Rayonier Stays Steady (RYN)
Rayonier (RYN), a leading timber REIT that I've held for quite some time, today reminded me of why I like this company, and of the place that it holds in my portfolio.
I bought Rayonier about a year and a half ago, and intended for it to be a steady yielder and slow grower for my portfolio, helping to balance my more volatile investments. As I wrote in my annual checkup on the company back in January, I was a little bit conflicted on my RYN hold because it grew much faster than I expected ... but I certainly didn't want to sell it.
Rayonier has a few things going for them, and a few ways in which this company can significantly diversify a portfolio. First is timber land, of course, and that's the heart of the company -- strong stewardship of slow-growth assets (trees) that have proven over the years to appreciate faster than most hard assets, and with very little correlation to the overall market or to other commodities.
But while it's wise to hold timber in any diversified portfolio, Rayonier has a few other things going for them as well -- they own a lot of land in the Southeastern US that is, thanks to rapid growth in Georgia and Florida, no longer entirely rural. They've focused in recent years on converting some of this land to "Higher and Better Use" (HBU) -- which usually means selling it for development, especially in the coastal areas on the FL/GA border. They lowered their guidance over the winter a little bit because they decided to take a more active role in developing their land instead of selling it wholesale to commercial developers and homebuilders. I think that probably makes for a higher upside in the long run, but it means that realizing gains from this land takes a little more time.
And the other big part of their business, the part that caught my attention again today, is specialty cellulose fibers. Rayonier is one of a relatively small number of companies that produce fibers that are used in a myriad of unexpected commercial activities, and that are derived from softwoods. That includes acetate and other films, many of which are used in things like LCD displays. It includes high performance absorbers that are used in commercial applications and in disposable diapers. And it includes filters for cigarettes, which is where today's news comes from.
Rayonier has signed a long term deal with a subsidiary of a big Chinese tobacco company to supply fibers to them for the next five years at about $100 million per year. That is part of a focus they've had recently to make this fiber business more predictable into the future by signing long term contracts to support their production goals.
Overall, 80% of RYN's fiber production is contracted out for the next five years -- which means that their earnings should be stronger (that adds up to $2 billion in revenue over five years, pretty significant for a sub-$3 billion company) ... and that they should be more predictable, helping to even out swings in the price of timber.
Just what you like to see in a hedging investment, or in a REIT ... solid tax-efficient yield of about 5%, solid growth, dependable trajectory. And no surprises. On top of a 40% rise in the share price over the past 18 months, that sounds pretty nice.
I bought Rayonier about a year and a half ago, and intended for it to be a steady yielder and slow grower for my portfolio, helping to balance my more volatile investments. As I wrote in my annual checkup on the company back in January, I was a little bit conflicted on my RYN hold because it grew much faster than I expected ... but I certainly didn't want to sell it.
Rayonier has a few things going for them, and a few ways in which this company can significantly diversify a portfolio. First is timber land, of course, and that's the heart of the company -- strong stewardship of slow-growth assets (trees) that have proven over the years to appreciate faster than most hard assets, and with very little correlation to the overall market or to other commodities.
But while it's wise to hold timber in any diversified portfolio, Rayonier has a few other things going for them as well -- they own a lot of land in the Southeastern US that is, thanks to rapid growth in Georgia and Florida, no longer entirely rural. They've focused in recent years on converting some of this land to "Higher and Better Use" (HBU) -- which usually means selling it for development, especially in the coastal areas on the FL/GA border. They lowered their guidance over the winter a little bit because they decided to take a more active role in developing their land instead of selling it wholesale to commercial developers and homebuilders. I think that probably makes for a higher upside in the long run, but it means that realizing gains from this land takes a little more time.
And the other big part of their business, the part that caught my attention again today, is specialty cellulose fibers. Rayonier is one of a relatively small number of companies that produce fibers that are used in a myriad of unexpected commercial activities, and that are derived from softwoods. That includes acetate and other films, many of which are used in things like LCD displays. It includes high performance absorbers that are used in commercial applications and in disposable diapers. And it includes filters for cigarettes, which is where today's news comes from.
Rayonier has signed a long term deal with a subsidiary of a big Chinese tobacco company to supply fibers to them for the next five years at about $100 million per year. That is part of a focus they've had recently to make this fiber business more predictable into the future by signing long term contracts to support their production goals.
Overall, 80% of RYN's fiber production is contracted out for the next five years -- which means that their earnings should be stronger (that adds up to $2 billion in revenue over five years, pretty significant for a sub-$3 billion company) ... and that they should be more predictable, helping to even out swings in the price of timber.
Just what you like to see in a hedging investment, or in a REIT ... solid tax-efficient yield of about 5%, solid growth, dependable trajectory. And no surprises. On top of a 40% rise in the share price over the past 18 months, that sounds pretty nice.
Labels: RYN
This article posted by One Guy @ 7/13/2006 10:49:00 AM 0 comments
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