UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒ |
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2019March 31, 2020 |
OR
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☐ |
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period fromto |
Commission File Number 001-36239
CATCHMARK TIMBER TRUST, INC.
(Exact name of registrant as specified in its charter)
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Maryland | | 20-3536671 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
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5 Concourse Parkway, Suite 2650, Atlanta, GA | | 30328 |
(Address of principal executive offices) | | (Zip Code) |
(855) 858-9794
(Registrant’s telephone number, including area code)
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol | Name of exchange on which registered |
Class A Common Stock, $0.01 Par Value Per Share | CTT | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | o☐ | | Accelerated filer | x☒ |
Non-accelerated filer | o☐ | | Smaller reporting company | x☒ |
Emerging growth company | o☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒
Number of shares outstanding of the registrant’s common stock, as of October 31, 2019: 49,007,142April 30, 2020: 48,742,034 shares
FORM 10-Q
CATCHMARK TIMBER TRUST, INC.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION | | |
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| Item 1. | | | |
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| | Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 (unaudited) and 2018 (unaudited) | | |
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| | Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 (unaudited) and 2018 (unaudited) | | |
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| | Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2019 (unaudited) and 2018 (unaudited) | | |
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| Item 2. | | | |
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| Item 3. | | | |
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| Item 4. | | | |
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PART II. OTHER INFORMATION | | |
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| Item 1. | | | |
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| Item 1A. | | | |
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| Item 2. | | | |
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| Item 6. | | | |
GLOSSARY
The following abbreviations or acronyms may be used in this document and shall have the adjacent meanings set forth below:
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AFM | | American Forestry Management, Inc. |
ASC | | Accounting Standards Codification |
ASU | | Accounting Standards Update |
CoBank | | CoBank, ACB |
CodeCommon Stock | | Class A common stock, $0.01 par value per share of CatchMark Timber Trust, Inc. |
Code | | Internal Revenue Code of 1986, as amended |
EBITDA | | Earnings before Interest, Taxes, Depletion, and Amortization |
FASB | | Financial Accounting Standards Board |
FCCR | | Fixed Charge Coverage Ratio |
FRC | | Forest Resource Consultants, Inc. |
GAAP | | U.S. Generally Accepted Accounting Principles |
HBU | | Higher and Better Use |
HLBV | | Hypothetical Liquidation at Book Value |
IP | | International Paper Company |
LIBOR | | London Interbank Offered Rate |
LTIPLTC | | Long-Term Contract |
LTIP | | Long-Term Incentive Plan |
LTV | | Loan-to-Value |
MBF | | Thousand Board Feet |
MPERS | | Missouri Department of Transportation & Patrol Retirement System |
NYSE | | New York Stock Exchange |
Rabobank | | Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. |
REIT | | Real Estate Investment Trust |
SEC | | Securities and Exchange Commission |
TRSSRP | | Share Repurchase Program |
TRS | | Taxable REIT Subsidiary |
TSR | | Total Shareholder Return |
U.S. | | United States |
VIE | | Variable Interest Entity |
WestRock | | WestRock Company |
FORM 10-Q
CATCHMARK TIMBER TRUST, INC.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION | | | | |
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| Item 1. | | | |
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| | Consolidated Statements of Operations for the Three Months Ended March 31, 2020 (unaudited) and 2019 (unaudited) | | |
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| | Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 (unaudited) and 2019 (unaudited) | | |
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| | Consolidated Statements of Equity for the Three Months Ended March 31, 2020 (unaudited) and 2019 (unaudited) | | |
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| Item 2. | | | |
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| Item 3. | | | |
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| Item 4. | | | |
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PART II. OTHER INFORMATION | | | | |
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| Item 1. | | | |
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| Item 1A. | | | |
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| Item 2. | | | |
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| Item 5. | | | |
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| Item 6. | | | |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q of CatchMark Timber Trust, Inc. and subsidiaries (“CatchMark,” “we,” “our,” or “us”) may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, we,CatchMark, or ourits executive officers on ourCatchMark's behalf, may from time to time make forward-looking statements in other reports and documents we fileCatchMark files with the SEC or in connection with written or oral statements made to the press, potential investors, or others. We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in the Securities Act and the Exchange Act.
Forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. However, the absence
of these or similar words or expressions does not mean that a statement is not forward-looking. Forward-lookingForward looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Forward-looking statements in this report, include, but are not limited to, that we manage our desireoperations to deliver superior, consistent,generate highly-predictable and predictable per-sharestable cash flow growth through disciplined acquisitions, active management, sustainable harvests, and well-timed real estate sales; our intent to grow over time through selective acquisitions and investments in high-demand fiber markets and to efficiently integrate new acquisitions and investments into our operations; our focus on generating cash flows from sustainable harvests, and improved harvest mix on high-quality industrial timberlands, as well as opportunistic land sales and asset management fees;fees that comfortably cover our dividend throughout the business cycle; improved harvest mix and biological growth of our forests; creatingour intent to create additional value through joint ventures; salesthe impact of large timberland properties to generate capital to fund capital allocation priorities;the new coronavirus (COVID-19) on our business and the businesses of our unconsolidated joint ventures; property performance and anticipated growth in our portfolio; expected uses of cash generated from operations, debt financings and debt and equity offerings; expected sources and adequacy of capital resources and liquidity; our anticipated distribution policy; change in depletion rates, merchantable timber book value and standing timber inventory volume; anticipated harvest volume and mix of harvest volume; and other factors that may lead to fluctuations in future net income (loss). Forward-looking statements in this report also relate to the Triple T Joint Venture (as defined herein) and include, but are not limited to, statements about our ability to find a suitable replacement for former chief executive officer to serve as “key man” under our asset management agreement with the expected benefits of the joint venture, including anticipated harvest volume, financial and operating results and future returns to stockholders; and our plans, objectives, expectations, projections and intentions.Triple T Joint Venture.
Forward-looking statements are based on a number of assumptions involving judgments and are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from our historical experience and our present expectations. Such risks and uncertainties related to us and the Triple T Joint Venture include those discussed in Part II, Item 1A. Risk Factors in this Quarterly Report on Form 10-Q, as well as in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018 and our subsequent reports filed with the SEC.2019. Accordingly, readers are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date that this report is filed with the SEC. We do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
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PART I.
| FINANCIAL INFORMATION |
PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The information furnished in the accompanying consolidated balance sheets and related consolidated statements of operations, comprehensive income (loss), stockholders’loss, equity, and cash flows reflects all adjustments, consisting solely of normal and recurring adjustments, that are, in management’s opinion, necessary for a fair and consistent presentation of the aforementioned financial statements.
The accompanying consolidated financial statements should be read in conjunction with the condensed notes to our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2018.2019. Our results of operations for the three and nine months ended September 30, 2019March 31, 2020 are not necessarily indicative of the operating results expected for the full year.
CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for per-share amounts)
| | | | | | |
| (Unaudited) September 30, 2019 | | December 31, 2018 | | (Unaudited) March 31, 2020 | | December 31, 2019 |
Assets: | | | | Assets: | | | |
Cash and cash equivalents | $ | 17,074 |
| | $ | 5,614 |
| Cash and cash equivalents | $ | 10,412 | | | $ | 11,487 | |
Accounts receivable | 4,519 |
| | 7,355 |
| Accounts receivable | 5,374 | | | 7,998 | |
Prepaid expenses and other assets | 4,591 |
| | 7,369 |
| Prepaid expenses and other assets | 6,162 | | | 5,459 | |
Operating lease right-of-use asset, less accumulated amortization of $209 as of September 30, 2019 (Note 2) | 3,191 |
| | — |
| |
Operating lease right-of-use asset (Note 7) | | Operating lease right-of-use asset (Note 7) | 3,049 | | | 3,120 | |
Deferred financing costs | 266 |
| | 327 |
| Deferred financing costs | 228 | | | 246 | |
Timber assets (Note 3): | | | | Timber assets (Note 3): | |
Timber and timberlands, net | 643,663 |
| | 687,851 |
| Timber and timberlands, net | 606,461 | | | 633,581 | |
Intangible lease assets, less accumulated amortization of $948 and $945 as of September 30, 2019 and December 31, 2018, respectively | 9 |
| | 12 |
| |
Intangible lease assets, less accumulated amortization of $949 and $948 as of March 31, 2020 and December 31, 2019, respectively | | Intangible lease assets, less accumulated amortization of $949 and $948 as of March 31, 2020 and December 31, 2019, respectively | 8 | | | 9 | |
Investments in unconsolidated joint ventures (Note 4) | 10,425 |
| | 96,244 |
| Investments in unconsolidated joint ventures (Note 4) | 1,478 | | | 1,965 | |
Total assets | $ | 683,738 |
| | $ | 804,772 |
| Total assets | $ | 633,172 | | | $ | 663,865 | |
| | | | | | | |
Liabilities: | | | | Liabilities: | |
Accounts payable and accrued expenses | $ | 5,047 |
| | $ | 4,936 |
| Accounts payable and accrued expenses | $ | 6,739 | | | $ | 3,580 | |
Operating lease liability (Note 2) | 3,302 |
| | — |
| Operating lease liability (Note 2) | 3,181 | | | 3,242 | |
Other liabilities | 17,636 |
| | 5,940 |
| Other liabilities | 34,745 | | | 10,853 | |
Notes payable and lines of credit, net of deferred financing costs (Note 5) | 452,768 |
| | 472,240 |
| Notes payable and lines of credit, net of deferred financing costs (Note 5) | 432,326 | | | 452,987 | |
Total liabilities | 478,753 |
| | 483,116 |
| Total liabilities | 476,991 | | | 470,662 | |
| | | | |
Commitments and Contingencies (Note 7) | — |
| | — |
| Commitments and Contingencies (Note 7) | — | | | — | |
| | | | |
Stockholders’ Equity: | | | | Stockholders’ Equity: | |
Class A Common stock, $0.01 par value; 900,000 shares authorized; 49,007 and 49,127 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively | 490 |
| | 492 |
| |
Class A Common stock, $0.01 par value; 900,000 shares authorized; 48,747 and 49,008 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively | | Class A Common stock, $0.01 par value; 900,000 shares authorized; 48,747 and 49,008 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively | 487 | | | 490 | |
Additional paid-in capital | 729,000 |
| | 730,416 |
| Additional paid-in capital | 726,939 | | | 729,274 | |
Accumulated deficit and distributions | (510,488 | ) | | (409,260 | ) | Accumulated deficit and distributions | (539,660) | | | (528,847) | |
Accumulated other comprehensive income (loss) | (14,017 | ) | | 8 |
| |
Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (32,754) | | | (8,276) | |
Total stockholders’ equity | 204,985 |
| | 321,656 |
| Total stockholders’ equity | 155,012 | | | 192,641 | |
Total liabilities and stockholders’ equity | $ | 683,738 |
| | $ | 804,772 |
| |
Noncontrolling Interests | | Noncontrolling Interests | 1,169 | | | 562 | |
Total equity | | Total equity | 156,181 | | | 193,203 | |
Total liabilities and equity | | Total liabilities and equity | $ | 633,172 | | | $ | 663,865 | |
See accompanying notes.
CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per-share amounts)
| | | | | | | | | | | |
| (Unaudited) Three Months Ended March 31, | | |
| 2020 | | 2019 |
Revenues: | | | |
Timber sales | $ | 18,166 | | | $ | 16,551 | |
Timberland sales | 4,779 | | | 2,090 | |
Asset management fees | 2,975 | | | 2,842 | |
Other revenues | 1,052 | | | 1,090 | |
| 26,972 | | | 22,573 | |
Expenses: | | | |
Contract logging and hauling costs | 7,277 | | | 7,356 | |
Depletion | 6,941 | | | 5,268 | |
Cost of timberland sales | 3,422 | | | 1,560 | |
Forestry management expenses | 1,834 | | | 1,734 | |
General and administrative expenses | 7,267 | | | 3,363 | |
Land rent expense | 124 | | | 142 | |
Other operating expenses | 1,636 | | | 1,644 | |
| 28,501 | | | 21,067 | |
| | | |
Other income (expense): | | | |
Interest income | 46 | | | 30 | |
Interest expense | (3,957) | | | (4,622) | |
Gain on large dispositions | 1,279 | | | — | |
| (2,632) | | | (4,592) | |
| | | |
Loss before unconsolidated joint ventures | (4,161) | | | (3,086) | |
Loss from unconsolidated joint ventures (Note 4) | (88) | | | (27,309) | |
Net loss | $ | (4,249) | | | $ | (30,395) | |
| | | |
Weighted-average common shares outstanding - basic and diluted | 48,989 | | | 49,063 | |
| | | |
Net loss per share - basic and diluted | $ | (0.09) | | | $ | (0.62) | |
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| | | | | | | | | | | | | | | |
| (Unaudited) Three Months Ended September 30, | | (Unaudited) Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenues: | | | | | | | |
Timber sales | $ | 19,706 |
| | $ | 16,742 |
| | $ | 52,530 |
| | $ | 53,140 |
|
Timberland sales | 2,264 |
| | 3,818 |
| | 12,578 |
| | 14,904 |
|
Asset management fees | 3,436 |
| | 2,698 |
| | 9,119 |
| | 2,759 |
|
Other revenues | 974 |
| | 1,319 |
| | 3,386 |
| | 4,127 |
|
| 26,380 |
| | 24,577 |
| | 77,613 |
| | 74,930 |
|
Expenses: | | | | | | | |
Contract logging and hauling costs | 8,269 |
| | 7,613 |
| | 22,778 |
| | 24,154 |
|
Depletion | 8,235 |
| | 6,224 |
| | 19,533 |
| | 19,884 |
|
Cost of timberland sales | 2,081 |
| | 3,210 |
| | 10,562 |
| | 11,590 |
|
Forestry management expenses | 1,656 |
| | 1,370 |
| | 4,982 |
| | 4,622 |
|
General and administrative expenses | 2,984 |
| | 2,484 |
| | 9,550 |
| | 8,602 |
|
Land rent expense | 125 |
| | 153 |
| | 400 |
| | 490 |
|
Other operating expenses | 1,341 |
| | 1,356 |
| | 4,614 |
| | 4,197 |
|
| 24,691 |
| | 22,410 |
| | 72,419 |
| | 73,539 |
|
| | | | | | | |
Other income (expense): | | | | | | | |
Interest income | 80 |
| | 20 |
| | 142 |
| | 180 |
|
Interest expense | (4,472 | ) | | (4,321 | ) | | (13,803 | ) | | (11,125 | ) |
Gain on large dispositions | 7,197 |
| | — |
| | 7,961 |
| | — |
|
| 2,805 |
| | (4,301 | ) | | (5,700 | ) | | (10,945 | ) |
| | | | | | | |
Income (loss) before unconsolidated joint ventures | 4,494 |
| | (2,134 | ) | | (506 | ) | | (9,554 | ) |
Loss from unconsolidated joint ventures (Note 4) | (25,051 | ) | | (76,765 | ) | | (81,011 | ) | | (74,235 | ) |
Net loss | $ | (20,557 | ) | | $ | (78,899 | ) | | $ | (81,517 | ) | | $ | (83,789 | ) |
| | | | | | | |
Weighted-average common shares outstanding - basic and diluted | 49,008 |
| | 49,118 |
| | 49,049 |
| | 47,551 |
|
| | | | | | | |
Net loss per share - basic and diluted | $ | (0.42 | ) | | $ | (1.61 | ) | | $ | (1.66 | ) | | $ | (1.76 | ) |
See accompanying notes.
CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS
(in thousands)
| | | | | | | | | | | |
| (Unaudited) Three Months Ended March 31, | | |
| 2020 | | 2019 |
Net loss | $ | (4,249) | | | $ | (30,395) | |
Other comprehensive loss: | | | |
Market value adjustment to interest rate swaps | (24,478) | | | (3,941) | |
Comprehensive loss | $ | (28,727) | | | $ | (34,336) | |
|
| | | | | | | | | | | | | | | |
| (Unaudited) Three Months Ended September 30, | | (Unaudited) Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net loss | $ | (20,557 | ) | | $ | (78,899 | ) | | $ | (81,517 | ) | | $ | (83,789 | ) |
Other comprehensive income (loss): | | | | | | | |
Market value adjustment to interest rate swaps | (3,104 | ) | | 891 |
| | (14,025 | ) | | 4,342 |
|
Comprehensive loss | $ | (23,661 | ) | | $ | (78,008 | ) | | $ | (95,542 | ) | | $ | (79,447 | ) |
See accompanying notes.
CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except for per-share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | Additional Paid-In Capital | | Accumulated Deficit and Distributions | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount | | | | | | | | | | | | |
Balance, December 31, 2019 | 49,008 | | | $ | 490 | | | $ | 729,274 | | | $ | (528,847) | | | $ | (8,276) | | | $ | 192,641 | | | $ | 562 | | | $ | 193,203 | |
Common stock issued pursuant to: | | | | | | | | | | | | | | | |
LTIP, net of forfeitures and amounts withheld for income taxes | 91 | | | 1 | | | 215 | | | — | | | — | | | 216 | | | 691 | | | 907 | |
Dividends/distributions on common stock/limited partnership units ($0.135 per share/unit) | — | | | — | | | — | | | (6,564) | | | — | | | (6,564) | | | (84) | | | (6,648) | |
Repurchase of common stock | (352) | | | (4) | | | (2,550) | | | | | | | (2,554) | | | — | | | (2,554) | |
Net loss | — | | | — | | | — | | | (4,249) | | | — | | | (4,249) | | | — | | | (4,249) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (24,478) | | | (24,478) | | | — | | | (24,478) | |
Balance, March 31, 2020 | 48,747 | | | $ | 487 | | | $ | 726,939 | | | $ | (539,660) | | | $ | (32,754) | | | $ | 155,012 | | | $ | 1,169 | | | $ | 156,181 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | Additional Paid-In Capital | | Accumulated Deficit and Distributions | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount | | | | | | | | | | | | |
Balance, December 31, 2018 | 49,127 | | | $ | 492 | | | $ | 730,416 | | | $ | (409,260) | | | $ | 8 | | | $ | 321,656 | | | $ | — | | | $ | 321,656 | |
Common stock issued pursuant to: | | | | | | | | | | | | | | | |
LTIP, net of forfeitures and amounts withheld for income taxes | 92 | | | 1 | | | 292 | | | — | | | — | | | 293 | | | — | | | 293 | |
Dividends to common stockholders ($0.135 per share) | — | | | — | | | — | | | (6,578) | | | — | | | (6,578) | | | — | | | (6,578) | |
Repurchase of common stock | (136) | | | (1) | | | (1,003) | | | | | | | (1,004) | | | — | | | (1,004) | |
Net loss | — | | | — | | | — | | | (30,395) | | | — | | | (30,395) | | | — | | | (30,395) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (3,941) | | | (3,941) | | | — | | | (3,941) | |
Balance, March 31, 2019 | 49,083 | | | $ | 492 | | | $ | 729,705 | | | $ | (446,233) | | | $ | (3,933) | | | $ | 280,031 | | | $ | — | | | $ | 280,031 | |
| | | | | | | | | | | | | | | |
See accompanying notes.
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| | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit and Distributions | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity |
| Shares | | Amount | | |
Balance, December 31, 2018 | 49,127 |
| | $ | 492 |
| | $ | 730,416 |
| | $ | (409,260 | ) | | $ | 8 |
| | $ | 321,656 |
|
Common stock issued pursuant to: | | | | | | | | | | | |
LTIP, net of forfeitures and amounts withheld for income taxes | 92 |
| | 1 |
| | 292 |
| | — |
| | — |
| | 293 |
|
Dividends to common stockholders ($0.135 per share) | — |
| | — |
| | — |
| | (6,578 | ) | | — |
| | (6,578 | ) |
Repurchase of common stock | (136 | ) | | (1 | ) | | (1,003 | ) | | | | | | (1,004 | ) |
Net loss | — |
| | — |
| | — |
| | (30,395 | ) | | — |
| | (30,395 | ) |
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (3,941 | ) | | (3,941 | ) |
Balance, March 31, 2019 | 49,083 |
| | $ | 492 |
| | $ | 729,705 |
| | $ | (446,233 | ) | | $ | (3,933 | ) | | $ | 280,031 |
|
Common stock issued pursuant to: | | | | | | | | | | | |
LTIP, net of forfeitures and amounts withheld for income taxes | 17 |
| | — |
| | 490 |
| | — |
| | — |
| | 490 |
|
Dividends to common stockholders ($0.135 per share) | — |
| | — |
| | — |
| | (6,578 | ) | | — |
| | (6,578 | ) |
Repurchase of common stock | (135 | ) | | (2 | ) | | (1,403 | ) | | — |
| | — |
| | (1,405 | ) |
Net loss | — |
| | — |
| | — |
| | (30,565 | ) | | — |
| | (30,565 | ) |
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (6,980 | ) | | (6,980 | ) |
Balance, June 30, 2019 | 48,965 |
| | $ | 490 |
| | $ | 728,792 |
| | $ | (483,376 | ) | | $ | (10,913 | ) | | $ | 234,993 |
|
Common stock issued pursuant to: | | | | | | | | | | | |
LTIP, net of forfeitures and amounts withheld for income taxes | 100 |
| | 1 |
| | 802 |
| | — |
| | — |
| | 803 |
|
Dividends to common stockholders ($0.135 per share) | — |
| | — |
| | — |
| | (6,555 | ) | | — |
| | (6,555 | ) |
Repurchase of common stock | (58 | ) | | (1 | ) | | (594 | ) | | — |
| | — |
| | (595 | ) |
Net loss | — |
| | — |
| | — |
| | (20,557 | ) | | — |
| | (20,557 | ) |
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (3,104 | ) | | (3,104 | ) |
Balance, September 30, 2019 | 49,007 |
| | $ | 490 |
| | $ | 729,000 |
| | $ | (510,488 | ) | | $ | (14,017 | ) | | $ | 204,985 |
|
CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (CONTINUED)
(in thousands, except for per-share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit and Distributions | | Accumulated Other Comprehensive Income | | Total Stockholders’ Equity |
| Shares | | Amount | | |
Balance, December 31, 2017 | 43,425 |
| | $ | 434 |
| | $ | 661,222 |
| | $ | (261,652 | ) | | $ | 2,376 |
| | $ | 402,380 |
|
Common stock issued pursuant to: | | | | | | | | | | | |
Equity Offering | 5,750 |
| | 58 |
| | 72,392 |
| | — |
| | — |
| | 72,450 |
|
LTIP, net of forfeitures and amounts withheld for income taxes | (46 | ) | | (1 | ) | | (85 | ) | | — |
| | — |
| | (86 | ) |
Stock issuance cost | — |
| | — |
| | (3,490 | ) | | — |
| | — |
| | (3,490 | ) |
Dividends to common stockholders ($0.135 per share) | — |
| | — |
| | — |
| | (5,815 | ) | | — |
| | (5,815 | ) |
Net loss | — |
| | — |
| | — |
| | (3,385 | ) | | | | (3,385 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 1,931 |
| | 1,931 |
|
Balance, March 31, 2018 | 49,129 |
| | $ | 491 |
| | $ | 730,039 |
| | $ | (270,852 | ) | | $ | 4,307 |
| | $ | 463,985 |
|
Common stock issued pursuant to: | | | | | | | | | | | |
LTIP, net of forfeitures and amounts withheld for income taxes | (6 | ) | | — |
| | 422 |
| | — |
| | — |
| | 422 |
|
Stock issuance cost | — |
| | — |
| | (100 | ) | | — |
| | — |
| | (100 | ) |
Dividends to common stockholders ($0.135 per share) | — |
| | — |
| | — |
| | (6,597 | ) | | — |
| | (6,597 | ) |
Net loss | — |
| | — |
| | — |
| | (1,505 | ) | | — |
| | (1,505 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 1,520 |
| | 1,520 |
|
Balance, June 30, 2018 | 49,123 |
| | $ | 491 |
| | $ | 730,361 |
| | $ | (278,954 | ) | | $ | 5,827 |
| | $ | 457,725 |
|
Common stock issued pursuant to: | | | | | | | | | | | |
LTIP, net of forfeitures and amounts withheld for income taxes | 2 |
| | — |
| | 486 |
| | — |
| | — |
| | 486 |
|
Stock issuance cost | — |
| | — |
| | (33 | ) | | — |
| | — |
| | (33 | ) |
Dividends to common stockholders ($0.135 per share) | — |
| | — |
| | — |
| | (6,601 | ) | | — |
| | (6,601 | ) |
Net loss | — |
| | — |
| | — |
| | (78,899 | ) | | — |
| | (78,899 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 891 |
| | 891 |
|
Balance, September 30, 2018 | 49,125 |
| | $ | 491 |
| | $ | 730,814 |
| | $ | (364,454 | ) | | $ | 6,718 |
| | $ | 373,569 |
|
| | | | | | | | | | | |
| | | | | | | | | | | |
See accompanying notes.
CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | |
| (Unaudited) Three Months Ended March 31, | | |
| 2020 | | 2019 |
Cash Flows from Operating Activities: | | | |
Net loss | $ | (4,249) | | | $ | (30,395) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depletion | 6,941 | | | 5,268 | |
Basis of timberland sold, lease terminations and other | 3,276 | | | 1,807 | |
Stock-based compensation expense | 1,872 | | | 659 | |
Noncash interest expense | 707 | | | 250 | |
Other amortization | 51 | | | 208 | |
Gain on large dispositions | (1,279) | | | — | |
Income from unconsolidated joint ventures | 88 | | | 27,309 | |
Operating distributions from unconsolidated joint ventures | — | | | 179 | |
Interest paid under swaps with other-than-insignificant financing element | 340 | | | — | |
Changes in assets and liabilities: | | | |
Accounts receivable | 1,619 | | | 1,363 | |
Prepaid expenses and other assets | 359 | | | 513 | |
Accounts payable and accrued expenses | 2,576 | | | (1,109) | |
Other liabilities | (1,042) | | | (805) | |
Net cash provided by operating activities | 11,259 | | | 5,247 | |
| | | |
Cash Flows from Investing Activities: | | | |
Capital expenditures (excluding timberland acquisitions) | (2,712) | | | (1,259) | |
Distributions from unconsolidated joint ventures | 400 | | | 796 | |
Net proceeds from large dispositions | 20,863 | | | — | |
Net cash provided by (used in) investing activities | 18,551 | | | (463) | |
| | | |
Cash Flows from Financing Activities: | | | |
Repayment of notes payable | (20,850) | | | — | |
Financing costs paid | (30) | | | (31) | |
Interest paid under swaps with other-than-insignificant financing element | (340) | | | — | |
Dividends/distributions paid | (6,648) | | | (6,578) | |
Repurchase of common shares | (2,052) | | | (1,004) | |
Repurchase of common shares for minimum tax withholding | (965) | | | (365) | |
Net cash used in financing activities | (30,885) | | | (7,978) | |
Net change in cash and cash equivalents | (1,075) | | | (3,194) | |
Cash and cash equivalents, beginning of period | 11,487 | | | 5,614 | |
Cash and cash equivalents, end of period | $ | 10,412 | | | $ | 2,420 | |
|
| | | | | | | |
| (Unaudited) Nine Months Ended September 30, |
| 2019 | | 2018 |
Cash Flows from Operating Activities: | | | |
Net loss | $ | (81,517 | ) | | $ | (83,789 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depletion | 19,533 |
| | 19,884 |
|
Basis of timberland sold, lease terminations and other | 10,329 |
| | 10,771 |
|
Stock-based compensation expense | 1,952 |
| | 2,171 |
|
Noncash interest expense | 816 |
| | 2,371 |
|
Other amortization | 170 |
| | 160 |
|
Loss from unconsolidated joint ventures | 81,011 |
| | 74,235 |
|
Operating distributions from unconsolidated joint ventures | 789 |
| | 3,658 |
|
Gain on large dispositions | (7,961 | ) | | — |
|
Changes in assets and liabilities: | | | |
Accounts receivable | 2,007 |
| | (2,643 | ) |
Prepaid expenses and other assets | 221 |
| | (295 | ) |
Accounts payable and accrued expenses | 138 |
| | 1,627 |
|
Other liabilities | 1,025 |
| | 1,121 |
|
Net cash provided by operating activities | 28,513 |
| | 29,271 |
|
| | | |
Cash Flows from Investing Activities: | | | |
Timberland acquisitions and earnest money paid | — |
| | (91,424 | ) |
Capital expenditures (excluding timberland acquisitions) | (3,031 | ) | | (2,821 | ) |
Investment in unconsolidated joint ventures | — |
| | (200,000 | ) |
Distributions from unconsolidated joint ventures | 4,019 |
| | 4,858 |
|
Net proceeds from large dispositions | 25,151 |
| | — |
|
Net cash provided by (used in) investing activities | 26,139 |
| | (289,387 | ) |
| | | |
Cash Flows from Financing Activities: | | | |
Repayments of notes payable | (20,064 | ) | | (69,000 | ) |
Proceeds from note payable | — |
| | 289,000 |
|
Financing costs paid | (48 | ) | | (832 | ) |
Issuance of common stock | — |
| | 72,450 |
|
Other offering costs paid | — |
| | (3,623 | ) |
Dividends paid to common stockholders | (19,711 | ) | | (19,013 | ) |
Repurchase of common shares under the share repurchase program | (3,004 | ) | | — |
|
Repurchase of common shares for minimum tax withholdings | (365 | ) | | (1,348 | ) |
Net cash provided by (used in) financing activities | (43,192 | ) | | 267,634 |
|
Net change in cash and cash equivalents | 11,460 |
| | 7,518 |
|
Cash and cash equivalents, beginning of period | 5,614 |
| | 7,805 |
|
Cash and cash equivalents, end of period | $ | 17,074 |
| | $ | 15,323 |
|
See accompanying notes.
CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019MARCH 31, 2020 (unaudited)
1. Organization
CatchMark Timber Trust Inc. ("CatchMark Timber Trust") (NYSE: CTT) owns and operates timberlands located in the United States and has elected to be taxed as a REIT for federal income tax purposes. CatchMark Timber Trust acquires, owns, operates, manages, and disposes of timberland directly, through wholly-owned subsidiaries, or through joint ventures. CatchMark Timber Trust was incorporated in Maryland in 2005 and commenced operations in 2007. CatchMark Timber Trust conducts substantially all of its business through CatchMark Timber Operating Partnership, L.P. (“CatchMark Timber OP”), a Delaware limited partnership. CatchMark Timber Trust is the general partner of CatchMark Timber OP, possesses full legal control and authority over its operations, and owns 99.99%99.85% of its common partnership units. CatchMark LP Holder, LLC (“CatchMark LP Holder”), a Delaware limited liability company and wholly-owned subsidiary of CatchMark Timber Trust, is the sole limited partner of CatchMark Timber OP and owns the remaining 0.01% of its common partnership units. The remaining 0.14% of CatchMark Timber OP’s common partnership units are owned by current and former officers and directors of CatchMark Timber Trust as a result of CatchMark’s LTIP Unit compensation program (see Note 8 — Stock-based Compensation). In addition, CatchMark Timber TRS, Inc. (“CatchMark TRS”), a Delaware corporation formed as a wholly-owned subsidiary of CatchMark Timber OP in 2006, is our taxable REIT subsidiary. Unless otherwise noted, references herein to “CatchMark”CatchMark shall include CatchMark Timber Trust and all of its subsidiaries, including CatchMark Timber OP, and the subsidiaries of CatchMark Timber OP, including CatchMark TRS.
CatchMark is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on CatchMark’s business and that of its customers and contractors is highly uncertain and difficult to predict, as the response to the pandemic is in its incipient stages and information is rapidly evolving. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Such economic disruption could have a material adverse effect on CatchMark’s business due to declines in sawtimber harvest volumes resulting from a deterioration in the housing market; a decline in production level at CatchMark’s customers' mills due to instances of COVID-19 among their employees or decreased demand for their products; the inability to complete timberland sales due to state and local government office closures limiting the ability of potential buyers to complete title searches and other customary due diligence; effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating CatchMark’s financial reporting and internal controls; and market volatility and market downturns negatively impacting the trading of CatchMark’s common stock. Policymakers around the globe have responded with fiscal policy actions to support the economy; however, the magnitude and overall effectiveness of these actions remains uncertain.
The severity of the impact of the COVID-19 pandemic on CatchMark’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on CatchMark’s customers, all of which are uncertain and cannot be predicted. CatchMark’s future results of operations and liquidity could be adversely impacted by uncertain customer demand and the impact of any initiatives or programs that CatchMark may undertake to address financial and operational challenges faced by its customers. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact CatchMark’s financial condition, liquidity, or results of operations is uncertain. See Note 5 — Notes Payable and Lines of Credit for additional information on CatchMark’s outstanding indebtedness and debt covenants.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of CatchMark have been prepared in accordance with the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Results for these interim periods are not necessarily indicative of results for a full year.
CatchMark’s consolidated financial statements include the accounts of CatchMark and any VIE in which CatchMark is deemed the primary beneficiary. With respect to entities that are not VIEs, CatchMark's consolidated financial statements also include the accounts of any entity in which CatchMark owns a controlling financial interest and any limited partnership in which CatchMark owns a controlling general partnership interest. In determining whether a controlling interest exists, CatchMark considers, among other factors, the ownership of voting interests, protective rights, and participatory rights of the investors. All intercompany balances and transactions have been eliminated in consolidation. For further information, refer to the audited financial statements and footnotes included in CatchMark’s Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Investments in Joint Ventures
For joint ventures that it does not control but exercises significant influence, CatchMark uses the equity method of accounting. CatchMark's judgment about its level of influence or control of an entity involves consideration of various factors including the form of its ownership interest; its representation in the entity's governance; its ability to participate in policy-making decisions; and the rights of other investors to participate in the decision-making process, to replace CatchMark as manager, and/or to liquidate the venture. Under the equity method, the investment in a joint venture is recorded at cost and adjusted for equity in earnings and cash contributions and distributions. Income or loss and cash distributions from an unconsolidated joint venture are allocated according to the provisions of the respective joint venture agreement, which may be different from its stated ownership percentages. Any difference between the carrying amount of these investments on CatchMark’s balance sheets and the underlying equity in net assets on the joint venture’s balance sheets is adjusted as the related underlying assets are depreciated, amortized, or sold. Distributions received from unconsolidated joint ventures are classified in the accompanying consolidated statements of cash flows using the
cumulative earnings approach under which distributions received in an amount equal to cumulative equity in earnings are classified as cash inflows from operating activities and distributions received in excess of cumulative equity in earnings represent returns of investment and therefore are classified as cash inflows from investing activities.
CatchMark evaluates the recoverability of its investments in unconsolidated joint ventures in accordance with accounting standards for equity investments by first reviewing each investment for any indicators of impairment. If indicators are present, CatchMark estimates the fair value of the investment. If the carrying value of the investment is greater than the estimated fair value, management assesses whether the impairment is “temporary” or “other-than-temporary.” In making this assessment, management considers the following: (1) the length of time and the extent to which fair value has been less than cost, (2) the financial condition and near-term prospects of the entity, and (3) CatchMark’s intent and ability to retain its interest long enough for a recovery in market value. If management concludes that the impairment is "other than temporary," CatchMark reduces the investment to its estimated fair value.
For information on CatchMark’s unconsolidated joint ventures, which are accounted for using the equity method of accounting, see Note 4 — Unconsolidated Joint Ventures.
Impairment Testing
ASC 360-10 requires impairment testing to be completed whenever events or changes in circumstances indicate the asset's carrying value may not be recoverable. Examples of such circumstances for CatchMark include, but are not limited to, a significant decrease in market price of the timber assets, a significant adverse change in the extent or manner in which timber assets are being used, or a significant adverse change in legal factors or in the business climate that could affect the value of the timber assets. CatchMark monitors such events and changes in circumstances, and when indicators of potential impairment are present, evaluates if the carrying amounts of its timber
assets exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposal of its timber assets (the "Recoverable Amount") and if the carrying amount exceeds the timber assets' fair value. The Recoverable Amount and fair value are estimated based on the following information in order of preference, dependent upon availability: (i) recently quoted market prices, (ii) market prices for comparable assets, or (iii) the present value of undiscounted cash flows, including estimated salvage value, using data from one harvest cycle. CatchMark completed the impairment testing as of March 31, 2020 and has determined that there has been no impairment to its timber assets.
Segment Information
CatchMark primarily engages in the acquisition, ownership, operation, management, and disposition of timberland properties located in the United States, either directly through wholly-owned subsidiaries or through equity method investments in affiliated joint ventures. CatchMark defines operating segments in accordance with ASC Topic 280, Segment Reporting, to reflect the manner in which its chief operating decision maker, the Chief Executive Officer, evaluates performance and allocates resources in managing the business. CatchMark has aggregated its operating segments into three3 reportable segments: Harvest, Real Estate and Investment Management. See Note 9 — Segment Information for additional information.
New Lease Accounting Standard
In February 2016, the FASB issued ASU 2016-02, Leases ("ASC 842"). ASC 842 establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on its balance sheet for all leases, subject to certain scope exceptions. Leases are required to be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
CatchMark adopted ASC 842 effective January 1, 2019 using the modified retrospective approach with the cumulative effect of the application recognized at the effective date. CatchMark elected the package of practical expedients, including the option to account for each separate lease component of a contract and its associated non-lease component as a single lease component, thus causing all fixed payments to be capitalized; and the practical expedient, which among other things, allows CatchMark to carry forward historical lease classification. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the operating lease ROU asset or liability. These are expensed as incurred and recorded as variable lease expense. Management identified and evaluated all of its in-place leases, subleases, and contracts with a lease component, and determined that its office lease is the only lease within the scope of ASC 842. CatchMark elected the practical expedient to not apply the recognition requirements of ASC 842 to its short-term leases. CatchMark determined its long-term timber lease to be a lease of biological assets, a scope exception to ASC 842. Long-term timber lease expense is reported as land rent expense on CatchMark's consolidated statements of operations. See Note 7 — Commitments and Contingencies, Obligations under Operating Leases for additional information on the long-term timber lease. Additionally, CatchMark determined that its hunting and recreational leases do not qualify as leases under ASC 842. See Note 2 — Summary of Significant Accounting Policies and Note 11 — Recreational Leases to CatchMark’s audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2018 for additional information on its hunting and recreational leases.
CatchMark's office lease commenced in January 2019 and expires in November 2028 and qualifies as an operating lease under ASC 842. As of January 1, 2019, CatchMark recorded an operating lease ROU asset and an operating lease liability of $3.4 million on its balance sheet, which represents the net present value of lease payments over the lease term discounted using CatchMark's incremental borrowing rate at commencement date. CatchMark’s office lease contains renewal options; however, the options were not included in the calculation of the operating lease ROU and operating lease liability as it is not reasonably certain that CatchMark will exercise the renewal options. CatchMark recorded $11,000 and $111,000 of amortization expense related to the operating lease ROU asset and the operating lease liability, respectively, for the three and nine months ended September 30, 2019, which was included in general and administrative expenses on its consolidated statement of operations and in other amortization on its consolidated statement of cash flows. For the three and nine months ended September 30, 2019, CatchMark paid $98,000 and
$215,000, respectively, in cash for its office lease. The adoption of ASC 842 did not result in a cumulative-effect adjustment to CatchMark's retained earnings, as its office lease commenced in January 2019.
CatchMark had the following future annual payments for its operating lease as of September 30, 2019 and December 31, 2018:
|
| | | | | | | |
| As of |
(in thousands) | September 30, 2019 | | December 31, 2018 |
Required payments | | | |
2019 | $ | 97 |
| | $ | 312 |
|
2020 | 397 |
| | 397 |
|
2021 | 412 |
| | 412 |
|
2022 | 424 |
| | 424 |
|
2023 | 435 |
| | 435 |
|
2024 | 447 |
| | 447 |
|
Thereafter | 1,873 |
| | 1,873 |
|
| $ | 4,085 |
| | $ | 4,300 |
|
Less: imputed interest | (783 | ) | | |
Operating lease liability | $ | 3,302 |
| |
|
|
| | | |
Remaining lease term (years) | 9.2 |
| | |
Discount rate | 4.58 | % | | |
Recent Accounting Pronouncements
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (Topic 815), which amends the hedge accounting recognition and presentation requirements in ASC 815, "Derivatives and Hedging." In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU 2017-12 expands an entity's ability to hedge nonfinancial and financial risk components and reduces the complexity in fair value hedges of interest rate risk. It eliminates the requirement to separately measure and report hedge ineffectiveness and requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item when the hedged item affects earnings. The amendments in ASU 2018-16 permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815. CatchMark adopted ASU 2017-12 on January 1, 2018 and ASU 2018-16 on January 1, 2019. These adoptions did not have a material effect on CatchMark's consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of ASC 718 to include share-based payments granted to non-employees in exchange for goods or services used or consumed in an entity’s own operations. This guidance aligns the measurement and classification for share-based payments to non-employees with the guidance for share-based payments to employees, with certain exceptions. ASU 2018-07 is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods therein. CatchMark adopted ASU 2018-07 on January 1, 2019 and the adoption did not have a material effect on its consolidated financial statements.
On July 16, 2018, the FASB issued ASU 2018-09, Codification Improvements. The amendments in this update represent changes to clarify the ASC, correct unintended application of guidance, or make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Some of the amendments make the ASC easier to understand and easier to apply by eliminating inconsistencies, providing needed clarifications, and improving the presentation of guidance in the ASC. ASU 2018-09 is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods therein. CatchMark adopted ASU 2018-09 on January 1, 2019 and the adoption did not have a material effect on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which added new disclosure requirements, eliminated and modified existing disclosure requirements on fair value measurement to improve the effectiveness of ASC 820. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. CatchMark is currently assessing the impactThe adoption of ASU 2018-13 willdid not have a material effect on itsCatchMark's consolidated financial statements.
In October 2018,December 2019, the FASB issued ASU 2018-17, Consolidation2019-12, Income Taxes (Topic 810)740): Targeted ImprovementsSimplifying the Accounting for Income Taxes, which removed certain exceptions for intra-period tax allocation, recognition of deferred tax liabilities, and calculation of income taxes in interim periods. This ASU also added guidance to Related Party Guidancereduce complexity in certain areas, including recognizing deferred taxes for Variable Interest Entities, whichreduces the costtax goodwill and complexityallocating taxes to members of financial reporting associated with consolidation of VIEs. This guidance supersedes the private company alternative for common control leasing arrangements issued in 2014 and expands it to all qualifying common control arrangements.a consolidated group. ASU 2018-172019-12 is effective for public entities for fiscal years beginning after December 15, 2019,2020, and interim periods therein. CatchMark is currently assessing the impact ASU 2018-172019-12 will have on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, which provides clarifications on seven topics related to financial instruments in the ASC. The update became effective for CatchMark upon issuance and the adoption did not have a material impact on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides companies with optional expedients and exceptions for applying GAAP to contract, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform if certain criteria are met. CatchMark has elected the optional expedients offered in this update. The amendments did not apply to any transaction in the current quarter and will be applied prospectively to all eligible contracts and hedging relationships.
3. Timber Assets
As of September 30, 2019March 31, 2020 and December 31, 2018,2019, timber and timberlands consisted of the following, respectively:
| | | As of September 30, 2019 | | As of March 31, 2020 | |
(in thousands) | Gross | | Accumulated Depletion or Amortization | | Net | (in thousands) | Gross | | Accumulated Depletion or Amortization | | Net |
Timber | $ | 312,747 |
| | $ | 19,533 |
| | $ | 293,214 |
| Timber | $ | 280,265 | | | $ | 6,941 | | | $ | 273,324 | |
Timberlands | 350,123 |
| | — |
| | 350,123 |
| Timberlands | 332,779 | | | — | | | 332,779 | |
Mainline roads | 1,041 |
| | 715 |
| | 326 |
| Mainline roads | 1,121 | | | 763 | | | 358 | |
Timber and timberlands | $ | 663,911 |
| | $ | 20,248 |
| | $ | 643,663 |
| Timber and timberlands | $ | 614,165 | | | $ | 7,704 | | | $ | 606,461 | |
| | | | | | | | | | | | | | | | | |
| As of December 31, 2019 | | | | |
(in thousands) | Gross | | Accumulated Depletion or Amortization | | Net |
Timber | $ | 312,452 | | | $ | 28,064 | | | $ | 284,388 | |
Timberlands | 348,825 | | | — | | | 348,825 | |
Mainline roads | 1,106 | | | 738 | | | 368 | |
Timber and timberlands | $ | 662,383 | | | $ | 28,802 | | | $ | 633,581 | |
|
| | | | | | | | | | | |
| As of December 31, 2018 |
(in thousands) | Gross | | Accumulated Depletion or Amortization | | Net |
Timber | $ | 345,972 |
| | $ | 25,912 |
| | $ | 320,060 |
|
Timberlands | 367,488 |
| | — |
| | 367,488 |
|
Mainline roads | 954 |
| | 651 |
| | 303 |
|
Timber and timberlands | $ | 714,414 |
| | $ | 26,563 |
| | $ | 687,851 |
|
Timberland Acquisitions
CatchMark did not complete any timberland acquisitions during the three and nine months ended September 30, 2019. In August 2018, CatchMark acquired fee simple interests in 18,100 acres of timberland in Oregon (the "Bandon Property") for $89.7 million, exclusive of closing costs.
Timberland Sales
During the three months ended September 30,March 31, 2020 and 2019, and 2018, CatchMark sold 1,1003,000 and 1,900900 acres of timberland for $2.3$4.8 million and $3.8$2.1 million, respectively. CatchMark's cost basis in the timberland sold was $1.8$3.2 million and $3.0$1.4 million, respectively.
During the nine months ended September 30, 2019 and 2018, CatchMark sold 6,000 and 7,200 acres of timberland for $12.6 million and $14.9 million, respectively. CatchMark's cost basis in the timberland sold was $9.8 million and $10.7 million, respectively.
Large Dispositions
On July 26, 2019,During the three months ended March 31, 2020, CatchMark completed the sale of 10,80014,400 acres of its wholly-owned timberlands located in Georgia and Alabama for $19.9$21.3 million. CatchMark's total cost basis was $12.6$19.6 million. Of the total net proceeds, of $19.8 million, $14.8$20.9 million was used to pay down CatchMark's outstanding debt balance on the Multi-Draw Term Facility. CatchMark did not complete any large dispositions during the three months ended March 31, 2019.
Timberland sales and large dispositions acreage by state is listed below:
| | | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
Acres Sold In: | | 2019 | | 2018 | Acres Sold In: | | 2020 | | 2019 |
South | | South | | | | |
Timberland Sales | | Timberland Sales | |
Alabama | | 2,900 |
| | 800 |
| Alabama | | 1,600 | | | 500 | |
Georgia | | 13,300 |
| | 2,200 |
| Georgia | | 1,200 | | | — | |
Louisiana | | — |
| | 200 |
| |
North Carolina | | 500 |
| | 1,000 |
| North Carolina | | — | | | 400 | |
South Carolina | | 3,700 |
| | 2,900 |
| South Carolina | | 100 | | | — | |
Texas | | — |
| | 100 |
| |
Tennessee | | Tennessee | | 100 | | | — | |
| | | 3,000 | | | 900 | |
Large Dispositions | | Large Dispositions | |
Georgia | | Georgia | | 14,400 | | | — | |
| Total | | 20,400 |
| | 7,200 |
| Total | | 17,400 | | | 900 | |
Current Timberland Portfolio
As of September 30, 2019,March 31, 2020, CatchMark directly owned interests in 438,800415,400 acres of timberlands in the U.S. South and Pacific Northwest, 412,500392,800 acres of which were fee-simple interests and 26,30022,600 acres were leasehold interests. Land acreage by state is listed below:
|
| | | | | | | | | |
Acres by state as of September 30, 2019 (1) | | Fee | | Lease | | Total |
South | | | | | | |
Alabama | | 70,000 |
| | 1,800 |
| | 71,800 |
|
Florida | | 2,000 |
| | — |
| | 2,000 |
|
Georgia | | 248,000 |
| | 24,500 |
| | 272,500 |
|
North Carolina | | 100 |
| | — |
| | 100 |
|
South Carolina | | 74,000 |
| | — |
| | 74,000 |
|
Tennessee | | 300 |
| | — |
| | 300 |
|
| | 394,400 |
| | 26,300 |
| | 420,700 |
|
Pacific Northwest | | | | | | |
Oregon | | 18,100 |
| | — |
| | 18,100 |
|
Total | | 412,500 |
| | 26,300 |
| | 438,800 |
|
| |
(1)
| Represents CatchMark wholly-owned acreage only; excludes ownership interest in acreage held by joint ventures. |
| | | | | | | | | | | | | | | | | | | | |
Acres by state as of March 31, 2020 (1) | | Fee | | Lease | | Total |
South | | | | | | |
Alabama | | 68,400 | | | 1,800 | | | 70,200 | |
Florida | | 2,000 | | | — | | | 2,000 | |
Georgia | | 232,400 | | | 20,800 | | | 253,200 | |
North Carolina | | 100 | | | — | | | 100 | |
South Carolina | | 71,600 | | | — | | | 71,600 | |
Tennessee | | 200 | | | — | | | 200 | |
| | 374,700 | | | 22,600 | | | 397,300 | |
Pacific Northwest | | | | | | |
Oregon | | 18,100 | | | — | | | 18,100 | |
Total | | 392,800 | | | 22,600 | | | 415,400 | |
(1)Represents CatchMark wholly-owned acreage only; excludes ownership interest in acreage held by joint ventures.
4. Unconsolidated Joint Ventures
As of September 30, 2019,March 31, 2020, CatchMark owned interests in two2 joint ventures with unrelated parties: the Triple T Joint Venture and the Dawsonville Bluffs Joint Venture (each as defined and described below).
| | | As of September 30, 2019 | | As of March 31, 2020 | |
| Dawsonville Bluffs Joint Venture | | Triple T Joint Venture | | Dawsonville Bluffs Joint Venture | | | Triple T Joint Venture | |
Ownership percentage | 50.0% | | | 21.6% | (1) | Ownership percentage | 50.0% | | | 21.6% | | (1) |
Acreage owned by the joint venture | 65 | | 1,094,000 | | Acreage owned by the joint venture | — | | 1,092,000 | | |
Merchantable timber inventory (tons) | 2,500 | | 40.3 |
| million | (2) | |
Merchantable timber inventory (million tons) | | Merchantable timber inventory (million tons) | — | | 43.2 | | (2) |
Location | Georgia | | Texas | | Location | Georgia | | Texas | | |
(1)Represents our share of total partner capital contributions.
| |
(1)
| Represents our share of total partner capital contributions. |
| |
(2)
| Merchantable timber inventory does not include current year growth. |
(2)The Triple T Joint Venture considers inventory to be merchantable at age 12. Merchantable timber inventory does not include current year growth.
CatchMark accounts for these investments using the equity method of accounting.
Triple T Joint Venture
During 2018, CatchMark formed a joint venture, TexMark Timber Treasury, L.P., a Delaware limited partnership (the "Triple T Joint Venture"), with a consortium of institutional investors (the "Preferred Investors") to acquire 1.1 million acres of high-quality East Texas industrial timberlands (the “Triple T Timberlands”), for $1.39 billion (the “Acquisition Price”), exclusive of transaction costs. The Triple T Joint Venture completed the acquisition of the Triple T Timberlands in July 2018. CatchMark invested $200.0 million in the Triple T Joint Venture, equal to 21.6% of the total equity contributions, in exchange for a common limited partnership interest. CatchMark, through a separate wholly-owned and consolidated subsidiary, is the sole general partner of the Triple T Joint Venture.
CatchMark uses the equity method to account for its investment in the Triple T Joint Venture since it does not possess the power to direct the activities that most significantly impact the economic performance of the Triple T Joint Venture, and accordingly, CatchMark does not possess the first characteristic of a primary beneficiary described in GAAP. CatchMark has appointed three3 common board members of the Triple T Joint Venture, including its Chief
Executive Officer,
Chief FinancialResources Officer and Senior Vice President of Forest Resources,- Acquisitions, which provides CatchMark with significant influence over the Triple T Joint Venture. Accordingly, pursuant to the applicable accounting literature, it is appropriate for CatchMark to apply the equity method of accounting to its investment in the Triple T Joint Venture.
The Triple T Joint Venture agreement provides for liquidation rights and distribution priorities that are significantly different from CatchMark's stated ownership percentage based on total equity contributions. The Preferred Investors are entitled to a minimum 10.25% cumulative return on their equity contributions, plus a complete return of their equity contributions before any distributions may be made on CatchMark’s common limited partnership interest. As such, CatchMark uses the hypothetical-liquidation-at-book-value method (“HLBV”) to determine its equity in the earnings of the Triple T Joint Venture. The HLBV method is commonly applied to equity investments in real estate, where cash distribution percentages vary at different points in time and are not directly linked to an investor's ownership percentage. For investments accounted for under the HLBV method, applying the percentage ownership interest to GAAP net income in order to determine earnings or losses would not accurately represent the income allocation and cash flow distributions that will ultimately be received by the investors.
CatchMark applies HLBV using a balance sheet approach. A calculation is prepared at each balance sheet date to determine the amount that CatchMark would receive if the Triple T Joint Venture were to liquidate all of its assets (at book value in accordance with GAAP) on that date and distribute the proceeds to the partners based on the contractually-defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is CatchMark's income or loss from the Triple T Joint Venture for the period.
Condensed balance sheet information for the Triple T Joint Venture is as follows:
| | | | | | | | | | | |
| As of | | |
(in thousands) | March 31, 2020 | | December 31, 2019 |
Triple T Joint Venture: | | | |
Total assets | $ | 1,560,622 | | | $ | 1,573,172 | |
Total liabilities | $ | 757,078 | | | $ | 751,655 | |
Total equity | $ | 803,544 | | | $ | 821,517 | |
CatchMark: | | | |
Carrying value of investment | $ | — | | | $ | — | |
|
| | | | | | | |
| As of |
(in thousands) | September 30, 2019 | | December 31, 2018 |
Triple T Joint Venture: | | | |
Total assets | $ | 1,586,687 |
| | $ | 1,607,413 |
|
Total liabilities | $ | 757,110 |
| | $ | 754,610 |
|
Total equity | $ | 829,577 |
| | $ | 852,803 |
|
CatchMark: | | | |
Carrying value of investment | $ | 8,650 |
| | $ | 90,450 |
|
Condensed income statement information for the Triple T Joint Venture is as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2020 | | 2019 |
Triple T Joint Venture: | | | |
Total revenues | $ | 35,281 | | | $ | 35,964 | |
Net loss | $ | (5,727) | | | $ | (4,281) | |
CatchMark: | | | |
Equity share of net loss | $ | — | | | $ | (27,488) | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Triple T Joint Venture: | | | | | | | |
Total revenues | $ | 41,509 |
| | $ | 28,255 |
| | $ | 121,450 |
| | $ | 28,255 |
|
Operating income (loss) | $ | 2,490 |
| | $ | (3,329 | ) | | $ | 10,437 |
| | $ | (3,329 | ) |
Net loss | $ | (4,613 | ) | | $ | (9,407 | ) | | $ | (10,480 | ) | | $ | (9,407 | ) |
CatchMark: | | | | | | | |
Equity share of net loss | $ | (25,712 | ) | | $ | (76,755 | ) | | $ | (81,800 | ) | | $ | (76,755 | ) |
Condensed statement of cash flow information for the Triple T Joint Venture is as follows:
| | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(in thousands) | 2019 | | 2018 | (in thousands) | 2020 | | 2019 |
Triple T Joint Venture: | | | | Triple T Joint Venture: | | | |
Net cash provided by (used in) operating activities | $ | 9,040 |
| | $ | (1,753 | ) | |
Net cash used in operating activities | | Net cash used in operating activities | $ | (2,651) | | | $ | (5,575) | |
Net cash used in investing activities | $ | (3,263 | ) | | $ | (1,410,066 | ) | Net cash used in investing activities | $ | (2,745) | | | $ | (1,503) | |
Net cash provided by financing activities | $ | 87 |
| | $ | 1,461,452 |
| |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | $ | (4) | | | $ | 100 | |
Net change in cash and cash equivalents | $ | 5,864 |
| | $ | 49,633 |
| Net change in cash and cash equivalents | $ | (5,400) | | | $ | (6,978) | |
Cash and cash equivalents, beginning of period | $ | 39,300 |
| | $ | — |
| Cash and cash equivalents, beginning of period | $ | 39,614 | | | $ | 39,300 | |
Cash and cash equivalents, end of period | $ | 45,164 |
| | $ | 49,633 |
| Cash and cash equivalents, end of period | $ | 34,214 | | | $ | 32,322 | |
CatchMark'sCatchMark had recognized cumulative HLBV losses of $200.0 million as of December 31, 2019 and did not recognize an additional equity share ofloss in the Triple T Joint Venture's net loss determined usingVenture during the HLBV method as of September 30, 2019 is calculated as follows:three months ended March 31, 2020.
|
| | | | | | |
(in thousands) | | |
Triple T Joint Venture: | | |
Total equity as of September 30, 2019 | | $ | 829,577 |
|
Preferred Investors: | | |
Equity in Triple T Joint Venture as of January 1, 2019 | $ | 762,353 |
|
|
Minimum preferred return as of September 30, 2019 | $ | 58,445 |
|
|
| | |
Class A preferred equity as of September 30, 2019 | $ | 129 |
| |
HLBV distribution as of September 30, 2019 | | $ | 820,927 |
|
CatchMark: | | |
Equity in Triple T Joint Venture as of September 30, 2019 | | $ | 8,650 |
|
Equity in Triple T Joint Venture, as of January 1, 2019 | | $ | 90,450 |
|
Equity share of Triple T Joint Venture's net loss | | $ | (81,800 | ) |
Dawsonville Bluffs Joint Venture
During 2017, CatchMark formed the Dawsonville Bluffs Joint Venture with MPERS, and each owns a 50% membership interest. CatchMark shares substantive participation rights with MPERS, including management selection and termination, and the approval of material operating and capital decisions and, as such, uses the equity method of accounting to record its investment. Income or loss and cash distributions are allocated according to the provisions of the joint venture agreement, which are consistent with the ownership percentages for the Dawsonville Bluffs Joint Venture.
During the third quarter of 2019, the Dawsonville Bluffs Joint Venture completed the disposition of substantially all of its remaining 4,400 acres of timberlands for $8.7 million. On August 1, 2019, CatchMark received a $3.8 million
cash distribution as a result of this disposition. For the nine months ended September 30, 2019 and 2018, CatchMark received cash distributions of $4.8 million and $8.5 million, respectively, from the Dawsonville Bluffs Joint Venture.
As of September 30, 2019,March 31, 2020, the Dawsonville Bluffs Joint Venture had a mitigation bank credits with a book basis of $2.9$2.6 million in addition to 65 acres of timberland remaining in its portfolio. Condensed balance sheet information for the Dawsonville Bluffs Joint Venture is as follows:
| | | | | | | | | | | |
| As of | | |
(in thousands) | March 31, 2020 | | December 31, 2019 |
Dawsonville Bluffs Joint Venture: | | | |
Total assets | $ | 3,023 | | | $ | 4,041 | |
Total liabilities | $ | 68 | | | $ | 111 | |
Total equity | $ | 2,955 | | | $ | 3,930 | |
CatchMark: | | | |
Carrying value of investment | $ | 1,478 | | | $ | 1,965 | |
|
| | | | | | | |
| As of |
(in thousands) | September 30, 2019 | | December 31, 2018 |
Dawsonville Bluffs Joint Venture: | | | |
Total assets | $ | 4,148 |
| | $ | 12,164 |
|
Total liabilities | $ | 597 |
| | $ | 575 |
|
Total equity | $ | 3,551 |
| | $ | 11,589 |
|
CatchMark: | | | |
Carrying value of investment | $ | 1,776 |
| | $ | 5,795 |
|
Condensed income statement information for the Dawsonville Bluffs Joint Venture is as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2020 | | 2019 |
Dawsonville Bluffs Joint Venture: | | | |
Total revenues | $ | — | | | $ | 1,413 | |
Net income (loss) | $ | (175) | | | $ | 357 | |
CatchMark: | | | |
Equity share of net income (loss) | $ | (88) | | | $ | 179 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Dawsonville Bluffs Joint Venture: | | | | | | | |
Total revenues | $ | 8,648 |
| | $ | 198 |
| | $ | 10,068 |
| | $ | 13,813 |
|
Net income (loss) | $ | 1,323 |
| | $ | (19 | ) | | $ | 1,578 |
| | $ | 5,040 |
|
CatchMark: | | | | | | | |
Equity share of net income (loss) | $ | 661 |
| | $ | (10 | ) | | $ | 789 |
| | $ | 2,520 |
|
Condensed statement of cash flow information for the Dawsonville Joint Venture is as follows:
| | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(in thousands) | 2019 | | 2018 | (in thousands) | 2020 | | 2019 |
Dawsonville Joint Venture: | | | | Dawsonville Joint Venture: | | | |
Net cash provided by operating activities | $ | 8,873 |
| | $ | 12,673 |
| |
Net cash provided by investing activities | $ | — |
| | $ | — |
| |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | $ | (210) | | | $ | 1,185 | |
Net cash used in financing activities | $ | (9,616 | ) | | $ | (17,031 | ) | Net cash used in financing activities | $ | (800) | | | $ | (1,949) | |
Net change in cash and cash equivalents | $ | (743 | ) | | $ | (4,358 | ) | Net change in cash and cash equivalents | $ | (1,010) | | | $ | (764) | |
Cash and cash equivalents, beginning of period | $ | 1,731 |
| | $ | 5,375 |
| Cash and cash equivalents, beginning of period | $ | 1,441 | | | $ | 1,731 | |
Cash and cash equivalents, end of period | $ | 988 |
| | $ | 1,017 |
| Cash and cash equivalents, end of period | $ | 431 | | | $ | 967 | |
During the three months ended March 31, 2020 and 2019, CatchMark received cash distributions of $0.4 million and $1.0 million, respectively, from the Dawsonville Bluffs Joint Venture.
Risks and Uncertainties related to Unconsolidated Joint Ventures
CatchMark’s unconsolidated joint ventures, most notably the Triple T Joint Venture, are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Triple T Joint Venture’s business and that of its customers and contractors is highly uncertain and difficult to predict, as the response to the pandemic is in its incipient stages and information is rapidly evolving. Capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Such economic disruption could have a material adverse effect on the Triple T Joint Venture’s business due to the same reasons discussed in Note 1 — Organization with respect to CatchMark. The severity of the impact of the COVID-19 pandemic on the Triple T Joint Venture’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Triple T Joint Venture’s customers, all of which are uncertain and cannot be predicted. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the financial condition, liquidity, or results of operations of CatchMark’s unconsolidated joint ventures is uncertain.
Asset Management Fees
CatchMark provides asset management services to the Triple T Joint Venture and the Dawsonville Bluffs Joint Venture. Under these arrangements, CatchMark oversees the day-to-day operations of these joint ventures and their properties, including accounting, reporting and other administrative services, subject to certain major decisions that require partner approval. For management of the Triple T Joint Venture, CatchMark receives a fee equal to 1% per annum, subject to reduction and deferment in certain circumstances,a percentage of the Acquisition Price multiplied by 78.4%, which represents the percentage of the total equity contributions made to the Triple T Joint Venture by the Preferred Investors. ForThe percentage is currently 1%. In the event the Preferred Investors have not received a return of their capital contributions plus their preferred return, then the percentage decreases from 1% to 0.75% at October 1, 2021, and to 0.5% at October 1, 2022. The fee is also subject to deferment in certain circumstances. In addition, the asset management agreement with the Triple T Joint Venture includes a "key man" provision requiring CatchMark to find a suitable replacement for Jerry Barag, CatchMark's former Chief Executive Officer, within one year of his retirement, or by January 21, 2021. If CatchMark fails to find such suitable replacement within that time period, the Preferred Investors in the Triple T Joint Venture have the right to terminate the asset management agreement.
For management of the Dawsonville Bluffs Joint Venture, CatchMark receives a percentage fee based on invested capital, as defined by the joint venture agreement. Additionally, CatchMark receives an incentive-based promote earned for exceeding investment hurdles.
During the three and nine months ended September 30,March 31, 2020 and 2019, and 2018, CatchMark earned the following fees from these unconsolidated joint ventures:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Triple T Joint Venture (1) | $ | 2,821 |
| | $ | 2,675 |
| | $ | 8,464 |
| | $ | 2,675 |
|
Dawsonville Bluffs Joint Venture (2) | 615 |
| | 23 |
| | 655 |
| | 84 |
|
| $ | 3,436 |
| | $ | 2,698 |
| | $ | 9,119 |
| | $ | 2,759 |
|
| |
(1)
| Includes $0.1 million and $0.4 million of reimbursements of compensation costs for the three and nine months ended September 30, 2019, respectively. Includes $0.1 million and $0.1 million of reimbursements of compensation costs for the three and nine months ended September 30, 2018, respectively. |
| |
(2)
| The three and nine months ended September 30, 2019 includes $0.6 million of incentive-based promote earned for exceeding investment hurdles. |
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2020 | | 2019 |
Triple T Joint Venture (1) | $ | 2,828 | | | $ | 2,821 | |
Dawsonville Bluffs Joint Venture (2) | 147 | | | 21 | |
| $ | 2,975 | | | $ | 2,842 | |
(1)Includes $0.1 million reimbursements of compensation costs for the three months ended March 31, 2020 and 2019, respectively. (2)Includes $0.1 million of incentive-based promote earned for exceeding investment hurdles in 2020.
5. Notes Payable and Lines of Credit
During the three months ended September 30, 2019, CatchMark paid down $20.1 million of its outstanding balance on the Multi-Draw Term Facility with proceeds from large dispositions. As of September 30, 2019 and December 31, 2018, CatchMark had the following debt balances outstanding:
|
| | | | | | | | | | | | | | | |
(in thousands) | | Maturity Date | | | | Current Interest Rate (1) | | Outstanding Balance as of |
Credit Facility | | | Interest Rate | | | September 30, 2019 | | December 31, 2018 |
Term Loan A-1 | | 12/23/2024 | | LIBOR + 1.75% | | 3.80 | % | | $ | 100,000 |
| | $ | 100,000 |
|
Term Loan A-2 | | 12/1/2026 | | LIBOR + 1.90% | | 3.94 | % | | 100,000 |
| | 100,000 |
|
Term Loan A-3 | | 12/1/2027 | | LIBOR + 2.00% | | 4.04 | % | | 68,619 |
| | 68,619 |
|
Term Loan A-4 | | 8/22/2025 | | LIBOR + 1.70% | | 3.76 | % | | 140,000 |
| | 140,000 |
|
Multi-Draw Term Facility | | 12/1/2024 | | LIBOR + 2.20% | | 4.25 | % | | 49,936 |
| | 70,000 |
|
Total principal balance | | | | | | | | $ | 458,555 |
| | $ | 478,619 |
|
Less: net unamortized deferred financing costs | | (5,787 | ) | | $ | (6,379 | ) |
Total | | | | | | | | $ | 452,768 |
| | $ | 472,240 |
|
| |
(1)
| For the Multi-Draw Term Facility, the interest rate represents weighted-average interest rate as of September 30, 2019. The weighted-average interest rate excludes the impact of the interest rate swaps (see Note 6 — Interest Rate Swaps), amortization of deferred financing costs, unused commitment fees, and estimated patronage refunds.
|
Amended Credit Agreement
As of March 31, 2020, CatchMark iswas party to a credit agreementdated as of December 1, 2017, as amended on August 22, 2018, and June 28, 2019 and February 12, 2020 (the “Amended Credit Agreement”), with a syndicate of lenders, including CoBank. The Amended Credit Agreement provides for borrowing under credit facilities consisting of the following:
•a $35.0 million five-yearfive-year revolving credit facility (the “Revolving Credit Facility”);
•a $200.0 million seven-yearseven-year multi-draw term credit facility (the “Multi-Draw Term Facility”);
•a $100.0 million ten-yearten-year term loan (the “Term Loan A-1”);
•a $100.0 million nine-yearnine-year term loan (the “Term Loan A-2”);
•a $68.6 million ten-yearten-year term loan (the “Term Loan A-3”); and
•a $140.0 million seven-yearseven-year term loan (the "Term Loan A-4").
During the three months ended March 31, 2020, CatchMark paid down $20.9 million of its outstanding balance on the Multi-Draw Term Facility with proceeds from large dispositions. As of September 30,March 31, 2020 and December 31, 2019, $185.1CatchMark had the following debt balances outstanding:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollar amounts in thousands) | | | | | | Current Interest Rate (1) | | Outstanding Balance as of | | |
Credit Facility | | Maturity Date | | Interest Rate | | | | March 31, 2020 | | December 31, 2019 |
Term Loan A-1 | | 12/23/2024 | | LIBOR + 1.75% | | 2.74 | % | | $ | 100,000 | | | $ | 100,000 | |
Term Loan A-2 | | 12/1/2026 | | LIBOR + 1.90% | | 2.89 | % | | 100,000 | | | 100,000 | |
Term Loan A-3 | | 12/1/2027 | | LIBOR + 2.00% | | 2.99 | % | | 68,619 | | | 68,619 | |
Term Loan A-4 | | 8/22/2025 | | LIBOR + 1.70% | | 2.69 | % | | 140,000 | | | 140,000 | |
Multi-Draw Term Facility | | 12/1/2024 | | LIBOR + 2.20% | | 3.22 | % | | 29,086 | | | 49,936 | |
Total principal balance | | | | | | | | $ | 437,705 | | | $ | 458,555 | |
Less: net unamortized deferred financing costs | | | | | | | | (5,379) | | | (5,568) | |
Total | | | | | | | | $ | 432,326 | | | $ | 452,987 | |
(1)For the Multi-Draw Term Facility, the interest rate represents weighted-average interest rate as of March 31, 2020. The weighted-average interest rate excludes the impact of the interest rate swaps (see Note 6 — Interest Rate Swaps), amortization of deferred financing costs, unused commitment fees, and estimated patronage dividends.
As of March 31, 2020, CatchMark had $205.9 million remained availableof borrowing capacity remaining under CatchMark'sits credit facilities, consisting of $150.1$170.9 millionunder the Multi-Draw Term Facility and $35.0 million under the Revolving Credit Facility.
Borrowings under the Revolving Credit Facility may be used for general working capital, to support letters of credit, to fund cash earnest money deposits, to fund acquisitions in an amount not to exceed $5.0 million, and for other general corporate purposes. The Revolving Credit Facility bears interest at an adjustable rate equal to a base rate plus between 0.50% and 1.20% or a LIBOR rate plus between 1.50% and 2.20%, in each case depending on CatchMark's LTV Ratio, and will terminate and all amounts outstanding under the facility will be due and payable on December 1, 2022.
The Multi-Draw Term Facility may be used to finance timberland acquisitions and associated expenses, to fund investment in joint ventures, to fund the repurchase of CatchMark's common stock, and to reimburse payments of drafts under letters of credit. The Multi-Draw Term Facility, which is interest only until its maturity date, bears interest at an adjustable rate equal to a base rate plus between 0.50% and 1.20% or a LIBOR rate plus between 1.50% and 2.20%, in each case depending on CatchMark's LTV Ratio, and will terminate and all amounts outstanding under the facility will be due and payable on December 1, 2024.
CatchMark pays the lenders an unused commitment fee on the unused portions of the Revolving Credit Facility and the Multi-Draw Term Facility at an adjustable rate ranging from 0.15% to 0.35%, depending on the LTV Ratio.
CatchMark’s obligations under the credit agreement are collateralized by a first priority lien on the timberlands owned by CatchMark’s subsidiaries and substantially all of CatchMark’s subsidiaries’ other assets in which a security interest may lawfully be granted, including, without limitation, accounts, equipment, inventory, intellectual property, bank accounts and investment property. In addition, the obligations under the credit agreement are jointly and severally guaranteed by CatchMark and all of its subsidiaries pursuant to the terms of the credit agreement. CatchMark has also agreed to guarantee certain losses caused by certain willful acts of CatchMark or its subsidiaries.
Patronage RefundsDividends
CatchMark is eligible to receive annual patronage refundsdividends from its lenders (the "Patronage Banks") under a profit-sharing program made available to borrowers of the Farm Credit System. CatchMark has received a patronage refunddividend on its eligible patronage loans annually since 2015. The eligibility remains the same under the Amended Credit Agreement. Therefore, CatchMark accrues patronage refundsdividends it expects to receive based on actual patronage refundsdividends received as a percentage of its weighted-average eligible debt balance. For the three months ended September 30,March 31, 2020 and 2019, and 2018, CatchMark accrued $0.9 million and$1.0 million, respectively, as patronage refundsdividends receivable on its consolidated balance sheets and as an offset against interest expense on the consolidated statements of operations. For the nine months ended September 30, 2019 and 2018, CatchMark accrued $2.9 million and $2.2 million, respectively, as patronage refunds receivable on its consolidated balance sheets and as an offset against interest expense on the consolidated statements of operations.
In March 20192020 and 2018,2019, CatchMark received patronage refundsdividends of $3.3$4.1 million and $2.7$3.3 million, respectively, on its patronage eligible borrowings. Of the total patronage refundsdividends received in both years, 75%March 2020, $3.1 million was received in cash, including a $0.1 million special cash distribution for 2019, and 25%$1.0 million was received in equity of the Patronage Banks.
As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the following balances related to the patronage refundsdividend program were included on CatchMark's consolidated balance sheets:
| | (in thousands) | | As of | (in thousands) | | As of | |
Patronage refunds classified as: | | September 30, 2019 | | December 31, 2018 | |
Patronage dividends classified as: | | Patronage dividends classified as: | | March 31, 2020 | | December 31, 2019 |
Accounts receivable | | $ | 2,873 |
| | $ | 3,323 |
| Accounts receivable | | $ | 900 | | | $ | 3,810 | |
Prepaid expenses and other assets (1) | | 2,329 |
| | 1,499 |
| Prepaid expenses and other assets (1) | | 3,335 | | | 2,329 | |
Total | | $ | 5,202 |
| | $ | 4,822 |
| Total | | $ | 4,235 | | | $ | 6,139 | |
| |
(1)
| Represents cumulative patronage refunds received as equity in the Patronage Banks. |
(1)Represents cumulative patronage dividends received as equity in the Patronage Banks.
Debt Covenants
The Amended Credit Agreement contains, among others, the following financial covenants which:
•limit the LTV ratio to (i) 50% at any time prior to December 31, 2021, and (ii) 45% at any time thereafter;
•require maintenance of a FCCR of not less than 1.05:1.00 at any time;
•require maintenance of a minimum liquidity balance of no less than $25.0 million at any time; and
•limit the aggregated capital expenditures to 1% of the value of the timberlands during any fiscal year.
The Amended Credit Agreement permits CatchMark to declare, set aside funds for, or pay dividends, distributions, or other payments to stockholders so long as it is not in default under the credit agreement and its minimum liquidity balance, after giving effect to the payment, is at least $25 million. However, if CatchMark has suffered a bankruptcy event or a change of control, the credit agreement prohibits CatchMark from declaring, setting aside, or paying any dividend, distribution, or other payment other than as required to maintain its REIT qualification. The Amended Credit Agreement also subjects CatchMark to mandatory prepayment from proceeds generated from dispositions of timberlands or lease terminations, which may have the effect of limiting its ability to make distributions to stockholders under certain circumstances.
CatchMark was in compliance with the financial covenants of its credit agreement as of September 30, 2019.March 31, 2020. See Note 1— Organization for discussion of uncertainties and risks to CatchMark’s financial position, liquidity and results of operations, including impacts of the global COVID-19 pandemic.
Interest Paid and Fair Value of Outstanding Debt
During the three months ended September 30,March 31, 2020 and 2019, and 2018, CatchMark made interest payments of $5.0$4.1 million and $4.4 million, respectively, on its borrowings. No unused commitment fee was paid during the three months ended September 30, 2019 and $0.1 million was paid during the same period in 2018.
During the nine months ended September 30, 2019 and 2018, CatchMark made interest payment of $15.6 million and $10.0$5.2 million, respectively, on its borrowings. Included in the interest payments for the ninethree months ended September 30, 2019 and 2018March 31, 2020 were unused commitment fees of $0.1 million and $0.2 million, respectively.million. NaN unused commitment fee was paid during the three months ended March 31, 2019.
As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the weighted-average interest rate on CatchMark's borrowings, after consideration of its interest rate swaps (see Note 6 — Interest Rate Swaps), was 4.21%3.57% and 4.31%3.87%, respectively. After further consideration of expected patronage refunds,dividends, CatchMark's weighted-average interest rate as of September 30, 2019March 31, 2020 and December 31, 20182019 was 3.41%2.77% and 3.51%3.07%, respectively.
6. Interest Rate Swaps
CatchMark uses interest rate swaps to mitigate its exposure to changing interest rates on its variable rate debt instruments. As of September 30, 2019,March 31, 2020, CatchMark had ten2 outstanding interest rate swaps with terms below:
|
| | | | | | | | | | | | |
(in thousands) | | | | | | | | | | |
Interest Rate Swap | | Effective Date | | Maturity Date | | Pay Rate | | Receive Rate | | Notional Amount |
2017 Swap - 3YR | | 3/28/2017 | | 3/28/2020 | | 1.800% | | one-month LIBOR | | $ | 30,000 |
|
2018 Swap - 2YR | | 9/6/2018 | | 9/6/2020 | | 2.796% | | one-month LIBOR | | $ | 50,000 |
|
2018 Swap - 3YR | | 9/6/2018 | | 9/6/2021 | | 2.869% | | one-month LIBOR | | $ | 50,000 |
|
2017 Swap - 4YR | | 3/28/2017 | | 11/28/2021 | | 2.045% | | one-month LIBOR | | $ | 20,000 |
|
2018 Swap - 4YR | | 2/28/2018 | | 11/28/2022 | | 2.703% | | one-month LIBOR | | $ | 30,000 |
|
2017 Swap - 7YR | | 3/23/2017 | | 3/23/2024 | | 2.330% | | one-month LIBOR | | $ | 20,000 |
|
2014 Swap - 10YR | | 12/23/2014 | | 12/23/2024 | | 2.395% | | one-month LIBOR | | $ | 35,000 |
|
2016 Swap - 8YR | | 8/23/2016 | | 12/23/2024 | | 1.280% | | one-month LIBOR | | $ | 45,000 |
|
2018 Swap - 8YR | | 2/28/2018 | | 11/28/2026 | | 2.884% | | one-month LIBOR | | $ | 20,000 |
|
2018 Swap - 9YR | | 8/28/2018 | | 8/28/2027 | | 3.014% | | one-month LIBOR | | $ | 50,000 |
|
| | | | | | | | | | $ | 350,000 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollar amounts in thousands) | | | | | | | | | | Notional Amount |
Interest Rate Swap | | Effective Date | | Maturity Date | | Pay Rate | | Receive Rate | | |
2019 Swap - 10YR | | 11/29/2019 | | 11/30/2029 | | 2.2067% | | one-month LIBOR | | $ | 200,000 | |
2019 Swap - 7YR | | 11/29/2019 | | 11/30/2026 | | 2.083% | | one-month LIBOR | | $ | 75,000 | |
| | | | | | | | | | $ | 275,000 | |
As of September 30, 2019,March 31, 2020, CatchMark’s interest rate swaps effectively fixed the interest rate on $350.0$275.0 million of its $458.6$437.7 million variable-rate debt at 4.26%3.98%, inclusive of the applicable spread and before consideration of expected patronage refunds. All tendividends. The 2019 swaps contain an other-than-insignificant financing element and, accordingly, the associated cash flows are reported as financing activities in the accompanying consolidated statements of cash flows.
During the three months ended March 31, 2019, CatchMark had 10 interest rate swaps qualifythat effectively fixed the interest rates on $350.0 million of CatchMark's variable-rate debt at 4.26%, inclusive of the applicable spread but before considering patronage dividends.
All of CatchMark's outstanding interest rate swaps during the three months ended March 31, 2020 and 2019 qualified for hedge accounting treatment.
Fair Value and Cash Paid for Interest Under Interest Rate Swaps
The following table presents information about CatchMark's interest rate swaps measured at fair value as of September 30, 2019March 31, 2020 and December 31, 2018:2019:
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | | | Estimated Fair Value as of | | |
Instrument Type | | Balance Sheet Classification | | March 31, 2020 | | December 31, 2019 |
Derivatives designated as hedging instruments: | | | | | | |
Interest rate swaps | | Other liabilities | | $ | (33,703) | | | $ | (8,769) | |
|
| | | | | | | | | | |
(in thousands) | | Estimated Fair Value as of |
Instrument Type | | Balance Sheet Classification | | September 30, 2019 | | December 31, 2018 |
Derivatives designated as hedging instruments: | | | | | | |
Interest rate swaps | | Prepaid expenses and other assets | | $ | 218 |
| | $ | 3,643 |
|
Interest rate swaps | | Other liabilities | | $ | (14,235 | ) | | $ | (3,635 | ) |
As of September 30, 2019,March 31, 2020, CatchMark estimated that approximately $2.7$6.5 million will be reclassified from accumulated other comprehensive loss to interest expense over the next 12 months.
During the three months ended March 31, 2020 and 2019, CatchMark recognized a change in fair value of its interest rate swaps of $24.5 million and $3.9 million, respectively, as other comprehensive loss. Pursuant to the terms of its interest rate swaps, CatchMark paid $0.1$0.3 million and $0.1 millionreceived $42,000 during the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively. For the nine months ended September 30, 2019 and 2018, CatchMark paid $0.1 million and $0.3 million, respectively. All amounts were included in interest expense in the consolidated statements of operations.
7. Commitments and Contingencies
Mahrt Timber Agreements
In connection with its acquisition of timberlands from WestRock, CatchMark entered into a master stumpage agreement and a fiber supply agreement (collectively, the “Mahrt Timber Agreements”) with a wholly-owned subsidiary of WestRock. The master stumpage agreement provides that CatchMark will sell specified amounts of timber and make available certain portions of our timberlands to CatchMark TRS for harvesting. The fiber supply agreement provides that WestRock will purchase a specified tonnage of timber from CatchMark TRS at specified prices per ton, depending upon the type of timber product. The prices for the timber purchased pursuant to the fiber supply agreement are negotiated every two years but are subject to quarterly market pricing adjustments based on an index published by TimberMart-South, a quarterly trade publication that reports raw forest product prices in 11 southern states. The initial term of the Mahrt Timber Agreements is October 9, 2007 through December 31, 2032, subject to extension and early termination provisions. The Mahrt Timber Agreements ensure a long-term source of supply of wood fiber products for WestRock in order to meet its paperboard and lumber production requirements at specified mills and provide CatchMark with a reliable customer for the wood products from its timberlands.
WestRock can terminate the Mahrt Timber Agreements prior to the expiration of the initial term if CatchMark replaces FRC as the forest manager without the prior written consent of WestRock, except pursuant to an internalization of the company's forestry management functions. CatchMark can terminate the Mahrt Timber Agreements if WestRock (i) ceases to operate the Mahrt mill for a period that exceeds 12 consecutive months, (ii) fails to purchase a specified tonnage of timber for two consecutive years, subject to certain limited exceptions or (iii) fails to make payments when due (and fails to cure within 30 days).
In addition, either party can terminate the Mahrt Timber Agreements if the other party commits a material breach (and fails to cure within 60 days) or becomes insolvent. Further,In addition, the Mahrt Timber Agreements provide for adjustments to both parties' obligations in the event of a force majeure, which is defined to include, among other things, lightning, fires, storms, floods, infestation and other acts of God or nature.
Timberland Operating Agreements
Pursuant to the terms of the timberland operating agreement between CatchMark and FRC (the "FRC Timberland Operating Agreement"), FRC manages and operates certain of CatchMark's timberlands and related timber operations, including ensuring delivery of timber to WestRock in compliance with the Mahrt Timber Agreements. In consideration for rendering the services described in the timberland operating agreement, CatchMark pays FRC (i) a management fee based on the actual acreage that FRC manages, which is payable monthly in advance, and (ii) an incentive fee based on timber harvest revenues generated by the timberlands, which is payable quarterly in arrears. The FRC Timberland Operating Agreement, as amended, is effective through March 31, 2020,2021, and is automatically extended for one-yearone-year periods unless written notice is provided by CatchMark or FRC to the other party at least 120 days prior to the current expiration. The FRC Timberland Operating Agreement may be terminated by either party with mutual consent or by CatchMark with or without cause upon providing 120 days’ prior written notice.
Pursuant to the terms of the timberland operating agreement between CatchMark and AFM (the "AFM Timberland Operating Agreement"), AFM manages and operates certain of CatchMark's timberlands and related timber operations, including ensuring delivery of timber to customers. In consideration for rendering the services described in the AFM Timberland Operating Agreement, CatchMark pays AFM (i) a management fee based on the actual acreage AFM manages, which is payable monthly in advance, and (ii) an incentive fee based on revenues generated by the timber operations, which is payable quarterly in arrears. The AFM Timberland Operating Agreement is effective through November 30, 2020 for the U.S. South region and December 31, 2020 for the Pacific Northwest region, and is automatically extended for one-yearone-year periods unless written notice is provided by CatchMark or AFM to the other party at least 120 days prior to the current expiration. The AFM Timberland Operating Agreement may be terminated by either party with mutual consent or by CatchMark with or without cause upon providing 120 days’ prior written notice.
Obligations under Operating Leases
CatchMark's office lease commenced in January 2019 and expires in November 2028 and qualifies as an operating lease under ASC 842. As of January 1, 2019, CatchMark recorded an operating lease ROU asset and an operating lease liability of $3.4 million on its balance sheet, which represents the net present value of lease payments over the lease term discounted using CatchMark's incremental borrowing rate at commencement date. CatchMark’s office lease contains renewal options; however, the options were not included in the calculation of the operating lease ROU asset and operating lease liability as it is not reasonably certain that CatchMark will exercise the renewal options. For the three months ended March 31, 2020 and 2019, CatchMark recorded $108,400 and $39,400 of operating lease expense, respectively, which was included in general and administrative expenses on its consolidated statements of operations. For the three months ended March 31, 2020 and 2019, CatchMark paid $98,000 and $21,000, respectively, in cash for its office lease, which was included in operating cash flows on its consolidated statements of cash flows. The adoption of ASC 842 did not result in a cumulative-effect adjustment to CatchMark's retained earnings, as its office lease commenced in January 2019.
CatchMark had the following future annual payments for its operating lease as of March 31, 2020 and December 31, 2019:
| | | | | | | | | | | |
| As of | | |
(in thousands) | March 31, 2020 | | December 31, 2019 |
Required payments | | | |
2020 | $ | 299 | | | 397 | |
2021 | 412 | | | 412 | |
2022 | 424 | | | 424 | |
2023 | 435 | | | 435 | |
2024 | 447 | | | 447 | |
Thereafter | 1,873 | | | 1,873 | |
| $ | 3,890 | | | $ | 3,988 | |
Less: imputed interest | (709) | | | |
Operating lease liability | $ | 3,181 | | | |
| | | |
Remaining lease term (years) | 8.7 | | |
Discount rate | 4.58 | % | | |
CatchMark holds leasehold interests in 26,30022,600 acres of timberlands under a long-term lease that expires in May 2022 (the “LTC Lease”). The LTC Lease provides CatchMark access rights to harvest timber as specified in the LTC Lease, which is, therefore, a lease of biological assets, and is excluded from the scope of ASC 842.
As of September 30, 2019,March 31, 2020, CatchMark had the following future lease payments under itsthe LTC Lease:
| | (in thousands) | Required Payments | (in thousands) | Required Payments |
2019 | $ | 19 |
| |
2020 | 504 |
| 2020 | $ | 392 | |
2021 | 504 |
| 2021 | 408 | |
2022 | 449 |
| 2022 | 359 | |
| $ | 1,476 |
| | $ | 1,159 | |
See Note 2 — Summary of Significant Accounting Policies for information on CatchMark's office lease, which is within the scope of ASC 842.
Litigation
From time to time, CatchMark may be a party to legal proceedings, claims, and administrative proceedings that arise in the ordinary course of its business. Management makes assumptions and estimates concerning the likelihood and amount of any reasonably possible loss relating to these matters using the latest information available. CatchMark records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, CatchMark accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, CatchMark accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, CatchMark discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss
is material, CatchMark discloses the nature and estimate of the possible loss of the litigation. CatchMark does not disclose information with respect to litigation where an unfavorable outcome is considered to be remote.
CatchMark is not0t currently involved in any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on the results of operations or financial condition of CatchMark. CatchMark is not aware of any legal proceedings contemplated by governmental authorities.
8. Stock-based Compensation
Stock-based Compensation - Employees
On July 12, 2019,February 18, 2020, CatchMark issued 99,385 shares of service-based restricted stock to its executive officers. Along with the 131,500 shares of service-based restricted stock granted to its non-executive employees in the first quarter of 2019, CatchMark has issued 230,885153,842 shares of service-based restricted stock to its employees in 2019, allincluding its executive officers, vesting over a four-yearfour-year period. The fair value of serviced-based restricted stock grants$1.7 million was determined bybased on the closing price of CatchMark's common stock on the grant date.date and is amortized evenly over the vesting period.
A rollforward of CatchMark's unvested, service-based restricted stock awards to employees for the ninethree months ended September 30, 2019March 31, 2020 is as follows:
| | | | | | | | | | | | |
| Number of Underlying Shares | | Weighted-Average Grant Date Fair Value | |
Unvested at December 31, 2019 | 442,401 | | | $ | 9.96 | | |
Granted | 153,842 | | | $ | 10.99 | | |
Vested | (206,698) | | | $ | 10.75 | | |
Forfeited | — | | | $ | — | | |
Unvested at March 31, 2020 | 389,545 | | | $ | 9.95 | | |
|
| | | | | | |
| Number of Underlying Shares | | Weighted-Average Grant Date Fair Value |
Unvested at December 31, 2018 | 300,395 |
| | $ | 10.60 |
|
Granted | 230,885 |
| | $ | 9.66 |
|
Vested | (83,817 | ) | | $ | 11.37 |
|
Forfeited | (5,062 | ) | | $ | 10.85 |
|
Unvested at September 30, 2019 | 442,401 |
| | $ | 9.96 |
|
Performance-based Restricted Stock Grants
On February 18, 2020, CatchMark granted 23,589 shares of performance-based restricted stock to its eligible officers, which represents the maximum number of shares that could be earned based on the relative performance of CatchMark's TSR as compared to a pre-established peer group's TSR and to the Russell Microcap Index over a three-year performance period from January 1, 2020 to December 31, 2022. The compensation committee of the board of directors (the "Compensation Committee") will determine the earned awards after the end of the performance period, and the earned awards will vest in two equal installments in the first quarter of 2023 and 2024. The fair value of $0.1 million of the performance-based restricted stock awards is amortized over the vesting period and was calculated using Monte-Carlo simulation with the following assumptions:
| | | | | |
Grant date market price (February 18, 2020) | $ | 10.99 | |
Weighted-average fair value per granted share | $ | 5.93 | |
Assumptions: | |
Volatility | 23.22 | % |
Expected term (years) | 3.0 |
Risk-free interest rate | 1.41 | % |
Performance-based LTIP Units Grants
On July 12, 2019,February 18, 2020, CatchMark granted 184,944197,115 units of a class of limited partnership interests (the "LTIP Units") in CatchMark Timber OP to its executive officers, which represents the maximum number of LTIP Units that could be earned based on the relative performance of CatchMark's TSR as compared to a pre-established peer groups’ TSRsgroup's TSR and to the Russell 3000 Index.Microcap Index over a three-year performance period from January 1, 2020 to December 31, 2022. The LTIP Units are structured to qualify as "profits interests" for federal income tax purposes that, subject to certain conditions, including vesting, are convertible by the holder into CatchMark Timber OP's common units. See Note 8 - — Noncontrolling Interest in our Annual Report on Form 10-K for the year ended December 31, 20182019 for further information on LTIP Units. The performance measurement period is a three-year period from January 1, 2019 to December 31, 2021. The Compensation Committee will determine the earned awards after the end of the performance period, and the earned awards will vest in two equal installments in the first quarter of 20222023 and 2023.2024. The fair value of the 2019 Performance$1.2 million of the performance-based LTIP Units awards was calculated using a Monte-Carlo simulation with the following:following assumptions:
|
| | | |
Grant date market price (July 12, 2019) | $ | 10.08 |
|
Weighted-average fair value per granted share | $ | 8.13 |
|
Assumptions: | |
Volatility | 22.88 | % |
Expected term (years) | 3.0 |
|
Risk-free interest rate | 1.85 | % |
| | | | | |
Grant date market price (February 18, 2020) | $ | 10.99 | |
Weighted-average fair value per granted share | $ | 5.93 | |
Assumptions: | |
Volatility | 23.22 | % |
Expected term (years) | 3.0 |
Risk-free interest rate | 1.41 | % |
Accelerated Vesting of Former CEO's Outstanding Equity Awards
On January 21, 2020, Jerrold Barag retired as the Chief Executive Officer of CatchMark and as a member of CatchMark's board of directors. In connection with Mr. Barag's retirement, he entered into a separation agreement (the "Separation Agreement") with CatchMark. As part of the Separation Agreement, 103,135 shares of his time-based restricted stock awards vested immediately, 46,912 shares of which were withheld to cover required tax withholding. CatchMark repurchased the remaining 56,223 fully vested shares at a per-share price of $11.05, which was the average closing price of the common stock for the five-day trading period ended prior to January 21, 2020, payable to Mr. Barag in 24 equal installments through January 2022. Mr. Barag’s 72,272 performance-based LTIP Units issued under the executive officer’s 2017 compensation program had a performance period from January 1, 2017 to December 31, 2019. 25,218 of these 72,272 LTIP Units were earned and vested on January 29, 2020. Mr. Barag’s remaining 142,909 performance-based LTIP units issued under the executive officers' 2018 and 2019 compensation programs were treated as if the performance period for such awards ended on January 21, 2020, with the portion of such awards that was earned determined based on actual achievement of the applicable performance metrics through such date. Mr. Barag was entitled to receive a pro rata portion of such earned awards, based on the number of full months served during the performance period divided by 36. The Compensation Committee determined that Mr. Barag earned a total of 32,780 LTIP Units, which were vested on January 29, 2020. In accordance with ASC 718: Compensation - Stock Compensation, CatchMark applied modification accounting and recognized the incremental fair value of these awards in the amount of $1.2 million as stock-based compensation expense in the first quarter of 2020. For complete terms and conditions of the Separation Agreement, see Form 8-K filed with the SEC on January 21, 2020.
Stock-based Compensation Expense
A summary of CatchMark's stock-based compensation expense for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 is presented below:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
(in thousands) | | 2020 | | 2019 |
General and administrative expenses (1) | | $ | 1,757 | | | $ | 571 | |
Forestry management expenses | | 115 | | | 88 | |
Total (2) | | $ | 1,872 | | | $ | 659 | |
|
| | | | | | | | | | | | | | | | |
(in thousands) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Stock-based Compensation Expense classified as: | | 2019 | | 2018 | | 2019 | | 2018 |
General and administrative expenses | | $ | 729 |
| | $ | 587 |
| | $ | 1,763 |
| | $ | 1,861 |
|
Forestry management expenses | | 74 |
| | 23 |
| | 189 |
| | 310 |
|
Total | | $ | 803 |
| | $ | 610 |
| | $ | 1,952 |
| | $ | 2,171 |
|
(1)Includes $1.2 million accelerated stock-based compensation expense related to the retirement of CatchMark's former CEO during the three months ended March 31, 2020.
(2)$0.7 million of the $1.9 million stock-based compensation for the three months ended March 31, 2020 was recognized as noncontrolling interest.
As of September 30, 2019,March 31, 2020, approximately $5.5$6.7 million of unrecognized compensation expense related to unvested restricted stock and LTIP Units remained and will be recognized over a weighted-average period of 2.62.9 years.
9. Segment Information
As of September 30, 2019,March 31, 2020, CatchMark had the following reportable segments: Harvest, Real Estate and Investment Management. Harvest includes wholly-owned timber assets and associated timber sales, other revenues and related expenses. Real Estate includes timberland sales, cost of timberland sales and large dispositions. Investment Management includes investment in and income (loss) from unconsolidated joint ventures and asset management fee revenues earned for the management of these joint ventures. General and administrative expenses, along with other expense and income items, are not allocated among segments. Asset information and capital expenditures by segment are not reported because CatchMark does not use these measures to assess performance. CatchMark’s investments in unconsolidated joint ventures isare reported separately on the accompanying consolidated balance sheets. During the periods presented, there have been no material intersegment transactions.
The following table presents revenues by reportable segment:
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2020 | | 2019 |
Harvest | $ | 19,218 | | | $ | 17,641 | |
Real Estate | 4,779 | | | 2,090 | |
Investment Management | 2,975 | | | 2,842 | |
Total | $ | 26,972 | | | $ | 22,573 | |
Adjusted EBITDA is the primary performance measure reviewed by management to assess operating performance. EBITDA is a non-GAAP financial measure of operating performance. EBITDA is defined by the SEC as earnings before interest, taxes, depreciation and amortization; however, CatchMark has excluded certain other expenses that CatchMark believes are not indicative of the ongoing operating results of its timberland portfolio and investment management business, and CatchMark refers to this measure as Adjusted EBITDA. As such, CatchMark's Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
The following table presents revenues by reportable segment:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Harvest | $ | 20,680 |
| | $ | 18,061 |
| | $ | 55,916 |
| | $ | 57,267 |
|
Real Estate | 2,264 |
| | 3,818 |
| | 12,578 |
| | 14,904 |
|
Investment Management | 3,436 |
| | 2,698 |
| | 9,119 |
| | 2,759 |
|
Total | $ | 26,380 |
| | $ | 24,577 |
| | $ | 77,613 |
| | $ | 74,930 |
|
The following table presents Adjusted EBITDA by reportable segment:
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2020 | | 2019 |
Harvest | $ | 8,607 | | | $ | 7,260 | |
Real Estate | 4,518 | | | 1,957 | |
Investment Management | 2,887 | | | 3,415 | |
Corporate | (3,123) | | | (2,470) | |
Total | $ | 12,889 | | | $ | 10,162 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Harvest | $ | 9,390 |
| | $ | 7,635 |
| | $ | 23,935 |
| | $ | 24,339 |
|
Real Estate | 2,036 |
| | 3,592 |
| | 11,821 |
| | 13,988 |
|
Investment Management | 7,250 |
| | 2,727 |
| | 13,455 |
| | 9,164 |
|
Corporate | (2,154 | ) | | (2,498 | ) | | $ | (7,440 | ) | | $ | (7,125 | ) |
Total | $ | 16,522 |
| | $ | 11,456 |
| | $ | 41,771 |
| | $ | 40,366 |
|
A reconciliation of Adjusted EBITDA to GAAP net loss is presented below:
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2020 | | 2019 |
Adjusted EBITDA | $ | 12,889 | | | $ | 10,162 | |
Subtract: | | | |
Depletion | 6,941 | | | 5,268 | |
Interest expense (1) | 3,250 | | | 4,372 | |
Amortization (1) | 758 | | | 458 | |
Depletion, amortization, and basis of timberland and mitigation credits sold included in loss from unconsolidated joint venture (2) | — | | | 395 | |
Basis of timberland sold, lease terminations and other (3) | 3,276 | | | 1,807 | |
Stock-based compensation expense | 1,872 | | | 659 | |
Gain on large dispositions (4) | (1,279) | | | — | |
HLBV loss from unconsolidated joint venture (5) | — | | | 27,488 | |
Post-employment benefits (6) | 2,286 | | | — | |
Other (7) | 34 | | | 110 | |
Net loss | $ | (4,249) | | | $ | (30,395) | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Adjusted EBITDA | $ | 16,522 |
| | $ | 11,456 |
| | $ | 41,771 |
| | $ | 40,366 |
|
Subtract: | | | | | | | |
Depletion | 8,235 |
| | 6,224 |
| | 19,533 |
| | 19,884 |
|
Basis of timberland sold, lease terminations and other (1) | 1,854 |
| | 2,983 |
| | 10,329 |
| | 10,771 |
|
Amortization (2) | 299 |
| | 493 |
| | 986 |
| | 2,532 |
|
Depletion, amortization, and basis of timberland and mitigation credits sold included in loss from unconsolidated joint venture (3) | 3,152 |
| | 39 |
| | 3,547 |
| | 3,885 |
|
HLBV loss from unconsolidated joint venture (4) | 25,712 |
| | 76,755 |
| | 81,800 |
| | 76,755 |
|
Stock-based compensation expense | 803 |
| | 610 |
| | 1,952 |
| | 2,171 |
|
Interest expense (2) | 4,220 |
| | 3,883 |
| | 12,987 |
| | 8,754 |
|
Gain on large dispositions (5) | (7,197 | ) | | — |
| | (7,961 | ) | | — |
|
Other (6) | 1 |
| | (632 | ) | | 115 |
| | (597 | ) |
Net loss | $ | (20,557 | ) | | $ | (78,899 | ) | | $ | (81,517 | ) | | $ | (83,789 | ) |
| |
(1)
| Includes non-cash basis of timber and timberland assets written-off related to timberland sold, terminations of timberland leases and casualty losses. |
| |
(2)
| For the purpose of the above reconciliation, amortization includes amortization of deferred financing costs, amortization of operating lease assets and liabilities, amortization of intangible lease assets, and amortization of mainline road costs, which are included in either interest expense, land rent expense, or other operating expenses in the consolidated statements of operations. |
| |
(3)
| Reflects our share of depletion, amortization, and basis of timberland and mitigation credits sold of the unconsolidated Dawsonville Bluffs Joint Venture. |
| |
(4)
| Reflects HLBV (income) losses from the Triple T Joint Venture, which is determined based on a hypothetical liquidation of the underlying joint venture at book value as of the reporting date. |
| |
(5)
| Large dispositions are sales of large blocks of timberland properties in one or several transactions with the objective to generate proceeds to fund capital allocation priorities. Large dispositions are typically larger transactions in acreage and gross sales price than recurring HBU sales and are not part of core operations, are infrequent in nature and would cause material variances in comparative results if not reported separately. Large dispositions may or may not have a higher or better use than timber production or result in a price premium above the land’s timber production value. |
| |
(6)
| Includes certain cash expenses paid, or reimbursement received, that management believes do not directly reflect the core business operations of our timberland portfolio on an on-going basis, including costs required to be expensed by GAAP related to acquisitions, transactions, joint ventures or new business initiatives. |
(1)For the purpose of the above reconciliation, amortization includes amortization of deferred financing costs, amortization of operating lease assets and liabilities, amortization of intangible lease assets, and amortization of mainline road costs, which are included in either interest expense, land rent expense, or other operating expenses in the accompanying consolidated statements of operations. Includes non-cash basis of timber and timberland assets written-off related to timberland sold, terminations of timberland leases and casualty losses.
(2)Reflects our share of depletion, amortization, and basis of timberland and mitigation credits sold of the unconsolidated Dawsonville Bluffs Joint Venture. (3)Includes non-cash basis of timber and timberland assets written-off related to timberland sold, terminations of timberland leases and casualty losses.
(4)Large dispositions are sales of blocks of timberland properties in one or several transactions with the objective to generate proceeds to fund capital allocation priorities. Large dispositions may or may not have a higher or better use than timber production or result in a price premium above the land’s timber production value. Such dispositions are infrequent in nature, are not part of core operations, and would cause material variances in comparative results if not reported separately.
(5)Reflects HLBV (income) losses from the Triple T Joint Venture, which is determined based on a hypothetical liquidation of the underlying joint venture at book value as of the reporting date.
(6)Reflects one-time, non-recurring post-employment benefits associated with the retirement of our former CEO, including severance pay, payroll taxes, professional fees, and accrued dividend equivalents.
(7)Includes certain cash expenses paid, or reimbursement received, that management believes do not directly reflect the core business operations of our timberland portfolio on an on-going basis, including costs required to be expensed by GAAP related to acquisitions, transactions, joint ventures or new business initiatives.
10. Subsequent Events
Amendment to Amended Credit Agreement
On May 1, 2020, CatchMark entered into an amendment to its Amended Credit Agreement with CoBank, which provided for, among other things: (1) the removal of the LTV ratio covenant reduction, from 50% to 45%, which would have otherwise been effective on December 31, 2021; (2) the removal of the minimum liquidity balance of $25.0 million, which enables CatchMark to draw down more proceeds for working capital or other purposes if needed under its Revolving Credit Facility; (3) a reduction in the Multi-Draw Term Facility commitment from $200 million to $150 million, which still provides CatchMark with ample capacity for future acquisitions while lowering its unused commitment fees; and (4) the ability to make additional investments in joint ventures during 2020 if CatchMark meets certain LTV ratio requirements.
Dividend Declaration
On October 31, 2019,May 4, 2020, CatchMark declared a cash dividend of $0.135 per share for its common stockholders of record on, November 26, 2019,May 29, 2020, payable on December 13, 2019.June 15, 2020.
Interest Rate Swaps
On October 21, 2019, CatchMark, through CatchMark Timber OP, terminated its ten outstanding interest rate swaps with Rabobank (see Note 6 — Interest Rate Swaps) and entered into two new interest rate swaps with Rabobank, one with a notional amount
weighted-average term of its effectively-fixed rate debt from four years to nine years and effectively reduced the amount of its fixed rate debt from 76% to 60%.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and notes thereto. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I of this report, as well as our consolidated financial statements and the notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Overview
We primarily engage in the acquisition, ownership, management,acquire and disposition of timberland propertiesown prime timberlands located in the United States.high-demand U.S. mill markets. We seekmanage our operations to generate recurring incomehighly-predictable and stable cash flow from the harvest and sale of timber, as well as from non-harvest related revenue sources, such as asset management fees and rent from hunting and recreational leases. When and where we believe appropriate, we also seek to generate income and cash flow from timberland sales. In addition to current income, we expect to realize long-term returns from the biological growth of our standing timber inventory.
We strive to deliver superior, consistent, predictable per-share cash flow growth from disciplined acquisitions, active management, sustainable harvests, and well-timed real estate sales. We intend to grow over time through selective acquisitions and investments in high-demand fiber markets and to efficiently integrate new acquisitions and investments into our operations. Operationally, we focus on generating cash flows from sustainable harvests and improved harvest mix on high-quality timberlands, as well as opportunistic land sales and asset management fees that comfortably covers our dividend throughout the business cycle.
During the first quarter of 2020, we continued to provide recurring dividendsseek to actively manage our stockholders.timberlands to achieve an optimum balance among biological timber growth, current harvest cash flow, and responsible environmental stewardship. We continueactively managed our log merchandising efforts together with delivered and stumpage sales with a goal to practice intensive forest management and silvicultural techniques that improveachieve the biological growthhighest available price for our timber products. During the three months ended March 31, 2020, we realized significant increases in timber sale revenues as compared to the same period last year primarily as a result of higher harvest volumes.
We continuously assess potential alternative uses of our forests.timberlands, as some of our properties may be more valuable for development, conservation, recreational or other rural purposes than for growing timber. In the first quarter of 2020, we capitalized on the value of our timberland portfolio by opportunistically monetizing timberland properties, including selling 3,000 acres of timberland for $4.8 million. In addition, we completed a large disposition of 14,400 acres of timberland located in Georgia for $21.3 million under our capital recycling program, using the net proceeds to pay down debt. When evaluating our land sale opportunities, we assess a full range of matters relating to the timberland property or properties, including, but not limited to inventory stocking below portfolio average, higher mix of hardwood inventory, poor productivity characteristics, geographical procurement and operating areas, and/or timber reservation opportunities.
We also seekare continuing to createactively pursue additional value by entering into joint ventures with long-term, institutional equity partners to opportunistically acquire, own, and managestrategic investment opportunities in our target markets, including direct acquisition of high-quality industrial timberland properties, that fitwith our core investment strategy. In April 2017, we entered into our first joint venture,average transaction size ranging from 2,500 to 25,000 acres.
Asset management fee revenue increased as a result of earning incentive-based promotes from the Dawsonville Bluffs Joint Venture for exceeding investment hurdles. From time to time when we believe our stock is undervalued, we may take advantage of market opportunities by using our share repurchase program, or SRP, to buy shares and return capital to our stockholders. In the first quarter, we repurchased $1.9 million in shares under our SRP and, as of March 31, 2020, $13.8 million remains available under our current repurchase program.
Impact of COVID-19 On Our Business
In March 2020, the World Health Organization declared the coronavirus (COVID-19) outbreak a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The coronavirus has spread throughout the United States, including in the U.S. South and Pacific Northwest regions in which we operate. The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as quarantines and shelter in place orders. These measures may remain in place for a significant period and adversely affect our business, results of operations and financial condition as well as the business, operations and financial conditions of our customers and contractors. Certain states have issued executive orders requiring workers to remain at home, unless their work is critical, essential, or life-sustaining. We believe that, based on the various standards published to date, our business, particularly with MPERS. respect to supplying raw materials to the forest products, paper and packaging industry, and the businesses of our customers is critical,
essential, and life-sustaining. As of the date of this filing, our business, including harvest, real estate and investment management activities, continue to operate. We did restrict access to our corporate headquarters based on local and state executive orders; however, our corporate headquarter employees continued to operate remotely.
The response to the COVID-19 pandemic began to impact our business toward the end of the quarter ended March 31, 2020 and we expect this trend to continue. Projections under these circumstances are necessarily guarded and subject to change, but the COVID-19 pandemic is shifting demand patterns to favor pulp-related products. As such, we expect demand for pulp-related products, necessary for paper and packaging, to remain stable, and lumber demand related to the housing market to suffer at least in the short term. However, given the ongoing and dynamic nature of the circumstances, it is not possible to predict how long the impact of the coronavirus outbreak on our business will last or how significant it will ultimately be. A sustained decline in the economy as a result of the COVID-19 pandemic and the demand for timber could materially and adversely impact our business, results of operations and financial condition and our ability to make distributions to our stockholders.
The ultimate risk posed by COVID-19 remains highly uncertain; however, reports as of the date hereof suggest that it poses a material risk to our business, results of operations and financial condition, including as a result of (1) declines in our harvest volumes due to (i) a deterioration in the housing market and a resulting decrease in demand for our sawtimber, (ii) a decline in production level at our customers' mills due to instances of COVID-19 among their employees or decreased demand for their products and (iii) the effects of COVID-19 on contract logging operations, transportation and other critical third-party providers; (2) the inability to complete timberland sales due to state and local government office closures limiting the ability of potential buyers to complete title searches and other customary due diligence; (3) effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating the company’s financial reporting and internal controls; and (4) market volatility and market downturns negatively impacting the trading of our common stock.
In July 2018,view of the rapidly changing business environment, unprecedented market volatility and heightened degree of uncertainty resulting from COVID-19, we entered intoare currently unable to fully determine its future impact on our business. However, we are monitoring the Triple T Joint Venture withprogression of the pandemic and its potential effect on our financial position, results of operations, and cash flows. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders. We are bolstered by our delivered wood model and fiber supply agreements, which provide a consortiumsteady source of institutional investors. Our joint venture platform drives growth through a fee-based management businessdemand from reliable counterparties. With respect to liquidity, we believe we have access to adequate liquidity and capital resources, including cash flow generated from operations, cash on-hand and borrowing capacity, necessary to meet our current and future obligations that leveragesbecome due over the next 12 months. We currently have no plans to reduce anticipated spending on capital investment projects. After our scaledeleveraging initiatives and timberland management efficiencies.other balance sheet strengthening in 2019 and the first quarter of 2020, we believe we are well positioned to weather the economic turmoil.
Large Dispositions
Over the last year,three years, we have undertaken a capital recycling program whereby we sell large blocks of timberland properties to generate proceeds to fund capital allocation priorities, including, but not limited to redeployment into more desirabletimberland investments, paying down outstanding debt, or repurchasing shares of our common stock. Such large dispositions are not part of core operations, are infrequent in nature and may or may not have a higher or better use than timber production or result in a price premium above the land’s timber production value.
We continued to execute theour capital recycling program in the thirdfirst quarter of 2019. On July 26, 2019,2020. During the first quarter of 2020, we completed the disposition of 10,80014,400 acres of our wholly-owned timberlands located in Georgia and Alabama for $19.9$21.3 million, recognizing a gain of $1.3 million. We used $14.8$20.9 million of the net proceeds from this large disposition to pay down our outstanding debt.
Capital Activities
During 2019,the three months ended March 31, 2020, we have completed large dispositions totaling 14,400 acres for $25.4paid down $20.9 million recognized a gain of $8.0 million and used a portion of the net proceeds to pay down our outstanding debt by $20.1 million.
Dawsonville Bluffs Joint Venture
On July 15, 2019, the Dawsonville Bluffs Joint Venture completed the disposition of substantially all of its remaining 4,400 acres of timberlands for approximately $8.7 million. As of September 30, 2019, the Dawsonville Bluffs Joint Venture had mitigation bank creditsbalance with a book basis of $2.9 million in addition to 65 acres of timberland remaining in its portfolio. During the third quarter of 2019, weproceeds received a $3.8 million cash distribution from the Dawsonville Bluffs Joint Venture. Life-to-date through September 30, 2019, we have received cash distributions from the
Dawsonville Bluffs Joint Venture of $13.3 million, representing a return of our $10.5 million investment and cumulative preferred return of $2.8 million. In addition, we have earned $0.9 million in asset management fees from the Dawsonville Bluffs Joint Venture, including a $0.6 million incentive-based promote for exceeding investment hurdles, and have recognized $4.6large dispositions. We paid $6.6 million of income from the Dawsonville Bluffs Joint Venture. Asdividends to our stockholders and repurchased $1.9 million of September 30, 2019, we have remaining equityshares of $1.8 million in the Dawsonville Bluffs Joint Venture.common stock under our SRP at an average price of $6.50 per share.
Timberland Portfolio
As of September 30, 2019,March 31, 2020, we wholly owned interests in 438,800415,400 acres of high-quality industrial timberland in the U.S. South and Pacific Northwest, consisting of 412,500392,800 acres of fee timberlands and 26,30022,600 acres of leased timberlands. Our wholly-owned timberlands are located within attractive fiber baskets encompassing a diverse group of pulp, paper and wood products manufacturing facilities. Our Southern timberlands consisted of 72% pine plantations by acreage and 50% 52% sawtimber by volume. Our Pacific Northwest timberlands consisted of 90% productiveproductive acres and 82% sawtimber by volume. Our leased timberlands include 26,30022,600 acres under one long-term lease expiring in 2022, which we refer to as the LTC Lease. Wholly-owned timberland acreage by state is listed below:
| | | | | | | | | | | | | | | | | | | | |
Acres by state as of March 31, 2020 (1) | | Fee | | Lease | | Total |
South | | | | | | |
Alabama | | 68,400 | | | 1,800 | | | 70,200 | |
Florida | | 2,000 | | | — | | | 2,000 | |
Georgia | | 232,400 | | | 20,800 | | | 253,200 | |
North Carolina | | 100 | | | — | | | 100 | |
South Carolina | | 71,600 | | | — | | | 71,600 | |
Tennessee | | 200 | | | — | | | 200 | |
| | 374,700 | | | 22,600 | | | 397,300 | |
Pacific Northwest | | | | | | |
Oregon | | 18,100 | | | — | | | 18,100 | |
Total | | 392,800 | | | 22,600 | | | 415,400 | |
|
| | | | | | | | | |
Acres by state as of September 30, 2019 (1) | | Fee | | Lease | | Total |
South | | | | | | |
Alabama | | 70,000 |
| | 1,800 |
| | 71,800 |
|
Florida | | 2,000 |
| | — |
| | 2,000 |
|
Georgia | | 248,000 |
| | 24,500 |
| | 272,500 |
|
North Carolina | | 100 |
| | — |
| | 100 |
|
South Carolina | | 74,000 |
| | — |
| | 74,000 |
|
Tennessee | | 300 |
| | — |
| | 300 |
|
| | 394,400 |
| | 26,300 |
| | 420,700 |
|
Pacific Northwest | | | | | | |
Oregon | | 18,100 |
| | — |
| | 18,100 |
|
Total | | 412,500 |
| | 26,300 |
| | 438,800 |
|
| |
(1)
| Represents wholly-owned acreage only; excludes ownership interest in acreage acquired by joint ventures.
|
(1)Represents wholly-owned acreage only; excludes ownership interest in acreage acquired by joint ventures.
As of September 30, 2019,March 31, 2020, our wholly-owned timber inventory consisted of an estimated 17.417.1 million tons of merchantable inventory with the following components:
|
| | | | | | |
(in millions) | | Tons |
Merchantable timber inventory: (1) | | Fee | | Lease | | Total |
Pulpwood | | 7.9 | | 0.5 | | 8.4 |
Sawtimber (2) | | 8.6 | | 0.4 | | 9.0 |
Total | | 16.5 | | 0.9 | | 17.4 |
| |
(1)
| Merchantable timber inventory does not include current year growth. Pacific Northwest merchantable timber inventory is converted from MBF to tons using a factor of eight. |
| |
(2)
| Includes chip-n-saw and sawtimber. |
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | Tons | | | | |
Merchantable timber inventory: (1) | | Fee | | Lease | | Total |
Pulpwood | | 7.6 | | 0.4 | | 8.0 |
Sawtimber (2) | | 8.8 | | 0.3 | | 9.1 |
Total | | 16.4 | | 0.7 | | 17.1 |
(1)Merchantable timber inventory does not include current year growth. Pacific Northwest merchantable timber inventory is converted from MBF to tons using a factor of eight.
(2)Includes chip-n-saw and sawtimber.
This compared to an estimated 18.2 million tons of merchantable inventory at January 1, 2020, with the decrease of 1.1 million due to 0.6 million tons harvested in the first quarter 2020 and 0.5 million tons disposed of as part of our timberland sales and large disposition completed during the first quarter 2020. Our estimated merchantable inventory of 18.2 million tons at January 1, 2020 was updated from an initial estimate of 18.6 million tons, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, based on updated cruise data.
In addition to our wholly-owned timberlands, we had the following investments in joint ventures as of September 30, 2019March 31, 2020 (see Note 4 — Unconsolidated Joint Ventures)to our accompanying consolidated financial statements for further details):
|
| | | |
| As of September 30, 2019 |
| Dawsonville Bluffs Joint Venture | | Triple T Joint Venture |
Ownership percentage | 50.0% | | 21.6% (1) |
Acreage owned by the joint venture | 65 | | 1,094,000 |
Merchantable timber inventory (tons) | 2,500 | | 40.3 million (2) |
Location | Georgia | | Texas |
| | | | | | | | | | | |
(1)
| Represents our shareAs of total partner capital contributions.March 31, 2020 |
| |
| Dawsonville Bluffs Joint Venture | | Triple T Joint Venture |
Ownership percentage | 50.0% | | 21.6% (2) (1) |
Acreage owned by the joint venture | — | | 1,092,000 |
Merchantable timber inventory does not include current year growth.(tons) | — | | 43.2 million (2) |
Location | Georgia | | Texas |
(1)Represents our share of total partner capital contributions.
(2)Triple T considers inventory to be merchantable at age 12. Merchantable timber inventory does not include current year growth.
Segment Information
We have three reportable segments: Harvest, Real Estate and Investment Management. Our Harvest segment includes wholly-owned timber assets and associated timber sales, other revenues and related expenses. Our Real Estate segment includes timberland sales, cost of timberland sales and large dispositions. Our Investment Management segment includes investments in and income (loss) from unconsolidated joint ventures and asset management fee revenues earned for the management of these joint ventures. General and administrative expenses, along with other expense and income items, are not allocated among segments. For additional information, see Note 9 — Segment Information to our accompanying consolidated financial statements.
Timber Agreements
A significant portion of our timber sales is derived from the Mahrt Timber Agreements under which we sell specified amounts of timber to WestRock subject to market pricing adjustments. For full year 2019,2020, WestRock is required to purchase a minimum of 374,800409,000 tons of timber under the Mahrt Timber Agreements. For the ninethree months ended September 30, 2019,March 31, 2020, WestRock purchased 315,700 84,500 tons under the Mahrt Timber Agreements, which contributed 13% represented 10% of our net timber sales revenue. WestRock has historically purchased tonnage that exceeded the minimum requirement under the Mahrt Timber Agreements. See Note 7 — Commitments and Contingencies to our accompanying consolidated financial statements for additional information regarding the material terms of the Mahrt Timber Agreements.
We assumed a pulpwood supply agreement with IP (the "Carolinas Supply Agreement") in connection with a timberland acquisition in 2016. For full year 2019,2020, IP is required to purchase a minimum of 99,00082,000 tons of pulpwood under the Carolinas Supply Agreement. During the ninethree months ended September 30, 2019,March 31, 2020, we sold 76,200 16,300 tons under the Carolinas Supply Agreement, which contributed 4%represented 2% of our net timber sales revenue.
Liquidity and Capital Resources
Overview
Cash flows generated from our operations are primarily used to fund recurring expenditures and distributions to our stockholders. The amount of distributions to common stockholders is determined by our board of directors and is dependent upon a number of factors, including funds deemed available for distribution based principally on our current and future projected operating cash flows, less capital requirements necessary to maintain our existing timberland portfolio. In determining the amount of distributions to common stockholders, we also consider our financial condition, our expectations of future sources of liquidity, current and future economic conditions, market demand for timber and timberlands, and tax considerations, including the annual distribution requirements necessary to maintain our status as a REIT under the Code.
In determining how to allocate cash resources in the future, we will initially consider the source of the cash. We anticipate using a portion of cash generated from operations, after payments of periodic operating expenses and interest expense, to fund certain capital expenditures required for our timberlands. Any remaining cash generated from operations may be used to partially fund timberland acquisitions and pay distributions to stockholders.
Therefore, to the extent that cash flows from operations are lower, timberland acquisitions and stockholder distributions are anticipated to be lower as well. Capital expenditures, including new timberland acquisitions, are generally funded with
cash flow from operations or existing debt availability; however, proceeds from future debt financings, and equity and debt offerings may be used to fund capital expenditures, acquire new timberland properties, invest in joint ventures, and pay down existing and future borrowings. From time to time, we also sell certain large timberland properties in order to generate capital to fund capital allocation priorities, including but not limited to redeployment into more desirable timberland investments, pay down of outstanding debt or repurchase of shares of our common stock. Such large dispositions are typically larger in size and more infrequent than sales under our normal land sales program.
Shelf Registration Statement and Equity Offerings
On June 2, 2017, we filed a shelf registration statement on Form S-3 with the SEC, which was declared effective by the SEC on June 16, 2017 (the "Shelf Registration Statement"). The Shelf Registration Statement2017. In addition, on February 28, 2020, we filed a shelf registration statement on Form S-3 with the SEC, which when declared effective by the SEC will supersede our existing shelf registration statement. Our shelf registration statements provides us with future flexibility to offer, from time to time and in one or more offerings, up to $600 million in an undefined combination of debt securities, common stock, preferred stock, depositary shares, or warrants. The terms of any such future offerings would be established at the time of an offering.
Credit Facilities
The table below presents the details of each credit facility under the Amended Credit Agreement as of September 30, 2019:March 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | | | | | | | | | | | | |
Facility Name | | Maturity Date | | Interest Rate(1) | | Unused Commitment Fee | | Total Capacity | | Outstanding Balance | | Remaining Capacity |
Revolving Credit Facility | | 12/1/2022 | | LIBOR + 2.20% | | 0.35% | | $ | 35,000 | | | $ | — | | | $ | 35,000 | |
Multi-Draw Term Facility | | 12/1/2024 | | LIBOR + 2.20% | | 0.35% | | 200,000 | | | 29,086 | | | 170,914 | |
Term Loan A-1 | | 12/23/2024 | | LIBOR + 1.75% | | N/A | | 100,000 | | | 100,000 | | | — | |
Term Loan A-2 | | 12/1/2026 | | LIBOR + 1.90% | | N/A | | 100,000 | | | 100,000 | | | — | |
Term Loan A-3 | | 12/1/2027 | | LIBOR + 2.00% | | N/A | | 68,619 | | | 68,619 | | | — | |
Term Loan A-4 | | 8/22/2025 | | LIBOR + 1.70% | | N/A | | 140,000 | | | 140,000 | | | $ | — | |
Total | | | | | | | | $ | 643,619 | | | $ | 437,705 | | | $ | 205,914 | |
|
| | | | | | | | | | | | | | | | | | |
(dollars in thousands) | | | | | | | | | | | | |
Facility Name | | Maturity Date | | Interest Rate(1) | | Unused Commitment Fee | | Total Availability | | Outstanding Balance | | Remaining Availability |
Revolving Credit Facility | | 12/1/2022 | | LIBOR + 2.20% | | 0.35% | | $ | 35,000 |
| | $ | — |
| | $ | 35,000 |
|
Multi-Draw Term Facility | | 12/1/2024 | | LIBOR + 2.20% | | 0.35% | | 200,000 |
| | 49,936 |
| | 150,064 |
|
Term Loan A-1 | | 12/23/2024 | | LIBOR + 1.75% | | N/A | | 100,000 |
| | 100,000 |
| | — |
|
Term Loan A-2 | | 12/1/2026 | | LIBOR + 1.90% | | N/A | | 100,000 |
| | 100,000 |
| | — |
|
Term Loan A-3 | | 12/1/2027 | | LIBOR + 2.00% | | N/A | | 68,619 |
| | 68,619 |
| | — |
|
Term Loan A-4 | | 8/22/2025 | | LIBOR + 1.70% | | N/A | | 140,000 |
| | 140,000 |
| | $ | — |
|
Total | | | | | | | | $ | 643,619 |
| | $ | 458,555 |
| | $ | 185,064 |
|
(1)The applicable LIBOR margin on the Revolving Credit Facility and the Multi-Draw Term Facility ranges from a base rate plus between 0.50% to 1.20% or a LIBOR rate plus 1.50% to 2.20%, depending on the LTV ratio. The unused commitment fee rates also depend on the LTV ratio. | |
(1)
| The applicable LIBOR margin on the Revolving Credit Facility and the Multi-Draw Term Facility ranges from a base rate plus between 0.50% to 1.20% or a LIBOR rate plus 1.50% to 2.20%, depending on the LTV ratio. The unused commitment fee rates also depend on the LTV ratio. |
Borrowings under the Revolving Credit Facility may be used for general working capital, to support letters of credit, to fund cash earnest money deposits, to fund acquisitions in an amount not to exceed $5.0 million, and for other general corporate purposes. The Multi-Draw Term Facility, which is interest only until its maturity date, may be used to finance timberland acquisitions and associated expenses, to fund investment in joint ventures, to fund the repurchase of our common stock, and to reimburse payments of drafts under letters of credit.
Patronage RefundsDividends
We are eligible to receive annual patronage refundsdividends from our lenders (the "Patronage Banks") under the Amended Credit Agreement. The annual patronage refunddividend depends on the weighted-average patronage-eligible debt balance with each participating lender as calculated by CoBank, forduring the respective fiscal year, under the eligible patronage loans,as calculated by CoBank, as well as the financial performance of the Patronage Banks. In March 2019,2020, we received a patronage refunddividends of $3.3$4.1 million, on our borrowings underincluding $4.0 million of standard patronage dividends and $0.1 million of special patronage dividend. 75% of the eligiblestandard patronage loans that were outstanding during 2018. Of the total amount received, 75%dividends was received in cash and the remaining 25% was received in equity in Patronage Banks. The equity component of the patronage refunddividends is redeemable for cash only at the discretion of the Patronage Banks'
board of directors. The special patronage dividends was received in cash. For the ninethree months ended September 30, 2019,March 31, 2020, we have accrued $2.9$0.9 million of patronage refundsdividends receivable for 2019,2020, approximately 75% of which is expected to be received in cash in March 2020.2021.
Interest Rate Swaps
As of September 30, 2019, we had ten outstanding interest rate swaps, which effectively fixed the interest rate on $350.0 million of our $458.6 million variable rate debt (see Note 6 —Interest Rate Swaps). On October 21, 2019, we terminated the ten outstanding interest rate swaps and entered into two new interest rate swaps with Rabobank, one with a notional amount of $200 million and the other with a notional amount of $75 million, with a total fair value at inception equal to the net fair value of the terminated interest rate swaps on the date of their termination. Both of the new interest rate swaps have an effective date of November 29, 2019. The $200 million swap has a term of ten years and will bear interest at a fixed rate of 2.2067% per annum, and the $75 million swap has a term of seven years and will bear interest at a fixed rate of 2.083% per annum. After these transactions, we have fixed interest rates on $275 million of our outstanding debt for an average term of nineyears at a weighted-average rate of 2.17%, before the applicable spread and expected patronage refunds, as compared to an average term of four years at 2.44% under our previous swaps. We have effectively reduced the amount of our fixed rate debt from 76% to 60%, allowing us to take advantage of the current lower interest rate environment but also with the flexibility to enter into additional interest rate swaps in the future.
Debt Covenants
TheAs of March 31, 2020, the Amended Credit Agreement contains, among others, the following financial covenants which:
•limit the LTV ratio to (i) 50% at any time prior to December 31, 2021, and (ii) 45% at any time thereafter;
•require maintenance of a FCCR of not less than 1.05:1.00 at any time;
•require maintenance of a minimum liquidity balance of no less than $25.0 million at any time; and
•limit the aggregate capital expenditures to 1% of the value of the timberlands during any fiscal year.
We were in compliance with the financial covenants of the Amended Credit Agreement as of September 30, 2019.March 31, 2020.
Amendment to Amended Credit Agreement
On May 1, 2020, we entered into an amendment to our Amended Credit Agreement with CoBank, which provided for, among other things: (1) the removal of the LTV ratio covenant reduction, from 50% to 45%, which would have otherwise been effective on December 31, 2021; (2) the removal of the minimum liquidity balance of $25.0 million, which enables us to draw down more proceeds for working capital or other purposes if needed under our Revolving Credit Facility; (3) a reduction in the Multi-Draw Term Facility commitment from $200 million to $150 million, which still provides us with ample capacity for future acquisitions while lowering our unused commitment fees; and (4) our ability to make additional investments in joint ventures during 2020 if we meet certain LTV ratio requirements.
Interest Rate Swaps
As of March 31, 2020, we had two outstanding interest rate swaps, which effectively fixed the interest rate on $275.0 million of our $437.7 million variable-rate debt at 3.98%, inclusive of the applicable spread but before considering patronage dividends. See Note 6 —Interest Rate Swaps to our accompanying financial statements for further details on our interest rate swaps.
Share Repurchase Program
On August 7, 2015, our board of directors approved a share repurchase program for up to $30.0 million of our common stock at management's discretion (the "SRP"). The program has no set duration and the board may discontinue or suspend the program at any time. During the ninethree months ended September 30, 2019,March 31, 2020, we repurchased 329,150296,071 shares of our common stock at an average price of $9.10$6.50 per share for a total of $3.0 million$1.9 million under the SRP, including transaction costs. All common stock purchases under the SRP were made in open-market transactions and were funded with cash on-hand. As of September 30, 2019,March 31, 2020, we had 49.0 million 48.7 million shares of common stock outstanding and may repurchase up to an additional $15.7 millionadditional $13.8 million under the SRP. We can borrow up to $30.0 million under the Multi-Draw Term Facility to repurchase our common stock. Management believes that opportunistic repurchases of our common stock are a prudent use of capital resources.
Short-Term Liquidity and Capital Resources
Net cash provided by operating activities for the ninethree months endedSeptember 30, 2019March 31, 2020 was $28.5$11.3 million, $0.8$6.0 million lowerhigher than the ninethree months ended September 30, 2018.March 31, 2019. Cash provided by operating activities consisted primarily of receipts from customers for timber, timberland sales and asset management fees, reduced by payments for operating costs, general and administrative expenses, and interest expense. Net cash provided by operating activities decreased in 2019The increase was primarily due to a $5.3
$2.6 million increase in cash paid for interest on outstanding debt, which was mainly a result of a higher average outstanding balance, a $2.9 million decrease in operating distributions from the Dawsonville Bluffs Joint Venture, a $2.2 million decrease in net proceeds from timberland sales, and a $1.0 million increase in general and administrative expenses, offset by a $6.4 million increase in asset management fees earned from the Triple T Joint Venture, a $3.6 million increase in working capital, and a $0.8$1.7 million increase in net timber sales.sales, and a $1.5 million decrease in cash paid for interest.
Net cash provided by investing activities for the ninethree months ended September 30, 2019March 31, 2020 was $26.1$18.6 million as compared to $289.4$0.5 million used during the ninethree months ended September 30, 2018. We did not make any direct acquisitions
during the nine months ended September 30, 2019 as compared to acquiring the Bandon Property for $91.4 million (including transaction costs) and making a $200.0 million equity investment in the Triple T Joint Venture in 2018.March 31, 2019. We received $25.2$20.9 million in gross proceeds from large dispositions duringin the ninethree months ended September 30, 2019, offsetting a $0.8March 31, 2020 and we did not complete any large dispositions in the prior year period. We incurred $1.5 million decreasemore in capital expenditures and received $0.4 million less in cash distributions from the Dawsonville Bluffs Joint Venture.Venture in the first quarter of 2020 compared to 2019.
Net cash used in financing activities for the ninethree months ended September 30, 2019March 31, 2020 was $43.2$30.9 million as compared to $267.6$8.0 million provided by financing activities for the ninethree months ended September 30, 2018.March 31, 2019. We repaid $20.1paid down $20.9 million of our outstanding debt balance on the Multi-Draw Term Facility with net proceeds received from the large dispositions. We paid cash distributions of $19.7$6.6 millionto our stockholders during the nine months ended September 30, 2019,first quarter of 2020, funded from net cash provided by operating activities. We repurchased $3.0 million inof shares of our common stock under the SRP using cash on-hand. ForWe also paid $0.3 million in interest expense pursuant to the nineterms of our interest rate swaps during the three months ended September 30, 2018, we borrowed $289.0 million to fund the Triple T Joint Venture and the Bandon Property acquisition. Additionally, we received $72.5 million of gross proceeds from an equity offering in March 2018, after deducting $3.5 million in underwriting commissions and fees and other issuance costs, the net proceeds of $69.0 million were used to pay down our outstanding debt balances in 2018.31, 2020.
We believe that we have access to adequate liquidity and capital resources, including cash flow generated from operations, cash on-hand and borrowing capacity, necessary to meet our current and future obligations that become due over the next 12 months. As of September 30, 2019,March 31, 2020, we had a cash balance of $17.1$10.4 million and had access to $185.1$205.9 million of additional borrowing capacity under the Amended Credit Agreement.
Long-Term Liquidity and Capital Resources
Over the long-term, we expect our primary sources of capital to include net cash flows from operations, including proceeds from timber sales, timberland sales, large dispositions, asset management fees, and distributions from unconsolidated joint ventures, and from other capital raising activities, including large dispositions, proceeds from secured or unsecured financings from banks and other lenders,lenders; and public offerings of equity or debt securities. Our principal demands for capital include operating expenses, interest expense on any outstanding indebtedness, repayment of debt, timberland acquisitions, certain other capital expenditures, and stockholder distributions.
Contractual Obligations and Commitments
Our contractual obligations as of September 30, 2019 hasMarch 31, 2020 have not changed materially since December 31, 2018.2019.
Distributions
Our board of directors declareshas declared cash distributions quarterly. The amount of future distributions that we may pay to our common stockholders will be determined by our board of directors. During the ninethree months ended September 30, 2019,March 31, 2020, our board of directors declared the following distributions:distribution:
|
| | | | | | | | | | | | | | | | | | | |
Declaration Date | | Record Date | | Payment Date | | Distribution Per Share |
February 14, 201913, 2020 | | February 28, 20192020 | | March 15, 201916, 2020 | | $0.135 |
May 2, 2019 | | May 31, 2019 | | June 14, 2019 | | $0.135 |
August 1, 2019 | | August 30, 2019 | | September 13, 2019 | | $0.135 |
For the ninethree months ended September 30, 2019,March 31, 2020, we paid total distributions to stockholders of $19.7$6.6 million, which was funded from net cash provided by operating activities.
On October 31, 2019,May 4, 2020, our board of directors declared a cash distribution of $0.135 per share of common stock for stockholders of recordrecord on November 26, 2019,May 29, 2020, payable on December 13, 2019.June 15, 2020.
Results of Operations
Overview
Our results of operations are materially impacted by the fluctuating nature of timber prices, changes in the levels and mix of our harvest volumes and associated depletion expense, changes to associated depletion rates, the level of timberland sales, management fees earned, large dispositions, varying interest expense based on the amount and cost of outstanding borrowings, and performance of our unconsolidated joint ventures.
Timber sales volumes, harvest mix, net timber sales prices, timberland sales, large dispositions, and changes in the levels and composition for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 are shown in the following tables:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Change |
| 2020 | | 2019 | | % |
Consolidated | | | | | |
Timber sales revenue | $ | 18,166 | | | $ | 16,551 | | | 10 | % |
Timberland sales revenue | $ | 4,779 | | | $ | 2,090 | | | 129 | % |
Asset management fees revenue | $ | 2,975 | | | $ | 2,842 | | | 5 | % |
| | | | | | | |
Timber sales volume (tons) | | | | | |
Pulpwood | 324,380 | | 294,747 | | 10 | % |
Sawtimber (1) | 270,515 | | 192,145 | | 41 | % |
| 594,895 | | 486,892 | | 22 | % |
| | | | | |
U.S. South | | | | | |
Timber sales revenue | $ | 16,272 | | | $ | 16,079 | | | 1 | % |
| | | | | |
Timber sales volume (tons) | | | | | |
Pulpwood | 319,968 | | 294,525 | | 9 | % |
Sawtimber (1) | 249,972 | | 187,533 | | 33 | % |
| 569,940 | | 482,058 | | 18 | % |
| | | | | |
Harvest Mix | | | | | |
Pulpwood | 56 | % | | 61 | % | | |
Sawtimber (1) | 44 | % | | 39 | % | | |
Delivered % as of total volume | 63 | % | | 79 | % | | |
Stumpage % as of total volume | 37 | % | | 21 | % | | |
| | | | | |
Net timber sales price (per ton) (2) | | | | | |
Pulpwood | $ | 13 | | | $ | 15 | | | (11) | % |
Sawtimber (1) | $ | 23 | | | $ | 24 | | | (6) | % |
| | | | | |
Timberland sales | | | | | |
Gross sales | $ | 4,779 | | | $ | 2,090�� | | | 129 | % |
Acres sold | 3,000 | | | 900 | | | 233 | % |
% of fee acres | 0.7 | % | | 0.2 | % | | |
Price per acre (3) | $ | 1,627 | | | $ | 2,236 | | | (27) | % |
| | | | | |
|
| | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2019 | | 2018 | | % |
Timber sales volume (tons) (1) | | | | | |
Pulpwood | 372,389 |
| | 343,120 |
| | 9 | % |
Sawtimber (2) | 237,385 |
| | 185,470 |
| | 28 | % |
| 609,774 |
| | 528,590 |
| | 15 | % |
| | | | | |
Harvest Mix (1) | | | | | |
Pulpwood | 61 | % | | 65 | % | |
|
Sawtimber (2) | 39 | % | | 35 | % | |
|
| | | | | |
Delivered % as of total volume (1) | 64 | % | | 79 | % | |
|
Stumpage % as of total volume (1) | 36 | % | | 21 | % | |
|
| | | | | |
Net timber sales price (per ton) (1) (3) |
|
|
| | |
Pulpwood | $ | 14 |
| | $ | 13 |
| | 3 | % |
Sawtimber (2) | $ | 24 |
| | $ | 24 |
| | — | % |
| | | | | |
Timberland sales | | | | | |
Gross sales (000's) | $ | 2,264 |
| | $ | 3,818 |
| | (41 | )% |
Sales volume (acres) | 1,100 |
| | 1,900 |
| | (46 | )% |
% of fee acres | 0.2 | % | | 0.4 | % | |
|
|
Sales price (per acre) | $ | 2,166 |
| | $ | 1,967 |
| | 10 | % |
| | | | | |
Large Dispositions (4) | | | | | |
Gross sales (000's) | $ | 19,920 |
| | $ | — |
| |
|
|
Sales volumes (acres) | 10,800 |
| | — |
| | |
Sales price (per acre) | $ | 1,845 |
| | $ | — |
| | |
Gain on large disposition (000's) | $ | 7,197 |
| | $ | — |
| | |
| |
(1)
| Excludes 24,000 tons harvested from the Bandon Property in the Pacific Northwest, which generated timber sales revenue of $1.8 million. The Bandon Property was acquired at the end of August 2018. Total volume harvested from the Bandon Property for the three months ended September 30, 2019 accounted for less than 4% of our total harvest volume. |
| |
(2)
| Includes chip-n-saw and sawtimber. |
| |
(3)
| Prices per ton are rounded to the nearest dollar and shown on a stumpage basis (i.e., net of contract logging and hauling costs) and, as such, the sum of these prices multiplied by the tons sold does not equal timber sales in the accompanying consolidated statements of operations for the three months ended September 30, 2019 and 2018. |
| |
(4)
| Large dispositions are sales of large blocks of timberland properties in one or several transactions with the objective to generate proceeds to fund capital allocation priorities. Large dispositions are typically larger transactions in acreage and gross sales price than recurring HBU sales and are not part of core operations, are infrequent in nature and would cause material variances in comparative results if not reported separately. Large dispositions may or may not have a higher or better use than timber production or result in a price premium above the land’s timber production value. |
| | | | | | | | | | | | | | | | | |
Large Dispositions (4) | | | | | |
Gross sales | $ | 21,250 | | | $ | — | | | |
Acres sold | 14,400 | | | — | | | |
Price per acre | $ | 1,474 | | | $ | — | | | |
| | | | | |
Pacific Northwest | | | | | |
Timber sales revenue | $ | 1,894 | | | $ | 472 | | | 301 | % |
| | | | | |
Timber sales volume (tons) | | | | | | |
Pulpwood | 4,412 | | 222 | | 1,887 | % |
Sawtimber | 20,543 | | 4,612 | | 345 | % |
| 24,955 | | 4,834 | | 416 | % |
| | | | | |
Harvest Mix | | | | | |
Pulpwood | 18 | % | | 5 | % | | | |
Sawtimber | 82 | % | | 95 | % | | | |
Delivered % as of total volume | 84 | % | | 100 | % | | | |
Stumpage % as of total volume | 16 | % | | — | % | | | |
| | | | | |
Delivered timber sales price (per ton) (2) | | | | | | |
Pulpwood | $ | 31 | | | $ | 40 | | | (21) | % |
Sawtimber | $ | 91 | | | $ | 101 | | | (10) | % |
| | | | | | | |
|
| | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2019 | | 2018 | | % |
Timber sales volume (tons) (1) | | | | | |
Pulpwood | 969,702 |
| | 1,038,687 |
| | (7 | )% |
Sawtimber (2) | 602,243 |
| | 625,312 |
| | (4 | )% |
| 1,571,945 |
| | 1,663,999 |
| | (6 | )% |
| | | | | |
Harvest Mix (1) | | | | | |
Pulpwood | 62 | % | | 62 | % | | |
Sawtimber (2) | 38 | % | | 38 | % | | |
| | | | | |
Delivered % as of total volume (1) | 72 | % | | 81 | % | | |
Stumpage % as of total volume (1) | 28 | % | | 19 | % | | |
| | | | | |
Net timber sales price (per ton) (1) (3) | | | | | |
Pulpwood | $ | 14 |
| | $ | 14 |
| | 3 | % |
Sawtimber (2) | $ | 24 |
| | $ | 24 |
| | 3 | % |
| | | | | |
Timberland sales | | | | | |
Gross sales (000's) | $ | 12,578 |
| | $ | 14,904 |
| | (16 | )% |
Sales volume (acres) | 6,000 |
| | 7,200 |
| | (18 | )% |
% of fee acres | 1.4 | % | | 1.5 | % | | |
Sales price (per acre) | $ | 2,114 |
| | $ | 2,063 |
| | 2 | % |
| | | | | |
Large dispositions (4) | | | | | |
Gross sales (000's) | $ | 25,395 |
| | $ | — |
| | |
Sales volumes (acres) | 14,400 |
| | — |
| | |
Sales price (per acre) | $ | 1,758 |
| | $ | — |
| | |
Gain on large dispositions (000's) | $ | 7,961 |
| | $ | — |
| | |
| |
(1)
| Excludes 43,300 tons harvested from the Bandon Property in the Pacific Northwest, which generated timber sales revenue of $3.5 million. The Bandon Property was acquired at the end of August 2018. Total volume harvested from the Bandon Property for the nine months ended September 30, 2019 accounted for less than 3% of our total harvest volume. |
| |
(2)
| Includes chip-n-saw and sawtimber. |
| |
(3)
| Prices per ton are rounded to the nearest dollar and shown on a stumpage basis (i.e., net of contract logging and hauling costs) and, as such, the sum of these prices multiplied by the tons sold does not equal timber sales in the accompanying consolidated statements of operations for the nine months ended September 30, 2019 and 2018. |
| |
(4)
| Large dispositions are sales of large blocks of timberland properties in one or several transactions with the objective to generate proceeds to fund capital allocation priorities. Large dispositions are typically larger transactions in acreage and gross sales price than recurring HBU sales and are not part of core operations, are infrequent in nature and would cause material variances in comparative results if not reported separately. Large dispositions may or may not have a higher or better use than timber production or result in a price premium above the land’s timber production value. |
(1)Includes chip-n-saw and sawtimber.
(2)Prices per ton are rounded to the nearest dollar and shown on a delivered basis which includes contract logging and hauling costs.
(3)Excludes value of timber reservations, which retained 0.1 million tons of merchantable inventory with a mix of 49% sawtimber for the quarter ended March 31, 2020. There was no timber reservation for the prior year quarter.
(4)Large dispositions are sales of blocks of timberland properties in one or several transactions with the objective to generate proceeds to fund capital allocation priorities. Large dispositions are typically larger transactions in acreage and gross sales price than recurring HBU sales and are not part of core operations, are infrequent in nature and would cause material variances in comparative results if not reported separately. Large dispositions may or may not have a higher or better use than timber production or result in a price premium above the land’s timber production value.
Our thirdfirst quarter 20192020 timber sales revenue was 18%$1.6 million, or 10%, higher than the same quarter of 20182019 primarily due to (1) an 8%a $1.4 million increase in revenue from the Pacific Northwest. Gross timber sales revenue infrom the U.S. South resulting from a 15% increase in salesthe first quarter of 2020 was comparable to the prior year quarter. Harvest volume a higher sawtimber mix and higher pulpwood stumpage pricing, offset by a decrease in delivered sales as a percentage of total volume (delivered
sales revenue includes logging and hauling costs that customers pay for deliveries), and (2) contributions from the Bandon Property in the Pacific Northwest.
Our harvest volume in the U.S.U.S South was higher than the third quarter of 2018 as we deferred harvest inincreased 18% compared to the prior year quarter despite seasonal wet weather as we capitalized on advantageous stumpage sales opportunities during the quarter. Our realized stumpage prices for pulpwood and sawtimber were 11% and 6% lower, respectively, compared to the prior year quarter. The lower prices were expected due to excess inventory at the mills going into the first quarter of 2020 as well as higher-than-normal prices in anticipationthe first quarter of a better pricing environment,2019, which was realized in subsequent periods.Our delivered sales mixa result of limited supply due to persistent extreme wet weather. South-wide average pulpwood and sawtimber stumpage prices decreased 15% and 8% as tracked by TimberMart-South from the prior year quarter primarily as a result of capitalizing on advantageous stumpage transactions.Our blendedthe COVID-19 outbreak affected production and overall wood demand across U.S. South net pulpwood price was 3% higher than the same quarter of 2018 and our net sawtimber price was comparable to the third quarter of 2018.in March 2020. Our realized stumpage prices continue to hold a significant premium over South-wide averages as tracked by TimberMart-South as a result of operating in strong micro-markets where we selectively assembled our prime timberlands portfolio. We expect to meet our full-year harvest volume target.
During the quarter, we harvested 24,000 tons from the Bandon Property in our Pacific Northwest region, which was acquired at the end
We earned $3.4 million in asset management fees during the third quarter of 2019, including $2.8 million from the Triple T Joint Venture and $0.6 million from the Dawsonville Bluffs Joint Venture. Asset management fees have and are expected to continue to drive year-over-year revenue growth in 2019.
Comparison of the three months ended September 30, 2019March 31, 2020 versus the three months ended September 30, 2018March 31, 2019
Revenues. Revenues for the three months ended September 30, 2019March 31, 2020 were $26.4$27.0 million, $1.8$4.4 million higher than the three months ended September 30, 2018March 31, 2019 as a result of a $3.0$2.7 million increase in timberland sales revenue and a $1.6 million increase in timber sales revenue. Timberland sales revenue increased by $2.7 million due to selling more acres in the first quarter of 2020, offset by lower per-acre sales price as a result of timber reservation and a lower average merchantable inventory stocking level. Gross timber sales revenue increased by $1.6 million, or 10%, primarily as a result of a $1.4 million increase in timber sales revenue and a $0.7 million increase in asset management fees, offset by a $1.6 million decrease in timberland sales revenue as we sold fewer acres, and a $0.3 million decrease in other revenue primarily due to lower hunting lease revenue. Timber sales revenue increased by $3.0 million, or 18%, due to a 19% increase in harvest volume, 4% higher sawtimber mix, and 3% higher pulpwood pricing in the U.S. South, offset by the decrease in delivered sales as a percentage of total volume. Harvest volume in the U.S. South was 15% higher than 2018 primarily due to harvest deferral in the prior year quarter. We harvested 24,000 tons from the Bandon Property in the Pacific Northwest, which contributed $1.8 million to the third quarter timber sales revenue.was driven by a fourfold harvest volume increase.
Timber sales revenue by product for the three months ended September 30,March 31, 2020 and 2019 and 2018 is shown in the following table:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 | | Changes attributable to: | | | | Three Months Ended March 31, 2020 |
(in thousands) | | | Price/Mix | | Volume (3) | | |
Timber sales (1) | | | | | | | |
Pulpwood | $ | 8,732 | | | $ | (613) | | | $ | (306) | | | $ | 7,813 | |
Sawtimber (2) | 7,819 | | | (487) | | | 3,021 | | | 10,353 | |
| $ | 16,551 | | | $ | (1,100) | | | $ | 2,715 | | | $ | 18,166 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2018 | | Changes attributable to: | | Three Months Ended September 30, 2019 |
(in thousands) | | Price/Mix | | Volume (3) | |
Timber sales (1) | | | | | | | |
Pulpwood | $ | 9,359 |
| | $ | 353 |
| | $ | 44 |
| | $ | 9,756 |
|
Sawtimber (2) | 7,383 |
| | 688 |
| | 1,879 |
| | 9,950 |
|
| $ | 16,742 |
| | $ | 1,041 |
| | $ | 1,923 |
| | $ | 19,706 |
|
| |
(1)
| Timber sales are presented on a gross basis. Timber sales revenue from delivered sales includes logging and hauling costs that customers pay for deliveries. |
| |
(2)
| Includes chip-n-saw and sawtimber. |
| |
(3)
| Changes in timber sales revenue related to properties acquired or disposed within the last 12 months are attributed to volume changes. |
(1)Timber sales are presented on a gross basis.
(2)Includes chip-n-saw and sawtimber.
(3)Changes in timber sales revenue related to properties acquired or disposed within the last 12 months are attributed to volume changes.
Operating Expenses. Contract logging and hauling costs increased to $8.3were $7.3 million for the three months ended September 30, 2019 from $7.6March 31, 2020, comparable to the prior year quarter despite a 22% increase in total harvest volumes. Lower logging rates in the U.S. South and a 7% decrease in U.S. South delivered volume was offset by a 416% increase in harvest volumes in the Pacific Northwest, of which the great majority were delivered sales.
Depletion expense increased 32% to $6.9 million for the three months ended September 30, 2018, an increase of 9%, primarily as a result of delivered sales volumeMarch 31, 2020 from the Pacific Northwest where average logging rates are two to three times the rates in the U.S. South.
Depletion expense increased 32% to $8.2$5.3 million for the three months ended September 30,March 31, 2019 due to a $1.0 million increase in the Pacific Northwest and a $0.6 million increase in the U.S. South. The increase in the Pacific Northwest was a result of growing harvest volume from $6.24,800 tons in the first quarter of 2019 to 25,000 tons in the first quarter of 2020. The increase in the U.S. South was driven by an 18% increase in total harvest volume, in accordance with our plan. Depletion rates in both regions decreased from the prior year quarter. We calculate depletion rates annually by dividing the beginning merchantable inventory book value, after the write-off of accumulated depletion, by current standing timber inventory volume. Before the impact of any future acquisitions or significant land sales, the merchantable book value is expected to decrease over time due to depletion while the standing timber inventory volume is expected to stay relatively stable due to our sustainable harvest management practices. Therefore, we generally expect the depletion rates of our current portfolio to decrease over time.
Cost of timberland sales increased to $3.4 million for the three months ended September 30, 2018 due to a 19% increase in harvest volume, combined with higher blended depletion rates mainly as a result of harvestMarch 31, 2020 from the Pacific Northwest, which carry higher depletion rates than the U.S. South.
Cost of timberland sales decreased to $2.1$1.6 million for the three months ended September 30,March 31, 2019 from $3.2as we sold more acres in 2020.
Forestry management expenses increased 6% to $1.8 million for the three months ended September 30, 2018 as we sold fewer acres in 2019.
Forestry management expenses increased toMarch 31, 2020 from $1.7 million for the three months ended September 30,March 31, 2019 from $1.4 million for the three months ended September 30, 2018 primarily as a result of a $0.3$0.1 million increase in allocated personnel costs related to our asset management business, for which we earn asset management fees and receive reimbursements of certain personnel costs.
General and administrative expenses were $3.07.3 million for the three months ended September 30, 2019March 31, 2020, $0.53.9 million higher than the prior year quarter primarily as a result of $0.6recognizing one-time, non-recurring post-employment benefits of $3.5 million of net reimbursements of transaction costs related to the Triple T Joint Venture recognizedretirement of our former CEO in January 2020, of which $1.2 million represents the third quarter 2018, partially offset by the increase in personnel costs allocated to forestry managementincremental non-cash stock-based compensation expense related to our asset management business.the accelerated vesting of his
Other operating expenses were comparable to the prior year quarter.
Interest expense. Interest expense increased $0.2 million to $4.5 million for the three months ended September 30, 2019 primarily due to higher weighted-average interest rates as a result of higher LIBOR.
Gain on large dispositions. During the third quarter of 2019, we completed a large disposition of 10,800 acres of our wholly-owned timberlands and recognized a gain of $7.2 million.
Loss from unconsolidated joint ventures. During the three months ended September 30, 2019, we recognized a $25.7 million loss from the investmentoutstanding equity awards. See further detail in the Triple T Joint Venture under the HLBV method of accounting. The HLBV method is commonly applied to equity investments in real estate where cash distributions vary at different points in time and are not directly linked to an investor's ownership percentage. See Note 4 — Unconsolidated Joint Ventures 8 - Stock-based Compensationto our accompanying consolidated financial statements for additional information.
Net loss. Our net lossInterest expense. Interest expense decreased $0.7 million to $20.6$4.0 million for the three months ended September 30, 2019March 31, 2020 primarily due to a $1.1 million net decrease in interest on our outstanding debt as a result of a lower average outstanding debt balance and lower weighted-average interest rates for both our effectively fixed-rate and variable-rate debt, offset by a $0.5 million increase in non-cash interest expense related to the amortization of the initial off-market value of our current interest rate swaps.
Gain on large dispositions. During the three months ended March 31, 2020, we recognized a gain of $1.3 million on the disposition of 14,400 acres of our wholly-owned timberlands.
Loss from $78.9unconsolidated joint ventures. During the three months ended March 31, 2020, we recognized $0.09 million loss from the Dawsonville Bluffs Joint Venture, which represents our portion of the joint venture's total net loss. We did not recognize any additional losses from the Triple T Joint Venture in the first quarter of 2020 as our investment in the joint venture had been written down to zero by recognizing a cumulative $200 million of HLBV losses as of December 31, 2019. See Note 4 — Unconsolidated Joint Ventures to our accompanying consolidated financial statements for additional information.
Net loss. Our net loss decreased by $26.1 million to $4.2 million for the three months ended September 30, 2018March 31, 2020 from $30.4 million for the three months ended March 31, 2019 primarily due to recognizing a $51.0$27.5 million decrease in losslosses allocated from the Triple T Joint Venture, under the HLBV method and a $7.2$4.4 million increase in total revenues, a $1.3 million gain recognized on large dispositions.dispositions, and a $0.7 million decrease in interest expense, offset by a $7.4 million increase in total expenses, which mainly consisted of a $3.9 million increase in general and administrative expenses, a $1.9 million higher cost of timberland sales, and a $1.7 million higher depletion expense. Our net loss per share for the three months ended September 30,March 31, 2020 and 2019 was $0.09 and 2018 was $0.42 and $1.61,$0.62, respectively.
Comparison of the nine months ended September 30, 2019 versus the nine months ended September 30, 2018
Revenues. Revenues for the nine months ended September 30, 2019 were $77.6 million, $2.7 million higher than revenues for the nine months ended September 30, 2018 as a result of a $6.4 million increase in asset management fees primarily earned from the Triple T Joint Venture, offset by a $2.3 million decrease in timberland sales revenue, as we sold fewer acres, a $0.7 million decrease in other revenue, and a $0.6 million decrease in timber sales. Timber sales revenue decreased by $0.6 million, or 1%, due to a 3%decrease in harvest volume mitigated by a 3% increase in both pulpwood and sawtimber stumpage prices in the U.S. South. Harvest volume in the U.S. South decreased by 6% as a result of wet weather and mill outages from prior quarters, as anticipated in our 2019 harvest plan. We harvested 43,300 tons from the Bandon Property in the Pacific Northwest, which contributed $3.5 million to gross timber sales revenue.
Timber sales revenue by product for the nine months ended September 30, 2019 and 2018 is shown in the following table:
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 | | Changes attributable to: | | Nine Months Ended September 30, 2019 |
(in thousands) | | Price/Mix | | Volume (3) | |
Timber sales (1) | | | | | | | |
Pulpwood | $ | 29,294 |
| | $ | 853 |
| | $ | (3,419 | ) | | $ | 26,728 |
|
Sawtimber (2) | 23,846 |
| | 196 |
| | 1,760 |
| | 25,802 |
|
| $ | 53,140 |
| | $ | 1,049 |
| | $ | (1,659 | ) | | $ | 52,530 |
|
| |
(1)
| Timber sales are presented on a gross basis. Timber sales revenue from delivered sales includes logging and hauling costs that customers pay for deliveries. |
| |
(2)
| Includes chip-n-saw and sawtimber. |
| |
(3)
| Changes in timber sales revenue related to properties acquired or disposed within the last 12 months are attributed to volume changes. |
Operating Expenses. Contract logging and hauling costs decreased to $22.8 million for the nine months ended September 30, 2019 from $24.2 million for the nine months ended September 30, 2018, a decrease of 6%, primarily as a result of a 13% decrease in delivered sales volume offset by higher logging rates. Logging rates were higher in the current year due to wet weather and salvage operations in certain regions in the U.S. South from prior quarters and harvesting in the Pacific Northwest region, where logging rates are generally much higher than in the U.S. South.
Depletion expense decreased 2% to $19.5 million for the nine months ended September 30, 2019 from $19.9 million for the nine months ended September 30, 2018 due to a 3% decrease in harvest volume, offset by higher blended depletion rates mainly as a result of harvest from the Pacific Northwest, which carry higher depletion rates than the U.S. South.
Forestry management expenses increased to $5.0 million for the nine months ended September 30, 2019 from $4.6 million for the nine months ended September 30, 2018 primarily as a result of a $0.5 million increase in allocated personnel costs related to our asset management business, for which we earn asset management fees and receive reimbursements of certain personnel costs.
General and administrative expenses increased to $9.6 million for the nine months ended September 30, 2019 from $8.6 million for the nine months ended September 30, 2018 primarily as a result of $0.6 million of net reimbursements of transaction costs related to the Triple T Joint Venture recognized in the third quarter of 2018, and a $0.3 million increase in personnel costs related to our asset management business in 2019.
Other operating expenses increased to $4.6 million for the nine months ended September 30, 2019 from $4.2 million for the nine months ended September 30, 2018 primarily due to cost basis removed related to an expired timber lease in the first quarter of 2019.
Interest expense. Interest expense increased $2.7 million to $13.8 million for the nine months ended September 30, 2019 due to higher weighted-average debt outstanding and higher weighted-average interest rates as a result of higher LIBOR. Our debt balance in 2019 is higher due to borrowing $200.0 million to fund our investment in the Triple T Joint Venture.
Gain on large dispositions. We recognized a gain of $8.0 million from the disposition of 14,400 acres of our wholly-owned timberlands during the nine months ended September 30, 2019.
Loss from unconsolidated joint ventures. For the nine months ended September 30, 2019, we recognized a $81.8 million loss from the investment in the Triple T Joint Venture under the HLBV method of accounting, offset by $0.8 million of income from the Dawsonville Bluffs Joint Venture. The HLBV method is commonly applied to equity investments in real estate where cash distributions vary at different points in time and are not directly linked to an investor's ownership percentage. See Note 4 — Unconsolidated Joint Ventures to our accompanying consolidated financial statements for additional information.
Net loss. Our net loss decreased to $81.5 million for the nine months ended September 30, 2019 from $83.8 million for the nine months ended September 30, 2018 primarily due to recognizing an $8.0 million gain from large dispositions, a $2.7 million increase in revenues, and a $1.1 million decrease in expenses, offset by a $2.7 million increase in interest expense, and a $6.8 million increase in loss from unconsolidated joint ventures. Our net loss per share for the nine months ended September 30, 2019 and 2018 was $1.66 and $1.76, respectively.
Adjusted EBITDA
The discussion below is intended to enhance the reader’s understanding of our operating performance and ability to satisfy lender requirements. EBITDA is a non-GAAP financial measure of operating performance. EBITDA is defined by the SEC as earnings before interest, taxes, depreciation and amortization; however, we have excluded certain other expenses which we believe are not indicative of the ongoing operating results of our timberland portfolio, and we refer to this measure as Adjusted EBITDA (see the reconciliation table below). As such, our Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. Due to the significant amount of timber assets subject to depletion, significant income (losses) from unconsolidated joint ventures based on HLBV, and the significant amount of financing subject to interest and amortization expense, management considers Adjusted EBITDA to be an important measure of our financial performance. By providing this non-GAAP financial measure, together with the reconciliation below, we believe we are enhancing investors’ understanding of our business and our ongoing results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA is a supplemental measure of operating performance that does not represent and should not be considered in isolation or as an alternative to, or substitute for net income, cash flow from operations, or other financial statement data presented in accordance with GAAP in our consolidated financial statements as indicators of our operating performance. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of the limitations are:
•Adjusted EBITDA does not reflect our capital expenditures, or our future requirements for capital expenditures;
•Adjusted EBITDA does not reflect changes in, or our interest expense or the cash requirements necessary to
service interest or principal payments on, our debt;
•Although depletion is a non-cash charge, we will incur expenses to replace the timber being depleted in the
future, and Adjusted EBITDA does not reflect all cash requirements for such expenses; and
•Although HLBV income and losses are primarily hypothetical and non-cash in nature, Adjusted EBITDA does not reflect cash income or losses from unconsolidated joint ventures for which we use the HLBV method of accounting to determine our equity in earnings.
•Adjusted EBITDA does not reflect the cash requirements necessary to fund post-employment benefits or transaction costs related to acquisitions, investments, joint ventures or new business initiatives, which may be substantial.
Due to these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. Our credit agreement contains a minimum debt service coverage ratio based, in part, on Adjusted EBITDA since this measure is representative of adjusted income available for interest payments. We further believe that our presentation of this non-GAAP financial measurement provides information that is useful to analysts and investors because they are important indicators of the strength of our operations and the performance of our business.
For the three months ended September 30, 2019,March 31, 2020, Adjusted EBITDA was $16.5$12.9 million, a $5.1$2.7 million increase from the three months ended September 30, 2018,March 31, 2019, primarily due to a $3.8$2.6 million increase in Adjusted EBITDA generated by the Dawsonville Bluffs Joint Venture,net timberland sales, a $2.3$1.7 million increase in net timber sales, a $0.7 million increase in asset management fee revenue, offset by a $1.5 million decrease in net timberland sales.
For the nine months ended September 30, 2019, Adjusted EBITDA was $41.8 million, a $1.4 million increase from the nine months ended September 30, 2018, primarily due to a $6.4 million increase in asset management fee revenue,
offset by a $2.2 million decrease in net timberland sales, a $2.1$0.7 million decrease in Adjusted EBITDA generated by the Dawsonville Bluffs Joint Venture, a $0.3 million increase in general and administrative expense, and a $0.7$0.2 million decreaseincrease in other revenue. operating expenses.
Our reconciliation of net loss to Adjusted EBITDA for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 follows:
| | | | | | | | | | | |
` | Three Months Ended March 31, | | |
(in thousands) | 2020 | | 2019 |
Net loss | $ | (4,249) | | | $ | (30,395) | |
Add: | | | |
Depletion | 6,941 | | | 5,268 | |
Interest expense (1) | 3,250 | | | 4,372 | |
Amortization (1) | 758 | | | 458 | |
Depletion, amortization, basis of timberland, mitigation credits sold included in loss from unconsolidated joint venture (2) | — | | | 395 | |
Basis of timberland sold, lease terminations and other (3) | 3,276 | | | 1,807 | |
Stock-based compensation expense | 1,872 | | | 659 | |
Gain on large dispositions (4) | (1,279) | | | — | |
HLBV loss from unconsolidated joint venture (5) | — | | | 27,488 | |
Post-employment benefits (6) | 2,286 | | | — | |
Other (7) | 34 | | | 110 | |
Adjusted EBITDA | $ | 12,889 | | | $ | 10,162 | |
(1)For the purpose of the above reconciliation, amortization includes amortization of deferred financing costs, amortization of operating lease assets and liabilities, amortization of intangible lease assets, and amortization of mainline road costs, which are included in either interest expense, land rent expense, or other operating expenses in the accompanying consolidated statements of operations. Includes non-cash basis of timber and timberland assets written-off related to timberland sold, terminations of timberland leases and casualty losses.
(2)Reflects our share of depletion, amortization, and basis of timberland and mitigation credits sold of the unconsolidated Dawsonville Bluffs Joint Venture.
(3)Includes non-cash basis of timber and timberland assets written-off related to timberland sold, terminations of timberland leases and casualty losses.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Net loss | $ | (20,557 | ) | | $ | (78,899 | ) | | $ | (81,517 | ) | | $ | (83,789 | ) |
Add: | | | | | | | |
Depletion | 8,235 |
| | 6,224 |
| | 19,533 |
| | 19,884 |
|
Basis of timberland sold, lease terminations and other (1) | 1,854 |
| | 2,983 |
| | 10,329 |
| | 10,771 |
|
Amortization (2) | 299 |
| | 493 |
| | 986 |
| | 2,532 |
|
Depletion, amortization, basis of timberland, mitigation credits sold included in loss from unconsolidated joint venture (3) | 3,152 |
| | 39 |
| | 3,547 |
| | 3,885 |
|
HLBV loss from unconsolidated joint venture (4) | 25,712 |
| | 76,755 |
| | 81,800 |
| | 76,755 |
|
Stock-based compensation expense | 803 |
| | 610 |
| | 1,952 |
| | 2,171 |
|
Interest expense (2) | 4,220 |
| | 3,883 |
| | 12,987 |
| | 8,754 |
|
Gain on large dispositions (5) | (7,197 | ) | | — |
| | (7,961 | ) | | — |
|
Other (6) | 1 |
| | (632 | ) | | 115 |
| | (597 | ) |
Adjusted EBITDA | $ | 16,522 |
|
| $ | 11,456 |
| | $ | 41,771 |
| | $ | 40,366 |
|
| |
(1)
| Includes non-cash basis of timber and timberland assets written-off related to timberland sold, terminations of timberland leases and casualty losses. |
| |
(2)
| For the purpose of the above reconciliation, amortization includes amortization of deferred financing costs, amortization of operating lease assets and liabilities, amortization of intangible lease assets, and amortization of mainline road costs, which are included in either interest expense, land rent expense, or other operating expenses in the accompanying consolidated statements of operations. |
| |
(3)
| Reflects our share of depletion, amortization, and basis of timberland and mitigation credits sold of the unconsolidated Dawsonville Bluffs Joint Venture. |
| |
(4)
| Reflects HLBV (income) losses from the Triple T Joint Venture, which is determined based on a hypothetical liquidation of the underlying joint venture at book value as of the reporting date. |
| |
(5)
| Large dispositions are sales of large blocks of timberland properties in one or several transactions with the objective to generate proceeds to fund capital allocation priorities. Large dispositions are typically larger transactions in acreage and gross sales price than recurring HBU sales and are not part of core operations, are infrequent in nature and would cause material variances in comparative results if not reported separately. Large dispositions may or may not have a higher or better use than timber production or result in a price premium above the land’s timber production value. |
| |
(6)
| Includes certain cash expenses paid, or reimbursement received, that management believes do not directly reflect the core business operations of our timberland portfolio on an on-going basis, including costs required to be expensed by GAAP related to acquisitions, transactions, joint ventures or new business initiatives. |
(4)Large dispositions are sales of blocks of timberland properties in one or several transactions with the objective to generate proceeds to fund capital allocation priorities. Large dispositions may or may not have a higher or better use than timber production or result in a price premium above the land’s timber production value. Such dispositions are infrequent in nature, are not part of core operations, and would cause material variances in comparative results if not reported separately.
(5)Reflects HLBV (income) losses from the Triple T Joint Venture, which is determined based on a hypothetical liquidation of the underlying joint venture at book value as of the reporting date. (6)Reflects one-time, non-recurring post-employment benefits associated with the retirement of our former CEO, including severance pay, payroll taxes, professional fees, and accrued dividend equivalents.
(7)Includes certain cash expenses paid, or reimbursement received, that management believes do not directly reflect the core business operations of our timberland portfolio on an on-going basis, including costs required to be expensed by GAAP related to acquisitions, transactions, joint ventures or new business initiatives.
Application of Critical Accounting Policies
There have been no material changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As a result of our debt facilities, we are exposed to interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we have entered into ten interest rate swaps, and may enter into other interest rate swaps, caps, or other arrangements in order to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes; however, certain of our derivatives may not qualify for hedge accounting treatment. All of our debt was entered into for other than trading purposes. We manage our ratio of fixed-to-floating-rate debt with the objective of achieving a mix that we believe is appropriate in light of anticipated changes in interest rates. We closely monitor interest rates and will continue to consider the sources and terms of our borrowing facilities to determine whether we have appropriately guarded ourselves against the risk of increasing interest rates in future periods.
As of September 30, 2019, theMarch 31, 2020, we had following debt balances outstanding balance under the Amended Credit Agreement was $458.6 million, of which $100.0 million was outstanding under the Term Loan A-1, $100.0 million was outstanding under the Term Loan A-2, $68.6 million was outstanding under the Term Loan A-3, $140.0 million was outstanding under the Term Loan A-4, and $49.9 million was outstanding under the Multi-Draw Term Facility. The Term Loan A-1 matures on December 23, 2024 and bears interest at an adjustable rate based on one-month LIBOR Rate plus a margin of 1.75%, the Term Loan A-2 matures on December 1, 2026 and bears interest at an adjustable rate based on one-month LIBOR Rate plus a margin of 1.90%, the Term Loan A-3 matures on December 1, 2027and bears interest at an adjustable rate based on one-month LIBOR Rate plus a margin of 2.0%, the Term Loan A-4 matures on August 22, 2025 and bears interest at an adjustable rate based on one-month LIBOR Rate plus a margin of 1.70%, and the Multi-Draw Term Facility matures on December 1, 2024 and bears interest at an adjustable rate equal to a base rate plus between 0.50% and 1.20% or a LIBOR rate plus between 1.50% and 2.20%, in each case depending on our LTV Ratio.Agreement:
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | | | | | |
Credit Facility | | Maturity Date | | Interest Rate | | Outstanding Balance |
Term Loan A-1 | | 12/23/2024 | | LIBOR + 1.75% | | $ | 100,000 | |
Term Loan A-2 | | 12/1/2026 | | LIBOR + 1.90% | | 100,000 | |
Term Loan A-3 | | 12/1/2027 | | LIBOR + 2.00% | | 68,619 | |
Term Loan A-4 | | 8/22/2025 | | LIBOR + 1.70% | | 140,000 | |
Multi-Draw Term Facility | | 12/1/2024 | | LIBOR + 2.20% | | 29,086 | |
Total Principal Balance | | | | | | $ | 437,705 | |
As of September 30, 2019,March 31, 2020, we had tentwo outstanding interest rate swaps with a total notional valueterms below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | | | | | | | | | |
Interest Rate Swap | | Effective Date | | Maturity Date | | Pay Rate | | Receive Rate | | Notional Amount |
2019 Swap - 10YR | | 11/29/2019 | | 11/30/2029 | | 2.2067% | | one-month LIBOR | | $ | 200,000 | |
2019 Swap - 7YR | | 11/29/2019 | | 11/30/2026 | | 2.0830% | | one-month LIBOR | | $ | 75,000 | |
Total | | | | | | | | | | $ | 275,000 | |
As of our accompanying financial statements for further details on our interest rate swaps. AfterMarch 31, 2020, after consideration of the interest rate swaps, $108.6$162.7 million of our total debt outstanding was subject to variable interest rates while the remaining $350.0$275.0 million was subject to effectively fixed interest rates. As of September 30, 2019, the weighted-average interest rate of our outstanding debt, after consideration of the interest rate swaps, was 4.21%.
Details of our variable-rate and effectively fixed-rate debt outstanding as of September 30, 2019, along with the corresponding average interest rates, are listed below:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Expected Maturity Date | | |
(dollars in thousands) | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Maturing debt: | | | | | | | | | | | | | | |
Variable-rate debt | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $108,555 | | $108,555 |
Effectively fixed-rate debt | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $350,000 | | $350,000 |
Average interest rate: (1) | | | | | | | | | | | | | | |
Variable-rate debt | | — | % | | — | % | | — | % | | — | % | | — | % | | 4.03 | % | | 4.03 | % |
Effectively fixed-rate debt | | — | % | | — | % | | — | % | | — | % | | — | % | | 4.26 | % | | 4.26 | % |
(1) Represents rates before consideration of expected patronage refunds.
On October 21, 2019, we terminated all ten of our existing interest rate swaps outstanding as of September 30, 2019 and entered two new forward-starting interest rate swaps with an effective date of November 29, 2019 and a total notional amount of $275.0 million. See Note 10 - Subsequent Events of our accompanying financial statements for further details on these two new interest rate swaps. A change in the market interest rate impacts the net financial instrument position of our effectively fixed-rate debt portfolio; however, it has no impact on interest incurred or cash flows. After
Details of our variable-rate and effectively fixed-rate debt outstanding as of March 31, 2020, along with the corresponding average interest rates, are listed below:
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| | Expected Maturity Date | | | | | | | | | | | | |
(dollars in thousands) | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
Maturing debt: | | | | | | | | | | | | | | |
Variable-rate debt | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 61,786 | | | $ | 100,919 | | | $ | 162,705 | |
Effectively fixed-rate debt | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 67,300 | | | $ | 207,700 | | | $ | 275,000 | |
Average interest rate: (1) | | | | | | | | | | | | | | |
Variable-rate debt | | — | % | | — | % | | — | % | | — | % | | 2.96 | % | | 2.82 | % | | 2.88 | % |
Effectively fixed-rate debt | | — | % | | — | % | | — | % | | — | % | | 3.98 | % | | 3.98 | % | | 3.98 | % |
(1)Inclusive of applicable spread but before considering patronage dividends.
As of March 31, 2020, the weighted-average interest rate of our outstanding debt, after consideration of the two newinterest rate swaps, awas 3.57%. A 1.0% change in interest rates would result in a change in interest expense of $1.8$1.6 million per year. The amount of effectively variable-rate debt outstanding in the future will largely be dependent upon the level of cash flow from operations and the rate at which we are able to deploy such proceedscash flow toward repayment of outstanding debt, the acquisition of timberland properties, and investments in joint ventures.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods in SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2019March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II.
| OTHER INFORMATION |
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
From time to time, we are party to legal proceedings, which arise in the ordinary course of our business. We are not currently involved in any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by governmental authorities.
ITEM 1A. RISK FACTORS
There have beenare no material changes from the risk factors disclosedincluded in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2018.2019, other than the risks described below.
The effects of the COVID-19 pandemic and the actions taken in response thereto may adversely impact our results of operations and financial condition and our ability to make distributions to our stockholders as well as the results of operations and financial condition of our joint ventures.
In December 2019, a coronavirus (COVID-19) outbreak was reported in China, and, in March 2020, the World Health Organization declared it a global pandemic. Since that time, the coronavirus has spread throughout the United States, including in the U.S. South and Pacific Northwest regions in which we and our joint ventures operate. The ultimate risk posed by COVID-19 remains highly uncertain; however, reports as of the date hereof suggest that it poses a material risk to our business, results of operation and financial condition, and those of our joint ventures, including as a result of:
•declines in harvest volumes due to:
◦a deterioration in the housing market and a resulting decrease in demand for sawtimber;
◦a decline in production level at mills due to instances of COVID-19 among their employees or decreased demand for their products; and
◦the effects of COVID-19 on contract logging operations, transportation and other critical third-party providers;
•the inability to complete timberland sales due to state and local government office closures limiting the ability of potential buyers to complete title searches and other customary due diligence;
•effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating the companies’ financial reporting and internal controls; and
•market volatility and market downturns negatively impacting the trading of our common stock.
The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as quarantines and shelter in place orders. These measures may remain in place for a significant period of time and adversely affect the business, results of operations and financial condition of us and our joint ventures as well as the business, operations and financial conditions of customers and contractors. The response to COVID-19 pandemic began to have an impact toward the end of the quarter ended March 31, 2020 for the reasons stated above, among others, and we expect this trend to continue. However, given the ongoing and dynamic nature of the circumstances, it is not possible to predict how long the impact of the coronavirus outbreak will last or how significant it will ultimately be to our business and that of our joint ventures. A sustained decline in the economy as a result of the COVID-19 pandemic and the demand for timber could materially and adversely impact our business, results of operations and financial condition and our ability to make distributions to our stockholders, as well as the results of operations and financial condition of our joint ventures.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information regarding our purchases of our common stock during the quarter ended September 30, 2019:March 31, 2020:
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Period | | Total Number of Shares Repurchased (2) | | Average Price Paid per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Average Price Paid per Share (1) | | Maximum Number (Or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (1) | |
January 1 - January 31 | | 103,135 | | | $ | 11.09 | | | — | | | $ | — | | | $ | 15.7 | | million | |
February 1 - February 29 | | 40,271 | | | $ | 10.99 | | | — | | | $ | — | | | $ | 15.7 | | million | |
March 1 - March 31 | | 296,071 | | | $ | 6.50 | | | 296,071 | | | $ | 6.50 | | | $ | 13.8 | | million | |
Total | | 439,477 | | | | | 296,071 | | | | | | |
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| | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Repurchased (2) | | Average Price Paid per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Average Price Paid per Share (1) | | Maximum Number (Or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
July 1 - July 31 | | 57,562 |
| | $ | 10.32 |
| | 57,562 |
| | $ | 10.32 |
| | $ | 15.7 |
| million |
August 1 - August 31 | | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | 15.7 |
| million |
September 1 - September 30 | | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | 15.7 |
| million |
Total | | 57,562 |
| | | | 57,562 |
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(1)
| See Item 2— Management Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
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(1)See Item 2— Management Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources for details of our SRP.
(2)Represents shares purchased for tax withholding purpose, shares purchased as part of our SRP, .
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(2)
| Includes shares purchased as part of our SRP. |
and shares repurchased pursuant to the Separation Agreement with our former CEO.
ITEM 5. OTHER INFORMATION
Amendment to Amended Credit Agreement
On May 1, 2020, CatchMark entered into an amendment to its Amended Credit Agreement with CoBank, which provided for, among other things: (1) the removal of the LTV ratio covenant reduction, from 50% to 45%, which would have otherwise been effective on December 31, 2021; (2) the removal of the minimum liquidity balance of $25.0 million, which enables us to draw down more proceeds for working capital or other purposes if needed under our Revolving Credit Facility; (3) a reduction in the Multi-Draw Term Facility commitment from $200 million to $150 million, which still provides us with ample capacity for future acquisitions while lowering our unused commitment fees; and (4) our ability to make additional investments in joint ventures during 2020 if we meet certain LTV ratio requirements.
ITEM 6. EXHIBITS
The exhibits required to be filed with this report are set forth below and incorporated by reference herein.
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Exhibit Number | | Description |
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3.1 | | |
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3.2 | | |
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3.3 | | |
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3.4 | | |
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3.5 | | |
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3.6 | | |
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31.1*3.7 | | |
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10.1 | | |
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10.2* | | |
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31.1* | | |
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31.2* | | |
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32.1* | | |
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101.INS* | | XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH* | | XBRL Taxonomy Extension Schema Document |
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101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
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104* | | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) |
* Filed herewith. | | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | CATCHMARK TIMBER TRUST, INC. (Registrant) | | |
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Date: | May 4, 2020 | CATCHMARK TIMBER TRUST, INC.
(Registrant) By: | | /s/ Ursula Godoy-Arbelaez |
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Date: | October 31, 2019 | By: | | /s/ Brian M. Davis |
| | | | Brian M. Davis
President and Ursula Godoy-Arbelaez Chief Financial Officer,
Senior Vice President, and Treasurer (Principal Financial Officer and Principal Accounting Officer) |