing the cost of merchantable inventory (including costs described above) by standing merchantable inventory volume. Pre-merchantable records are maintained for each planted year age class, including acres planted, stems per acre and costs of planting and tending.

Significant assumptions and estimates are used in the recording of timber inventory and depletion costs. Factors that can impact timber volume include weather changes, losses due to natural causes, differences in actual versus estimated growth rates and changes in the age when timber is considered merchantable. A 3% company-wide change in estimated standing merchantable inventory would have caused an estimated change of approximately $3.9 million to 2021 depletion expense.

Merchantable standing timber inventory is estimated by our land information services group annually, using industry-standard computer software. The inventory calculation takes into account growth, in-growth (annual transfer of oldest pre-merchantable age class into merchantable inventory), timberland sales and the annual harvest specific to each business unit. The age at which timber is considered merchantable is reviewed periodically and updated for changing harvest practices, future harvest age profiles and biological growth factors.

Acquisitions of timberland can also affect the depletion rate. Upon the acquisition of timberland, we make a determination whether to combine the newly-acquired merchantable timber with an existing depletion pool or to create a new pool. The determination is based on the geographic location of the new timber, the customers/markets that will be served and species mix. During 2021, we acquired 103,000 acres of timberlands in Florida, Georgia, Texas and New Zealand. These acquisitions did not have a material impact on 2021 depletion rates.

REVENUE RECOGNITION

See Note 1 - Summary of Significant Accounting Policies.

DETERMINING THE ADEQUACY OF PENSION AND OTHER POSTRETIREMENT BENEFIT ASSETS AND LIABILITIES

We have one qualified non-contributory defined benefit pension plan covering a portion of our employees and an unfunded plan that provides benefits in excess of amounts allowable under current tax law in the qualified plan. The qualified and unfunded plans are closed to new participants. Effective December 31, 2016, we froze benefits for all employees participating in the pension plans.

In 2021, we recognized $0.3 million of pension and postretirement benefit credit due to the expected return on plan assets offsetting interest costs and amortization of losses. Numerous estimates and assumptions are required to determine the proper amount of pension and postretirement liabilities and annual expense to record in our financial statements. The key assumptions include discount rate, return on assets, health care cost trends, mortality rates and longevity of employees. Although there is authoritative guidance on how to select most of the assumptions, some degree of judgment is exercised in selecting these assumptions. Different assumptions, as well as actual versus expected results, would change the periodic benefit cost and funded status of the benefit plans recognized in the financial statements. The changes in our discount rate and expected return on plan assets have an inverse relationship with our projected benefit obligation and pension expense, respectively. A hypothetical 25 basis point increase/decrease in our pension plan’s discount rate would result in a decrease/increase in the projected benefit obligation of approximately $3.1 million and $3.3 million, respectively. A hypothetical 25 basis point increase/decrease in our pension plan’s expected return on plan assets assumption would result in a decrease/increase in pension expense of approximately $0.2 million. See Note 20 — Employee Benefit Plans for additional information.

DEFERRED TAX ITEMS

The Timber and Real Estate operations conducted within our REIT are generally not subject to U.S. income taxation. We expect any variability in our effective tax rate and the amount of cash taxes to be paid to be driven primarily by our New Zealand Timber and Trading segments, as our other business operations are conducted within our U.S. REIT subsidiaries. However, the assessment of the ability to realize certain deferred tax assets, or estimate deferred tax liabilities, remains subjective. See Note 22 — Income Taxes for additional information about our unrecognized tax benefits.

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ENVIRONMENTAL AND NATURAL RESOURCE DAMAGE LIABILITIES

We determine the costs of environmental remediation for areas we have been named potentially liable parties based on evaluations of current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability and emerging remediation technologies. At December 31, 2021, the total amount of liabilities recorded on our Consolidated Balance Sheets related to environmental contamination and Natural Resource Damages was $10.8 million. This is management’s best estimate of the costs for remediation and restoration, however, management will continue to monitor the cleanup process and make adjustments to the liability as needed. For more information, see Governmental Regulations and Environmental Matters in Item 1 - Business.

BUSINESS COMBINATIONS

We account for business combinations using the acquisition method of accounting, under which all assets acquired and liabilities assumed, including amounts attributable to noncontrolling interests, are recorded at their respective fair values as of the acquisition date. The excess of the purchase price over fair values of identifiable assets and liabilities is recorded as goodwill. The preliminary allocation of purchase price in a business combination uses significant assumptions and estimates. Critical estimates include, but are not limited to, future expected cash flows, including revenues and expenses, and applicable discount rates. While we believe our estimates and assumptions to be reasonable, they are subject to change as we obtain additional information related to those estimates during the applicable measurement periods (up to one year from the acquisition date). Pursuant to ASC 805, our financial statements are not retrospectively adjusted for any changes to the recorded values that occur in subsequent periods. Rather, we recognize any change in recorded values during the reporting period in which the adjustments are determined. We also record, in the same period’s financial statements, the effect on earnings of changes in depletion, depreciation, amortization, or other income effects, if any, as a result of any change to the recorded values, calculated as if the accounting had been completed at the acquisition date. See Note 2 — Merger with Pope Resources for additional information.

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RESULTS OF OPERATIONS

Summary of our results of operations for the three years ended December 31:

(a)The year ended December 31, 2021 includes sales and operating income of $156.8 million and $51.5 million, respectively, from Fund II Timberland Dispositions.

(b)Includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue.

(c)The years ended December 31, 2021 and December 31, 2020 include income of $44.8 million and $28.7 million, respectively, related to Large Dispositions.

(d)The year ended December 31, 2021 includes a $41.2 million gain from Fund II Timberland Dispositions. The year ended December 31, 2020 includes a $7.3 million loss related to timber write-offs resulting from casualty events.

(e)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Item 7 - Performance and Liquidity Indicators.

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(a)Estimated percentage of export volume which includes volumes sold to third-party exporters in addition to direct exports through our log export program.

(b)Timber write-offs resulting from casualty events include the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which cannot be salvaged.

(c)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Item 7 - Performance and Liquidity Indicators.

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(a)Estimated percentage of export volume which includes volumes sold to third-party exporters in addition to direct exports through our log export program.

(b)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Item 7 - Performance and Liquidity Indicators.

(c)Delivered Sawtimber excluding chip-n-saw.

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(a)Estimated percentage of export volume which includes volumes sold to third-party exporters in addition to direct exports through our log export program.

(b)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Item 7 - Performance and Liquidity Indicators.

(c)Represents the period average rates for each year.

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(a)Fund II Timberland Dispositions represents the disposition of Timber Fund II timberland assets, which we managed and owned a co-investment stake in. Fund II Timberland Dispositions attributable to Rayonier represents the proportionate share of Fund II Timberland Dispositions that are attributable to Rayonier.

(b)Gain on investment in Timber Funds reflects the gain recognized on Fund II carried interest incentive fees in the fourth quarter of 2021 as well as the gain recognized on the sale of Timber Funds III & IV in the third quarter of 2021.

(c)Timber write-offs resulting from casualty events attributable to Rayonier include the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which cannot be salvaged.

(d)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Item 7 - Performance and Liquidity Indicators.

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(a)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Item 7 - Performance and Liquidity Indicators.

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(a)Reflects land with capital invested in infrastructure improvements.

(b)Includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue.

(c)Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. In 2021, we completed two dispositions of approximately 17,000 acres in total. In June 2021, we completed a disposition of approximately 9,000 acres in Washington for a sales price and gain of approximately $36.0 million and $30.3 million, respectively. In July 2021, we completed a second disposition of approximately 8,000 acres in Washington, for a sales price and gain of approximately $20.0 million and $14.5 million, respectively. In 2020, we completed the disposition of approximately 67,000 acres located in Mississippi for a sales price and a gain of approximately $116.0 million and $28.7 million, respectively.

(d)Excludes Large Dispositions.

(e)Excludes Improved Development and Large Dispositions.

(f)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Item 7 - Performance and Liquidity Indicators.

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(a)The years ended December 31, 2021 and December 31, 2020 exclude $2.8 million and $2.3 million, respectively, of capital expenditures attributable to noncontrolling interests in Timber Funds.

(b)The year ended December 31, 2020 excludes the Pope Resources acquisition. See Note 2 - Merger with Pope Resources for additional information.

(c)Represents investments in master infrastructure or entitlements in our real estate development projects. Real Estate Development Investments are amortized as the underlying properties are sold and included in Non-Cash Cost of Land and Improved Development.

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RESULTS OF OPERATIONS, 2021 VERSUS 2020

(millions of dollars)

The following tables summarize sales, operating income and Adjusted EBITDA variances for 2021 versus 2020:

(a)Net of currency hedging impact.

(b)Includes variance due to stumpage versus delivered sales.

(c)Includes variance due to domestic versus export sales.

(d)Timber Funds includes an increase in sales attributable to noncontrolling interests of $136.3 million, $31.4 million related to Fund II Timberland Dispositions attributable to Rayonier, sales related to timberland investment management fees paid to us by the timber funds, and a variance due to stumpage versus delivered sales.

(e)Includes a $60.0 million decrease in Large Dispositions in addition to Conservation Easements sales, residential and commercial lease income, marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments.

(f)Includes a $0.1 million decrease in Intersegment eliminations related to timberland management fees paid by the timber funds and reported as sales within the Timber Funds segment.

(a)For Timber segments, price reflects net stumpage realizations (i.e. net of cut and haul and shipping costs). For Real Estate, price is presented net of cash closing costs.

(b)Net of currency hedging impact.

(c)Southern Timber includes $6.0 million in timber write-offs resulting from casualty events in the prior year. Timber Funds includes an increase in operating income attributable to noncontrolling interests of $57.1 million, a $10.3 million gain related to Fund II Timberland Dispositions, $3.7 million related to the gain on sales of Funds III and IV, a $3.8 million gain on Fund II carried interest incentive fees, $1.8 million of timber write-offs from casualty events attributable to Rayonier in the prior year and timberland investment management fees paid to us by the timber funds. Real Estate includes a $16.1 million increase in operating income from Large Dispositions in addition to Conservation Easements sales, residential and commercial lease income, marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments. Corporate and Other includes $17.2 million in costs related to the merger with Pope Resources in 2020.

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(a)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Item 7 - Performance and Liquidity Indicators.

(b)For Timber segments, price reflects net stumpage realizations (i.e. net of cut and haul and shipping costs). For Real Estate, price is presented net of cash closing costs.

(c)Net of currency hedging impact.

(d)Timber Funds includes timberland investment management fees paid to us by the timber fund. Real Estate includes Conservation Easements sales, residential and commercial lease income, marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments.

SOUTHERN TIMBER

Full-year sales of $204.4 million increased $12.6 million, or 7%, versus the prior year, including an increase in non-timber sales of $3.0 million versus the prior year. Harvest volumes decreased 8% to 5.69 million tons versus 6.20 million tons in the prior year. Average pine sawtimber stumpage prices increased 10% to $28.27 per ton versus $25.72 per ton in the prior year, while average pine pulpwood stumpage prices increased 21% to $19.09 per ton versus $15.83 in the prior year. The increase in average pine pulpwood prices was primarily due to strong domestic demand, constrained supply due to wet weather conditions and an increase in pulpwood exports to China. The increase in average pine sawtimber prices was primarily due to strong domestic lumber demand, upward pressure on chip-n-saw pricing due to increased competition from pulp mills and a strengthening export market along the east coast.

Operating income of $66.1 million increased $24.9 million versus the prior year due to higher net stumpage realizations ($17.0 million), the prior year write-off of timber basis as a result of Hurricane Laura ($6.0 million), higher non-timber income ($3.2 million), lower depletion rates ($2.7 million) and lower costs ($0.6 million), partially offset by lower volumes ($4.7 million). Full-year Adjusted EBITDA of $120.2 million was $11.1 million above the prior year.

PACIFIC NORTHWEST TIMBER

Full-year sales of $143.0 million increased $22.2 million, or 18%, versus the prior year. Harvest volumes increased 4% to 1.67 million tons versus 1.60 million tons in the prior year, primarily due to incremental volume from the Pope Resources acquisition. Average delivered sawtimber prices increased 15% to $97.87 per ton versus $84.93 per ton in the prior year, as favorable domestic lumber markets coupled with increased export demand drove higher log prices. Average delivered pulpwood prices decreased 11% to $31.65 per ton versus $35.51 per ton in the prior year, as increased lumber production resulted in an increased supply of competing sawmill residuals.

Operating income of $6.8 million improved $16.8 million versus the prior year, primarily due to higher net stumpage realizations ($17.3 million), higher non-timber income ($1.7 million) and higher volumes ($0.1 million), partially offset by higher depletion rates ($1.4 million) and higher costs ($0.9 million). Full-year Adjusted EBITDA of $57.3 million was $20.2 million above the prior year.

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NEW ZEALAND TIMBER

Full-year sales of $281.2 million increased $78.8 million, or 39%, versus the prior year. Harvest volumes increased 5% to 2.60 million tons versus 2.49 million tons in the prior year driven by strong export and domestic demand versus the prior year period that was negatively impacted by COVID-19 related headwinds. Average delivered prices for export sawtimber increased 41% to $138.84 per ton versus $98.47 per ton in the prior year, while average delivered prices for domestic sawtimber increased 18% to $83.19 per ton versus $70.37 per ton in the prior year. The increase in export sawtimber prices was driven primarily by the restriction on competing log imports into China from Australia in the current year, as well as the ability of log exporters to pass higher costs along to customers. The increase in domestic sawtimber prices (in U.S. dollar terms) was driven in part by the NZ$/US$ exchange rate (US$0.71 per NZ$1.00 versus US$0.65 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices increased 9% from the prior year, following the upward trend in the export market.

Operating income of $51.5 million increased $21.5 million versus the prior year due to higher net stumpage realizations ($22.7 million), favorable foreign exchange impacts ($3.7 million), higher volumes ($2.1 million) and lower depletion rates ($1.5 million), which were partially offset by lower non-timber income ($7.3 million) and higher forest management costs ($1.2 million). Full-year Adjusted EBITDA of $78.5 million was $23.5 million above the prior year.

TIMBER FUNDS

Full-year sales of $199.4 million increased $169.8 million versus the prior year, while operating income of $63.3 million increased $76.5 million versus the prior year. Full-year sales and operating income included $156.8 million and $51.5 million, respectively, from the Fund II Timberland Dispositions. Full-year operating income also included a $3.7 million gain on the sale of Timber Funds III and IV and a $3.8 million gain on Fund II carried interest incentive fees. The prior year period included timber write-offs of $9.2 million resulting from two fires in Oregon. Harvest volumes increased 28% to 402,000 tons versus 315,000 tons in the prior year period. The prior year period reflected results for only a portion of the year following the closing of the Pope Resources acquisition on May 8, 2020, while the current year reflects activity through July 21 for Timber Funds III and IV and limited activity in Fund II during the fourth quarter due to the liquidation of it’s timberland assets. Full-year Adjusted EBITDA of $2.3 million was $0.5 million above the prior year period.

REAL ESTATE

Full-year sales of $189.9 million decreased $39.5 million versus the prior year, while operating income of $112.5 million increased $40.6 million versus the prior year. Sales and operating income in the current year included $56.0 million and $44.8 million, respectively, from Large Dispositions. Prior year sales and operating income included $116.0 million and $28.7 million, respectively, from Large Dispositions. Sales decreased primarily due to lower volumes (32,371 acres sold versus 110,984 acres sold in the prior year), partially offset by higher weighted average prices ($5,820 per acre versus $2,031 per acre in the prior year). Full-year Adjusted EBITDA of $100.7 million was $9.3 million above the prior year.

TRADING

Full-year sales of $95.4 million increased $6.4 million versus the prior year due to higher prices, partially offset by lower volumes. Sales volumes decreased 26% to 706,000 tons versus 960,000 tons in the prior year. Operating income and Adjusted EBITDA increased $0.6 million versus the prior year.

CORPORATE AND OTHER EXPENSE/ELIMINATIONS

Full-year corporate and other operating expense of $30.6 million decreased $14.6 million versus the prior year, which included $17.2 million of costs related to the Pope Resources merger. This positive variance was partially offset by higher overhead expenses.

INTEREST EXPENSE

Full-year interest expense of $44.9 million increased $6.1 million versus the prior year due to higher average outstanding debt and a $2.2 million loss from the second quarter termination of a cash flow hedge related to the voluntary repayment of $100 million of term loans.

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INTEREST AND OTHER MISCELLANEOUS INCOME, NET

Other non-operating income of $0.2 million decreased $0.9 million versus the prior year primarily due to favorable mark to market adjustments on marketable equity securities and carbon options in the prior year, and costs related to debt extinguishments and modifications in the current year, partially offset by favorable periodic pension costs.

INCOME TAX EXPENSE

Full-year income tax expense of $14.7 million increased $7.7 million versus the prior year. The New Zealand subsidiary is the primary driver of income tax expense.

RESULTS OF OPERATIONS, 2020 VERSUS 2019

Refer to Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for the results of operations discussion for the fiscal year ended December 31, 2020 compared to the fiscal year ended December 31, 2019.

OUTLOOK FOR 2022

In 2022, we expect to achieve full-year harvest volumes in our Southern Timber segment of 6.3 to 6.6 million tons. The anticipated increase relative to 2021 reflects a rebound in harvest activity following the wet weather conditions and supply chain constraints that negatively impacted full-year 2021 volumes, as well as the expected contribution from recent acquisitions. We also anticipate an improvement in weighted average stumpage realizations relative to full-year 2021 driven by strong sawtimber and pulpwood demand, partially offset by higher harvest and transportation costs.

In our Pacific Northwest Timber segment, we expect to achieve harvest volumes of 1.7 to 1.8 million tons. We anticipate weighted average pricing to increase modestly relative to full-year 2021 driven by continued strong demand. However, we expect that higher prices will be largely offset by increased harvest and transportation costs.

In our New Zealand Timber segment, we expect to achieve harvest volumes of 2.6 to 2.8 million tons. For the full-year, we anticipate modestly lower export pricing relative to the full-year pricing achieved in 2021. However, as log inventories in China normalize and demand picks up following the Lunar New Year, we anticipate export pricing to increase from current levels. Seasonally lower volumes, supply chain disruptions and lower pricing are generally expected to produce lower operating results from this segment in the first half versus the second half of the year.

In the Real Estate segment, we remain focused on opportunistically unlocking the long-term value of our HBU development and rural property portfolio. Following exceptionally strong Real Estate results in 2021, we currently anticipate more normalized transaction activity in 2022.

Our 2022 outlook is subject to a number of variables and uncertainties, including those discussed at Item 1A — Risk Factors.

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LIQUIDITY AND CAPITAL RESOURCES

Our principal source of cash is cash flow from operations, primarily the harvesting of timber and sales of real estate. As a REIT, our main use of cash is dividends on Rayonier Inc. common shares and distributions on Rayonier, L.P. units. We also use cash to maintain the productivity of our timberlands through replanting and silviculture. Our operations have generally produced consistent cash flow and required limited capital resources. Short-term borrowings have helped fund working capital needs, while acquisitions of timberlands generally require funding from external sources or Large Dispositions.

STRATEGY

We continuously evaluate our capital structure. Our strategy is to maintain a weighted-average cost of capital competitive with other timberland REITs and TIMOs, while maintaining an investment grade debt rating as well as retaining the flexibility to actively pursue capital allocation opportunities as they become available. Overall, we believe we have adequate liquidity and sources of capital to run our businesses efficiently and effectively and to maximize the value of our timberland and real estate assets under management.

CREDIT RATINGS

Both our ability to obtain financing and the related costs of borrowing are affected by our credit ratings, which are periodically reviewed by the rating agencies. As of December 31, 2021, our credit ratings from S&P and Moody’s were “BBB-” and “Baa3,” respectively, with both agencies listing our outlook as “Stable.”

SUMMARY OF LIQUIDITY AND FINANCING COMMITMENTS

(a)Total debt as of December 31, 2021, 2020 and 2019 reflects the principal on long-term debt, net of fair market value adjustments and gross of deferred financing costs and unamortized discounts of $8.3 million, $2.5 million and $1.9 million, respectively.

(b)For a reconciliation of Adjusted EBITDA to net income see Management’s Discussion and Analysis of Financial Condition and Results of Operations—Performance and Liquidity Indicators.

(c)Net debt is calculated as total debt less cash and cash equivalents.

(d)Enterprise value based on market capitalization (including Rayonier, L.P. “OP” units) plus net debt based on Rayonier’s share price of $40.36, $29.38, and $32.76 as of December 31, 2021, 2020 and 2019, respectively.

AT-THE-MARKET EQUITY OFFERING PROGRAM (“ATM Program”)

On September 10, 2020, we entered into a distribution agreement with a group of sales agents through which we may sell common shares, from time to time, having an aggregate sales price of up to $300 million. During the year ended December 31, 2021, the Company sold 6.4 million shares under the ATM Program at an average price of $37.05 per share, generating aggregate gross proceeds of $235.5 million, excluding $2.4 million of commissions. During the year ended December 31, 2020, the Company sold 1.1 million shares under the ATM Program at an average price of $30.26 per share, generating aggregate gross proceeds of $33.4 million, excluding $0.3 million of commissions. As of December 31, 2021, $31.1 million remains available for issuance under the program.

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The following table outlines the common stock issuance pursuant to our ATM program (dollars in millions):

CASH FLOWS

The following table summarizes our cash flows from operating, investing and financing activities for each of the three years ended December 31 (in millions of dollars):

CASH PROVIDED BY OPERATING ACTIVITIES

Cash provided by operating activities increased $120.9 million versus the prior year primarily due to higher operating results and $17.2 million of merger-related costs in the prior year.

CASH USED FOR INVESTING ACTIVITIES

Cash used for investing activities decreased $187.4 million versus the prior year primarily due to the net cash consideration transferred in our merger with Pope Resources in the prior year ($231.1 million), net proceeds from the sale of Fund II timberlands ($154.7 million), net proceeds from the sale of Timber Funds III and IV ($31.0 million) and other investing activities ($1.5 million), partially offset by an increase in timberland acquisitions ($154.4 million), lower proceeds from Large Dispositions ($61.0 million), higher capital expenditures ($9.5 million) and higher real estate development investments ($6.0 million).

CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES

Cash used for financing activities of $16.3 million compares to cash provided by financing activities of $27.0 million in the prior year. This is primarily due to a decrease in net borrowings ($141.6 million), higher distributions to consolidated affiliates ($96.3 million), higher dividends paid on common stock ($7.2 million), make-whole fees on debt prepayments in the current year ($6.2 million), higher debt issuance costs ($2.4 million) and higher distributions to noncontrolling interests in the operating partnership ($0.7 million), partially offset by higher proceeds from the issuance of common shares under the ATM equity offering program ($198.3 million), noncontrolling interests in consolidated affiliates redemption of shares in the prior year ($5.1 million), higher proceeds from the issuance of common shares under the incentive stock plan ($4.6 million) and decreases in share repurchases ($3.1 million).

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FUTURE USES OF CASH

We expect future uses of cash to include working capital requirements, principal and interest payments on long-term debt, lease payments, capital expenditures, real estate development investments, timberland acquisitions, dividends on Rayonier Inc. common shares and distributions on Rayonier, L.P. units, distributions to noncontrolling interests, repurchases of the Company’s common shares and to satisfy other commitments.

Significant long-term uses of cash include the following (in millions):

(a)The book value of long-term debt, net of deferred financing costs and unamortized discounts, is currently recorded at $1,242.8 million on our Consolidated Balance Sheets, but upon maturity the liability will be $1,251.1 million. See Note 10 - Debt for additional information.

(b)The book value of current maturities of long-term debt, net of deferred financing costs is currently recorded at $125.0 million on our Consolidated Balance Sheets, and upon maturity the liability will be $125.0 million. See Note 10 - Debt for additional information.

(c)Projected interest payments for variable-rate debt were calculated based on outstanding principal amounts and interest rates as of December 31, 2021.

(d)Excludes anticipated renewal options.

(e)Commitments — developmental projects primarily consists of payments expected to be made on our Wildlight and Richmond Hill projects.

(f)Commitments — derivatives represent payments expected to be made on derivative financial instruments (interest rate swaps and forward-starting interest rate swaps). See Note 11 — Derivative Financial Instruments and Hedging Activities for additional information.

(g)Commitments — environmental remediation represents our estimate of potential liability associated with environmental contamination and Natural Resource Damages in Port Gamble, Washington. See Note 15 - Environmental and Natural Resource Damage Liabilities for additional information.

(h)Commitments — other includes other purchase obligations.

We expect to fund future uses of cash with a combination of existing cash balances, cash generated by operating activities, the remaining issuances available under the Company’s ATM Program, Large Dispositions and the use of our revolving credit facilities.

EXPECTED 2022 EXPENDITURES

Capital expenditures in 2022 are forecasted to be between $80 million and $85 million, excluding any strategic timberland acquisitions we may make. Capital expenditures are expected to be primarily comprised of seedling planting, fertilization and other silvicultural activities, property taxes, lease payments, allocated overhead and other capitalized costs. Aside from capital expenditures, we may also acquire timberland as we actively evaluate acquisition opportunities.

Real estate development investments in 2022 are expected to be between $22 million and $25 million, net of anticipated reimbursements from community development bonds. Expected real estate development investments are primarily related to Wildlight, our mixed-use community development project located north of Jacksonville, Florida; Richmond Hill, our mixed-use development project located south of Savannah, Georgia; development properties in the town of Port Gamble, Washington; and development projects in Gig Harbor, Kingston and Bremerton, Washington.

Our 2022 dividend payments on Rayonier Inc. common shares and distributions to Rayonier, L.P. unitholders are expected to be approximately $157.5 million and $3.6 million, respectively, assuming no change in the quarterly dividend rate of $0.27 per share or material changes in the number of common shares or partnership units outstanding.

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Future share repurchases, if any, will depend on the Company’s liquidity and cash flow, as well as general market conditions and other considerations including capital allocation priorities.

We made no discretionary pension contributions in 2021. We have no pension contribution requirements in 2022 but may make discretionary contributions in the future.

Cash income tax payments in 2022 are expected to be between $18 million and $22 million, primarily due to the New Zealand subsidiary.

OFF-BALANCE SHEET ARRANGEMENTS

We utilize off-balance sheet arrangements to provide credit support for certain suppliers and vendors in case of their default on critical obligations, and collateral for outstanding claims under our previous workers’ compensation self-insurance programs. These arrangements consist of standby letters of credit and surety bonds. As part of our ongoing operations, we also periodically issue guarantees to third parties. Off-balance sheet arrangements are not considered a source of liquidity or capital resources and do not expose us to material risks or material unfavorable financial impacts. See Note 16 — Guarantees for further discussion.

SUMMARY OF GUARANTOR FINANCIAL INFORMATION

In March 2012, Rayonier Inc. issued $325 million of 3.75% Senior Notes due 2022 (the “Senior Notes due 2022”). On May 7, 2020, Rayonier Inc. contributed its 100% ownership interest in Rayonier Operating Company LLC (the “Contribution”) to Rayonier, L.P. As a result of the Contribution, Rayonier, L.P. expressly assumed all the obligations of Rayonier Inc. with respect to the outstanding Senior Notes due 2022 and Rayonier Inc. agreed to irrevocably, fully and unconditionally guarantee jointly and severally, the obligations of Rayonier, L.P. under the Indenture, including the Senior Notes due 2022. Rayonier L.P. is the current issuer of the Senior Notes due 2022. See the subsequent events section of Note 1 - Summary of Significant Accounting Policies for information about the repayment of our Senior Notes due 2022.

In May 2021, Rayonier, L.P. issued $450 million of 2.75% Senior Notes due 2031 (the “Senior Notes due 2031”). Rayonier TRS Holdings Inc., together with Rayonier Inc. and Rayonier Operating Company LLC agreed to irrevocably, fully and unconditionally guarantee jointly and severally, the obligations of Rayonier, L.P. in regards to the Senior Notes due 2031. As a general partner of Rayonier, L.P., Rayonier Inc. consolidates Rayonier, L.P. and has no material assets or liabilities other than its interest in Rayonier, L.P. These notes are unsecured and unsubordinated and will rank equally with all other unsecured and unsubordinated indebtedness from time to time outstanding.

Rayonier, L.P. is a limited partnership, in which Rayonier Inc. is the general partner. The operating subsidiaries of Rayonier, L.P. conduct all of our operations. Rayonier, L.P.’s most significant assets are its interest in operating subsidiaries, which have been eliminated in the table below to eliminate intercompany transactions between the issuer and guarantors and to exclude investments in non-guarantors. As a result, our ability to make required payments on the notes depends on the performance of our operating subsidiaries and their ability to distribute funds to us. There are no material restrictions on dividends from the operating subsidiaries.

The following table contains the summarized balance sheet information for the consolidated obligor group of debt issued by Rayonier, L.P. for the two years ended December 31:

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The following table contains the summarized results of operations information for the consolidated obligor group of debt issued by Rayonier, L.P. for the two years ended December 31:

LIQUIDITY FACILITIES

See Note 10 — Debt for information on liquidity facilities and other outstanding debt, as well as for information on covenants that must be met in connection with our Senior Notes due 2022, Senior Notes due 2031, Term Credit Agreement, Incremental Term Loan Agreement, 2021 Incremental Term Loan Agreement and Revolving Credit Facility.

RESTRICTED CASH

See Note 24 — Restricted Cash for further information regarding the portion of proceeds from Fund II Timberland Dispositions required to be distributed to noncontrolling interests and cash held in escrow.

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PERFORMANCE AND LIQUIDITY INDICATORS

The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity, ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures of financial results: Adjusted Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (“Adjusted EBITDA”), and Cash Available for Distribution (“CAD”). These measures are not defined by GAAP and the discussion of Adjusted EBITDA and CAD is not intended to conflict with or change any of the GAAP disclosures described above. Management considers these measures to be important to estimate the enterprise and shareholder values and of our core segments, and for allocating capital resources. In addition, analysts, investors and creditors use these measures when analyzing our operating performance, financial condition and cash generating ability. Management uses Adjusted EBITDA as a performance measure and CAD as a liquidity measure. Adjusted EBITDA and CAD as defined may not be comparable to similarly titled measures reported by other companies. These measures should not be considered in isolation from, and are not intended to represent an alternative to, our results reported in accordance with GAAP.

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, depletion, amortization, the non-cash cost of land and improved development, non-operating income and expense, operating income (loss) attributable to noncontrolling interests in Timber Funds, costs related to the merger with Pope Resources, timber write-offs resulting from casualty events, the gain on investment in Timber Funds, Fund II Timberland Dispositions and Large Dispositions.

Below is a reconciliation of Net Income to Adjusted EBITDA for the three years ended December 31 (in millions of dollars):

(a)Timber write-offs resulting from casualty events include the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which cannot be salvaged.

(b)Costs related to the merger with Pope Resources include legal, accounting, due diligence, consulting and other costs related to the merger with Pope Resources.

(c)Gain on investment in Timber Funds reflects the gain recognized on Fund II carried interest incentive fees in the fourth quarter of 2021 as well as the gain recognized on the sale of Timber Funds III & IV in the third quarter of 2021.

(d)Fund II Timberland Dispositions represent the disposition of Fund II Timberland assets, which we managed and owned a co-investment stake in. Fund II Timberland Dispositions attributable to Rayonier represents the proportionate share of Fund II Timberland Dispositions that are attributable to Rayonier.

(e)Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value.

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The following tables provide a reconciliation of Operating Income (Loss) by segment to Adjusted EBITDA by segment for the three years ended December 31 (in millions of dollars):

(a)The year ended December 31, 2021 includes $41.2 million of income from Fund II Timberland Dispositions. The year ended December 31, 2020 includes a $7.3 million loss related to timber write-offs resulting from casualty events.

(b)Gain on investment in Timber Funds reflects the gain recognized on Fund II carried interest incentive fees in the fourth quarter of 2021 as well as the gain recognized on the sale of Timber Funds III & IV in the third quarter of 2021.

(c)Fund II Timberland Dispositions represent the disposition of Fund II Timberland assets, which we managed and owned a co-investment stake in. Fund II Timberland Dispositions attributable to Rayonier represents the proportionate share of Fund II Timberland Dispositions that are attributable to Rayonier.

(d)Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value.

(e)Timber write-offs resulting from casualty events includes the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which cannot be salvaged.

(f)Costs related to the merger with Pope Resources include legal, accounting, due diligence, consulting and other costs related to the merger with Pope Resources.

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Cash Available for Distribution (CAD) is defined as cash provided by operating activities adjusted for capital spending (excluding timberland acquisitions and real estate development investments), CAD attributable to noncontrolling interests in Timber Funds, and working capital and other balance sheet changes. CAD is a non-GAAP measure of cash generated during a period that is available for common stock dividends, distributions to operating partnership unitholders, distributions to noncontrolling interests, repurchase of the Company's common shares, debt reduction, timberland acquisitions and real estate development investments. In compliance with SEC requirements for non-GAAP measures, we reduce CAD by mandatory debt repayments, which results in the measure entitled “Adjusted CAD.” CAD and Adjusted CAD generated in any period are not necessarily indicative of the CAD that may be generated in future periods.

Below is a reconciliation of Cash Provided by Operating Activities to Adjusted CAD for the three years ended December 31 (in millions):

(a)Capital expenditures exclude timberland acquisitions and real estate development investments.

(b)Costs related to the merger with Pope Resources include legal, accounting, due diligence, consulting and other costs related to the merger with Pope Resources.

The following table provides supplemental cash flow data for the three years ended December 31 (in millions):

(a)The year ended December 31, 2020 excludes the Pope Resources acquisition. See Note 2 - Merger with Pope Resources for additional information.

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