Quarterly Report (10-q)

Date : 08/01/2019 @ 8:09PM
Source : Edgar (US Regulatory)
Stock : CatchMark Timber Trust Inc (CTT)
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Quarterly Report (10-q)


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549  
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2019
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from               to             
Commission File Number 001-36239
CATCHMARK TIMBER TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland
 
20-3536671
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
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)
N/A
(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
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.
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 July 31, 2019: 49,006,426 shares




FORM 10-Q

CATCHMARK TIMBER TRUST, INC.

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
Page No.
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018
 
 
 
 
 
 
 
 
Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2019 (unaudited) and 2018 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Six Months Ended June 30, 2019 (unaudited) and 2018 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Stockholders' Equity for the Three Months and Six Months Ended June 30, 2019 (unaudited) and 2018 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 (unaudited) and 2018 (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 1A.
 
 
 
 
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
 
 
 
Item 6.
 


1


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, or our executive officers on our behalf, may from time to time make forward-looking statements in other reports and documents we file 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-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 our ability to deliver superior, consistent, and predictable per-share 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; the biological growth of our forests; creating additional value through joint ventures; sales of large timberland properties to generate capital to fund capital allocation priorities; expected uses of cash generated from operations, debt financings and debt and equity offerings; expected sources and adequacy of capital resources and liquidity; distribution policy; change in depletion rates, merchantable timber book value and standing timber inventory volume; anticipated harvest volume and mix of harvest volume; possible interest rate risk mitigation actions; anticipated distributions by the Dawsonville Bluffs Joint Venture (as defined herein); anticipated non-cash GAAP losses from the unconsolidated Triple T Joint Venture (as defined herein); 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 and include, but are not limited to, statements about 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.
 
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 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. 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.





2


GLOSSARY

The following abbreviations or acronyms may be used in this document and shall have the adjacent meanings set forth below:


AFM
 
American Forestry Management, Inc.
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
CoBank
 
CoBank, ACB
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
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
RSU
 
Restricted Stock Unit
SEC
 
Securities and Exchange Commission
TRS
 
Taxable REIT Subsidiary
U.S.
 
United States
VIE
 
Variable Interest Entity
WestRock
 
WestRock Company



3


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’ 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 . Our results of operations for the three months and six months ended June 30, 2019 are not necessarily indicative of the operating results expected for the full year.


4


CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for per-share amounts)
 
 
 
 
 
(Unaudited)
June 30, 2019
 
December 31, 2018
Assets:
 
 
 
Cash and cash equivalents
$
10,817

 
$
5,614

Accounts receivable
6,491

 
7,355

Prepaid expenses and other assets
4,831

 
7,369

Operating lease right-of-use asset, less accumulated amortization of $139 as of June 30, 2019 (Note 2)
3,261

 

Deferred financing costs
288

 
327

Timber assets (Note 3):
 
 
 
Timber and timberlands, net
665,616

 
687,851

Intangible lease assets, less accumulated amortization of $947 and $945 as of June 30, 2019 and December 31, 2018, respectively
10

 
12

Investments in unconsolidated joint ventures (Note 4)
39,309

 
96,244

Total assets
$
730,623

 
$
804,772

 
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued expenses
$
4,992

 
$
4,936

Operating lease liability (Note 2)
3,361

 

Other liabilities
14,646

 
5,940

Notes payable and lines of credit, net of deferred financing costs (Note 5)
472,631

 
472,240

Total liabilities
495,630

 
483,116

 
 
 
 
Commitments and Contingencies (Note 7)

 

 
 
 
 
Stockholders’ Equity:
 
 
 
Class A Common stock, $0.01 par value; 900,000 shares authorized; 48,965 and 49,127 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
490

 
492

Additional paid-in capital
728,792

 
730,416

Accumulated deficit and distributions
(483,376
)
 
(409,260
)
Accumulated other comprehensive income (loss)
(10,913
)
 
8

Total stockholders’ equity
234,993

 
321,656

Total liabilities and stockholders’ equity
$
730,623

 
$
804,772

See accompanying notes.

5


CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per-share amounts)
 
(Unaudited)
Three Months Ended
June 30,
 
(Unaudited)
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Timber sales
$
16,273

 
$
17,745

 
$
32,824

 
$
36,398

Timberland sales
8,224

 
6,834

 
10,314

 
11,086

Asset management fees
2,841

 
25

 
5,683

 
61

Other revenues
1,322

 
1,645

 
2,412

 
2,808

 
28,660

 
26,249

 
51,233

 
50,353

Expenses:
 
 
 
 
 
 
 
Contract logging and hauling costs
7,153

 
7,959

 
14,509

 
16,541

Depletion
6,030

 
6,598

 
11,298

 
13,660

Cost of timberland sales
6,921

 
5,233

 
8,481

 
8,380

Forestry management expenses
1,592

 
1,422

 
3,326

 
3,252

General and administrative expenses
3,203

 
3,173

 
6,566

 
6,118

Land rent expense
133

 
176

 
275

 
337

Other operating expenses
1,629

 
1,445

 
3,273

 
2,841

 
26,661

 
26,006

 
47,728

 
51,129

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest income
32

 
96

 
62

 
160

Interest expense
(4,709
)
 
(2,553
)
 
(9,331
)
 
(6,804
)
Gain on large dispositions
764

 

 
764

 

 
(3,913
)
 
(2,457
)
 
(8,505
)
 
(6,644
)
 
 
 
 
 
 
 
 
Loss before unconsolidated joint ventures
(1,914
)
 
(2,214
)
 
(5,000
)
 
(7,420
)
Income (loss) from unconsolidated joint ventures (Note 4)
(28,651
)
 
709

 
(55,960
)
 
2,530

Net loss
$
(30,565
)
 
$
(1,505
)
 
$
(60,960
)
 
$
(4,890
)
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding - basic and diluted
49,076

 
49,104

 
49,069

 
46,755

 
 
 
 
 
 
 
 
Net loss per share - basic and diluted
$
(0.62
)
 
$
(0.03
)
 
$
(1.24
)
 
$
(0.10
)

See accompanying notes.

6



CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
 
(Unaudited)
Three Months Ended
June 30,
 
(Unaudited)
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net loss
$
(30,565
)
 
$
(1,505
)
 
$
(60,960
)
 
$
(4,890
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
     Market value adjustment to interest rate swaps
(6,980
)
 
1,520

 
(10,921
)
 
3,451

Comprehensive income (loss)
$
(37,545
)
 
$
15

 
$
(71,881
)
 
$
(1,439
)


See accompanying notes.


7


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
 
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
 
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



See accompanying notes.

8


CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
(Unaudited)
Six Months Ended
June 30,
 
2019
 
2018
Cash Flows from Operating Activities:
 
 
 
Net loss
$
(60,960
)
 
$
(4,890
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depletion
11,298

 
13,660

Basis of timberland sold, lease terminations and other
8,475

 
7,788

Stock-based compensation expense
1,149

 
1,561

Noncash interest expense
564

 
1,933

Other amortization
123

 
106

Loss (income) from unconsolidated joint ventures
55,960

 
(2,530
)
Operating distributions from unconsolidated joint ventures
128

 
3,668

Gain on large dispositions
(764
)
 

Changes in assets and liabilities:
 
 
 
Accounts receivable
35

 
412

Prepaid expenses and other assets
641

 
(3,453
)
Accounts payable and accrued expenses
91

 
396

Other liabilities
465

 
1,672

Net cash provided by operating activities
17,205

 
20,323

 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Timberland acquisitions and earnest money paid

 
(33,597
)
Capital expenditures (excluding timberland acquisitions)
(2,197
)
 
(2,117
)
Distributions from unconsolidated joint ventures
847

 
3,562

Net proceeds from large dispositions
5,311

 

Net cash provided by (used in) investing activities
3,961

 
(32,152
)
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
Repayment of notes payable

 
(69,000
)
Proceeds from note payable

 
30,000

Financing costs paid
(33
)
 
(103
)
Issuance of common stock

 
72,450

Other offering costs paid

 
(3,590
)
Dividends paid to common stockholders
(13,156
)
 
(12,412
)
Repurchase of common shares under the share repurchase program
(2,409
)
 

Repurchase of common shares for minimum tax withholdings
(365
)
 
(1,225
)
Net cash provided by (used in) financing activities
(15,963
)
 
16,120

Net change in cash and cash equivalents
5,203

 
4,291

Cash and cash equivalents, beginning of period
5,614

 
7,805

Cash and cash equivalents, end of period
$
10,817

 
$
12,096


See accompanying notes.

9


CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2019 (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% 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. 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 shall include CatchMark Timber Trust and all of its subsidiaries, including CatchMark Timber OP , and the subsidiaries of CatchMark Timber OP , including CatchMark TRS.

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.

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

10


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.

For information on CatchMark’s unconsolidated joint ventures, which are accounted for using the equity method of accounting, see Note 4 Unconsolidated Joint Ventures .

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 three 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 will 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 approximately $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 approximately $13,000 and $100,000 of amortization expense related to the operating lease ROU asset and the operating lease liability, respectively, for the three months and six months ended June 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 months and six months ended June 30, 2019, CatchMark paid $95,000 and $117,000 , respectively, in cash for its office lease. The adoption of ASC 842 did not

11


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 June 30, 2019 and December 31, 2018:
 
As of
( in thousands )
June 30, 2019
 
December 31, 2018
Required payments
 
 
 
2019
$
195

 
$
312

2020
397

 
397

2021
412

 
412

2022
424

 
424

2023
435

 
435

2024
447

 
447

Thereafter
1,873

 
1,873

 
$
4,183

 
$
4,300

Less: imputed interest
(822
)
 
 
Operating lease liability
$
3,361

 


 
 
 
 
Remaining lease term (Years)
9.4

 
 
Discount rate
4.58
%
 
 

Reclassification

Certain prior period amounts have been reclassified to conform with the current period's financial statement presentation. Within revenues on the accompanying statements of operations, asset management fees in the amount of $25,000 and $61,000 , for the three months and six months ended June 30, 2018 , have been reclassified from other revenues to asset management fees.

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.


12


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 impact ASU 2018-13 will have on its consolidated financial statements.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, which reduces the cost and complexity 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. ASU 2018-17 is effective for public entities for fiscal years beginning after December 15, 2019, and interim periods therein. CatchMark is currently assessing the impact ASU 2018-17 will have on its consolidated financial statements.
 
3.     Timber Assets

As of June 30, 2019 and December 31, 2018 , timber and timberlands consisted of the following, respectively:
 
As of June 30, 2019
(in thousands)
Gross
 
Accumulated
Depletion or
Amortization
 
Net
Timber
$
317,079

 
$
11,298

 
$
305,781

Timberlands
359,527

 

 
359,527

Mainline roads
1,001

 
693

 
308

Timber and timberlands
$
677,607

 
$
11,991

 
$
665,616


 
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 Sales

During the three months ended June 30, 2019 and 2018 , CatchMark sold approximately 4,000 and 3,100 acres of timberland for $8.2 million and $6.8 million , respectively. CatchMark's cost basis in the timberland sold was $6.5 million and $4.8 million , respectively.


13


During the six months ended June 30, 2019 and 2018 , CatchMark sold approximately 4,900 and 5,300 acres of timberland for $10.3 million and $11.1 million , respectively. CatchMark's cost basis in the timberland sold was $8.0 million and $7.7 million , respectively.

Large Dispositions

On June 28, 2019, CatchMark completed the sale of approximately 3,600 acres of its wholly-owned timberlands located in Georgia for approximately $5.5 million . CatchMark's total cost basis was approximately $4.5 million . Net proceeds of $5.3 million was used to pay down CatchMark's outstanding debt balance on the Multi-Draw Term Facility on July 1, 2019.

Timberland sales and large dispositions acreage by state is listed below:
 
 
Six Months Ended June 30,
Acres Sold In:
 
2019
 
2018
Alabama
 
600

 
800

Georgia
 
4,600

 
1,700

Louisiana
 

 
200

North Carolina
 
500

 
100

South Carolina
 
2,800

 
2,400

Texas
 

 
100

Total
 
8,500

 
5,300


Current Timberland Portfolio

As of June 30, 2019 , CatchMark directly owned interests in approximately 450,700 acres of timberlands in the U.S. South and Pacific Northwest, approximately 424,400 acres of which were fee-simple interests and approximately 26,300 acres were leasehold interests. Land acreage by state is listed below:
Acres by state as of June 30, 2019 (1)
 
Fee
 
Lease
 
Total
South
 
 
 
 
 
 
Alabama
 
72,300

 
1,800

 
74,100

Florida
 
2,000

 

 
2,000

Georgia
 
256,700

 
24,500

 
281,200

North Carolina
 
100

 

 
100

South Carolina
 
74,900

 

 
74,900

Tennessee
 
300

 

 
300

 
 
406,300

 
26,300

 
432,600

Pacific Northwest
 
 
 
 
 
 
Oregon
 
18,100

 

 
18,100

Total
 
424,400

 
26,300

 
450,700

(1)  
Represents CatchMark wholly-owned acreage only; excludes ownership interest in acreage held by joint ventures.

4. Unconsolidated Joint Ventures

As of June 30, 2019 , CatchMark owned interests in two joint ventures with unrelated parties: the Triple T Joint Venture and the Dawsonville Bluffs Joint Venture (each as defined and described below).

14


 
As of June 30, 2019
 
Dawsonville Bluffs Joint Venture
 
Triple T Joint Venture
Ownership percentage
50.0%
 
 
21.6
%
(1)  
Acreage owned by the joint venture
4,400
 
 
1,095,300

 
Merchantable timber inventory (million tons)
0.3
(2)  
 
41.2

(2)  
Location
Georgia
 
 
Texas

 
(1)  
Represents our share of total partner capital contributions.
(2)  
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, LP, 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 approximately  $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 appointed three common board members of the Triple T Joint Venture, including its Chief Executive Officer,
Chief Financial Officer, and Senior Vice President of Forest Resources, 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:

15


 
As of
 (in thousands)
June 30, 2019
 
December 31, 2018
Triple T Joint Venture:
 
 
 
Total assets
$
1,596,530

 
$
1,607,413

Total liabilities
$
760,941

 
$
754,610

Total equity
$
835,589

 
$
852,803

CatchMark:
 
 
 
Carrying value of investment
$
34,362

 
$
90,450


Condensed income statement information for the Triple T Joint Venture is as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Triple T Joint Venture:
 
 
 
 
 
 
 
Total revenues
$
43,978

 
$

 
$
79,941

 
$

Operating income
$
5,426

 
$

 
$
7,948

 
$

Net loss
$
(1,586
)
 
$

 
$
(5,867
)
 
$

CatchMark:
 
 
 
 
 
 
 
Equity share of net loss
$
(28,600
)
 
$

 
$
(56,088
)
 
$


Condensed statement of cash flow information for the Triple T Joint Venture is as follows:
 
Six Months Ended June 30,
(in thousands)
2019
 
2018
Triple T Joint Venture:
 
 
 
Net cash provided by operating activities
$
8,544

 
$

Net cash used in investing activities
$
(2,041
)
 
$

Net cash provided by financing activities
$
91

 
$

Net change in cash and cash equivalents
$
6,594

 
$

Cash and cash equivalents, beginning of period
$
39,300

 
$

Cash and cash equivalents, end of period
$
45,894

 
$


CatchMark's equity share of the Triple T Joint Venture's net loss determined using the HLBV method as of June 30, 2019 is calculated as follows:
(in thousands)
 
 
Triple T Joint Venture:
 
 
Total equity as of June 30, 2019
 
$
835,589

Preferred Investors:
 
 
Equity in Triple T Joint Venture as of January 1, 2019
$
762,353


Minimum preferred return as of June 30, 2019
$
38,749


 
 
 
Class A preferred equity as of June 30, 2019
$
125

 
HLBV distribution as of June 30, 2019
 
$
801,227

CatchMark:
 
 
Equity in Triple T Joint Venture as of June 30, 2019
 
$
34,362

Equity in Triple T Joint Venture, as of January 1, 2019
 
$
90,450

Equity share of Triple T Joint Venture's net loss
 
$
(56,088
)


16


Dawsonville Bluffs Joint Venture

During 2017, CatchMark formed the Dawsonville Bluffs Joint Venture with MPERS, 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.

Condensed balance sheet information for the Dawsonville Bluffs Joint Venture is as follows:
 
As of
(in thousands)
June 30, 2019
 
December 31, 2018
Dawsonville Bluffs Joint Venture:
 
 
 
Total assets
$
10,515

 
$
12,164

Total liabilities
$
620

 
$
575

Total equity
$
9,895

 
$
11,589

CatchMark:
 
 
 
Carrying value of investment
$
4,947

 
$
5,795


Condensed income statement information for the Dawsonville Bluffs Joint Venture is as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Dawsonville Bluffs Joint Venture:
 
 
 
 
 
 
 
Total revenues
$
7

 
$
2,821

 
$
1,420

 
$
13,614

Net income (loss)
$
(102
)
 
$
1,417

 
$
255

 
$
5,059

CatchMark:
 
 
 
 
 
 
 
Equity share of net income (loss)
$
(51
)
 
$
709

 
$
128

 
$
2,530


Condensed statement of cash flow information for the Dawsonville Joint Venture is as follows:
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
Dawsonville Joint Venture:
 
 
 
Net cash provided by operating activities
$
1,252

 
$
12,657

Net cash provided by investing activities
$

 
$

Net cash used in financing activities
$
(1,949
)
 
$
(14,460
)
Net change in cash and cash equivalents
$
(697
)
 
$
(1,803
)
Cash and cash equivalents, beginning of period
$
1,731

 
$
5,375

Cash and cash equivalents, end of period
$
1,034

 
$
3,572


For the six months ended June 30, 2019 and 2018, CatchMark received cash distributions of $1.0 million and $7.2 million , respectively, from the Dawsonville Bluffs Joint Venture. See Note 10 — Subsequent Events for information on a disposition closed subsequent to June 30, 2019.

Asset Management Fees


17


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, 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. For management of the Dawsonville Bluffs Joint Venture, CatchMark receives a percentage fee based on invested capital, as defined by the joint venture agreement.

During the three months and six months ended June 30, 2019 and 2018, CatchMark earned the following fees from these unconsolidated joint ventures:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Triple T Joint Venture (1)
$
2,822

 
$

 
$
5,643

 
$

Dawsonville Bluffs Joint Venture
19

 
25

 
40

 
61

 
$
2,841

 
$
25

 
$
5,683

 
$
61

(1)  
Includes approximately $0.1 million and $0.2 million of reimbursements of compensation costs for the three months and six months ended June 30, 2019, respectively.

5.    Notes Payable and Lines of Credit

As of June 30, 2019 and December 31, 2018 , CatchMark had the following debt balances outstanding:
 (in thousands)
 
 
 
 
 
 
 
Outstanding Balance as of
Credit Facility
 
Maturity Date
 
Interest Rate
 
Current Interest Rate (1)
 
June 30, 2019
 
December 31, 2018
Term Loan A-1
 
12/23/2024
 
LIBOR + 1.75%
 
4.15
%
 
$
100,000

 
$
100,000

Term Loan A-2
 
12/1/2026
 
LIBOR + 1.90%
 
4.30
%
 
100,000

 
100,000

Term Loan A-3
 
12/1/2027
 
LIBOR + 2.00%
 
4.40
%
 
68,619

 
68,619

Term Loan A-4
 
8/22/2025
 
LIBOR + 1.70%
 
4.12
%
 
140,000

 
140,000

Multi-Draw Term Facility
 
12/1/2024
 
LIBOR + 2.20%
 
4.61
%
 
70,000

 
70,000

Total principal balance
 
 
 
 
 
 
 
$
478,619

 
$
478,619

Less: net unamortized deferred financing costs
 
(5,988
)
 
$
(6,379
)
      Total
 
 
 
 
 
 
 
$
472,631

 
$
472,240

(1)  
For the Multi-Draw Term Facility, the interest rate represents weighted-average interest rate as of June 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

CatchMark is party to a credit agreement dated as of December 1, 2017, as amended on August 22, 2018 and June 28, 2019 (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 -year revolving credit facility (the “Revolving Credit Facility”);
a $200.0 million seven -year multi-draw term credit facility (the “Multi-Draw Term Facility”);
a $100.0 million ten -year term loan (the “Term Loan A-1”);
a $100.0 million nine -year term loan (the “Term Loan A-2”);
a $68.6 million ten -year term loan (the “Term Loan A-3”); and

18


a $140.0 million seven -year term loan (the "Term Loan A-4").

As of June 30, 2019 , $165.0 million remained available under CatchMark's credit facilities, consisting of $130.0 million under 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, 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 Refunds

CatchMark is eligible to receive annual patronage refunds 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 refund on its eligible patronage loans annually since 2015. The eligibility remains the same under the Amended Credit Agreement. Therefore, CatchMark accrues patronage refunds it expects to receive based on actual patronage refunds received as a percentage of its weighted-average eligible debt balance. For the three months ended June 30, 2019 and 2018, CatchMark accrued approximately $1.0 million and $0.7 million , respectively, as patronage refunds receivable on its consolidated balance sheets and as an offset against interest expense on the consolidated statements of operations. For the six months ended June 30, 2019 and 2018, CatchMark accrued approximately $1.9 million and $1.2 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 2019 and 2018, CatchMark received patronage refunds of $3.3 million and $2.7 million , respectively, on its patronage eligible borrowings. Of the total patronage refunds received in both years, 75% was received in cash and 25% was received in equity of the Patronage Banks.

As of June 30, 2019 and December 31, 2018 , the following balances related to the patronage refunds program were included on CatchMark's consolidated balance sheets:
(in thousands)
As of
Patronage refunds classified as:
June 30, 2019
 
December 31, 2018
Accounts receivable
$
1,925

 
$
3,323

Prepaid expenses and other assets (1)
2,329

 
1,499

Total
$
4,254

 
$
4,822


19


(1)  
Represents cumulative patronage refunds received as equity of the Patronage Banks.

Debt Covenants

The Amended Credit Agreement contains, among others, the following financial covenants:
limit the LTV ratio to (i) 50% at any time prior to the last day of fiscal quarter corresponding to December 1, 2021, and (ii) 45% at any time thereafter;
require maintenance of a FCCR of not less than 1.05:1.00;
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 June 30, 2019 .

Interest Paid and Fair Value of Outstanding Debt

During the three months ended June 30, 2019 and 2018 , CatchMark made interest payments of $5.3 million and $2.7 million , respectively, on its borrowings. Included in the interest payments for the three months ended June 30, 2019 was unused commitment fees of $0.1 million . No unused commitment fees were paid during the second quarter of 2018.

During the six months ended June 30, 2019 and 2018 , CatchMark made interest payment of $10.5 million and $5.6 million , respectively, on its borrowings. Included in the interest payments for the six months ended June 30, 2019 and 2018 were unused commitment fees of $0.1 million and $0.1 million , respectively.

As of June 30, 2019 and December 31, 2018 , the weighted-average interest rate on CatchMark's borrowings, after consideration of its interest rate swaps (see Note 6 — Interest Rate Swaps ), was 4.30% and 4.31% , respectively. After further consideration of expected patronage refunds, CatchMark's weighted-average interest rate as of June 30, 2019 and December 31, 2018 was 3.50% and 3.51% , 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 June 30, 2019 , CatchMark had ten outstanding interest rate swaps with terms below:

20


(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


As of June 30, 2019 , CatchMark’s interest rate swaps effectively fixed the interest rate on $350.0 million of its $478.6 million variable rate debt at 4.26% , inclusive of the applicable spread. All ten interest rate swaps qualify 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 June 30, 2019 and December 31, 2018 :
(in thousands)
 
Estimated Fair Value as of
Instrument Type
 
Balance Sheet Classification
 
June 30, 2019
 
December 31, 2018
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Interest rate swaps
 
Prepaid expenses and other assets
 
$
894

 
$
3,643

Interest rate swaps
 
Other liabilities
 
$
(11,807
)
 
$
(3,635
)

As of June 30, 2019 , CatchMark estimated that approximately $2.2 million will be reclassified from accumulated other comprehensive loss to interest expense over the next 12 months.

Pursuant to the terms of its interest rate swaps, CatchMark received $20,600 and $62,800 during the three months and six months ended June 30, 2019 , respectively. For the three months and six months ended June 30, 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

21


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, 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 monthly 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, and is automatically extended for one -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 monthly 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. The incentive fee is payable quarterly in arrears. The AFM Timberland Operating Agreement is effective through November 30, 2019 for the U.S. South region and December 31, 2019 for the Pacific Northwest region, and is automatically extended for one -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 held leasehold interest in approximately 26,300 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 lease agreement, therefore, a lease of biological assets, which is excluded from the scope of ASC 842.

As of June 30, 2019, CatchMark had the following future lease payments under its LTC Lease:
(in thousands)
Required Payments
2019
$
37

2020
504

2021
504

2022
449

 
$
1,494


22



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 no t 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 - Independent Directors

On June 28, 2019, pursuant to the Amended and Restated Independent Directors' Compensation Plan (a sub-plan of CatchMark's LTIP), CatchMark issued the annual equity-based grants to its independent directors. Each independent director received a grant with a fair value of $70,000 , which will vest on the date of CatchMark's 2020 annual meeting of stockholders. At their elections, three independent directors each received 6,699 shares of CatchMark's restricted stock and the remaining three independent directors each received 6,699 units of a class of limited partnership interests (the "LTIP Units") in CatchMark Timber OP. 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. Aggregate grant date fair value of $0.4 million will be amortized over the one-year vesting period within general and administrative expenses. See Note 8 Noncontrolling Interest in our Annual Report on Form 10-K for the year ended December 31, 2018 for further information on LTIP Units.

Stock-based Compensation - Employees

During the three months ended June 30, 2019, CatchMark did no t issue any shares of service-based restricted stock to its employees. During the six months ended June 30, 2019 , CatchMark issued 131,500 shares of service-based restricted stock to certain non-executive employees, vesting over a four-year period. The fair value of serviced-based restricted stock grants was determined by the closing price of CatchMark's common stock on the grant date.

A rollforward of CatchMark's unvested, service-based restricted stock awards to employees for the six months ended June 30, 2019 is as follows:

23


 
Number of 
Underlying Shares
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2018
300,395

 
$
10.60

Granted
131,500

 
$
9.34

Vested
(83,817
)
 
$
11.37

Forfeited
(5,062
)
 
$
10.85

Unvested at June 30, 2019
343,016

 
$
9.93


Stock-based Compensation Expense

A summary of CatchMark's stock-based compensation expense for the three months and six months ended June 30, 2019 and 2018 is presented below:
(in thousands)
Three Months Ended June 30,
 
Six Months Ended June 30,
Stock-based Compensation Expense classified as:
2019
 
2018
 
2019
 
2018
General and administrative expenses
$
463

 
$
758

 
$
1,034

 
$
1,274

Forestry management expenses
27

 
38

 
115

 
287

Total
$
490

 
$
796

 
$
1,149

 
$
1,561


As of June 30, 2019 , approximately $3.7 million of unrecognized compensation expense related to unvested restricted stock and LTIP Units remained and will be recognized over a weighted-average period of 2.3 years.

9.     Segment Information

As of June 30, 2019 , 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 is reported separately on the accompanying consolidated balance sheets. During the periods presented, there have been no material intersegment transactions.

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 operating revenues by reportable segment:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Harvest
$
17,595

 
$
19,390

 
$
35,236

 
$
39,206

Real Estate
8,224

 
6,834

 
10,314

 
11,086

Investment Management
2,841

 
25

 
5,683

 
61

Total
$
28,660

 
$
26,249

 
$
51,233

 
$
50,353



24


The following table presents Adjusted EBITDA by reportable segment:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Harvest
$
7,285

 
$
8,564

 
$
14,545

 
$
16,704

Real Estate
7,828

 
6,435

 
9,785

 
10,396

Investment Management
2,790

 
1,324

 
6,205

 
6,437

Non-allocated / Corporate EBITDA
(2,816
)
 
(2,308
)
 
$
(5,286
)
 
$
(4,627
)
Total
$
15,087

 
$
14,015

 
$
25,249

 
$
28,910


A reconciliation of Adjusted EBITDA to GAAP net loss is presented below:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Adjusted EBITDA
$
15,087

 
$
14,015

 
$
25,249

 
$
28,910

Subtract:
 
 
 
 
 
 
 
Depletion
6,030

 
6,598

 
11,298

 
13,660

Basis of timberland sold, lease terminations and other (1)
6,668

 
4,932

 
8,475

 
7,788

Amortization (2)
229

 
314

 
687

 
2,039

Depletion, amortization, and basis of timberland and mitigation credits sold included in loss from unconsolidated joint venture (3)

 
590

 
395

 
3,846

HLBV loss from unconsolidated joint venture (4)
28,600

 

 
56,088

 

Stock-based compensation expense
490

 
796

 
1,149

 
1,561

Interest expense  (2)
4,395

 
2,290

 
8,767

 
4,871

Gain on large dispositions (5)
(764
)
 

 
(764
)
 

Other (6)
4

 

 
114

 
35

Net loss
$
(30,565