CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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
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 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 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 September 30, 2019 and December 31, 2018, timber and timberlands consisted of the following, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019
|
(in thousands)
|
Gross
|
|
Accumulated
Depletion or
Amortization
|
|
Net
|
Timber
|
$
|
312,747
|
|
|
$
|
19,533
|
|
|
$
|
293,214
|
|
Timberlands
|
350,123
|
|
|
—
|
|
|
350,123
|
|
Mainline roads
|
1,041
|
|
|
715
|
|
|
326
|
|
Timber and timberlands
|
$
|
663,911
|
|
|
$
|
20,248
|
|
|
$
|
643,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2019 and 2018, CatchMark sold 1,100 and 1,900 acres of timberland for $2.3 million and $3.8 million, respectively. CatchMark's cost basis in the timberland sold was $1.8 million and $3.0 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, CatchMark completed the sale of 10,800 acres of its wholly-owned timberlands located in Georgia and Alabama for $19.9 million. CatchMark's total cost basis was $12.6 million. Of the total net proceeds of $19.8 million, $14.8 million was used to pay down CatchMark's outstanding debt balance on the Multi-Draw Term Facility.
Timberland sales and large dispositions acreage by state is listed below:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
Acres Sold In:
|
|
2019
|
|
2018
|
Alabama
|
|
2,900
|
|
|
800
|
|
Georgia
|
|
13,300
|
|
|
2,200
|
|
Louisiana
|
|
—
|
|
|
200
|
|
North Carolina
|
|
500
|
|
|
1,000
|
|
South Carolina
|
|
3,700
|
|
|
2,900
|
|
Texas
|
|
—
|
|
|
100
|
|
Total
|
|
20,400
|
|
|
7,200
|
|
Current Timberland Portfolio
As of September 30, 2019, CatchMark directly owned interests in 438,800 acres of timberlands in the U.S. South and Pacific Northwest, 412,500 acres of which were fee-simple interests and 26,300 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.
|
4. Unconsolidated Joint Ventures
As of September 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).
|
|
|
|
|
|
|
|
|
|
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 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, 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 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:
|
|
|
|
|
|
|
|
|
|
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
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,
|
(in thousands)
|
2019
|
|
2018
|
Triple T Joint Venture:
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
9,040
|
|
|
$
|
(1,753
|
)
|
Net cash used in investing activities
|
$
|
(3,263
|
)
|
|
$
|
(1,410,066
|
)
|
Net cash provided by financing activities
|
$
|
87
|
|
|
$
|
1,461,452
|
|
Net change in cash and cash equivalents
|
$
|
5,864
|
|
|
$
|
49,633
|
|
Cash and cash equivalents, beginning of period
|
$
|
39,300
|
|
|
$
|
—
|
|
Cash and cash equivalents, end of period
|
$
|
45,164
|
|
|
$
|
49,633
|
|
CatchMark's equity share of the Triple T Joint Venture's net loss determined using the HLBV method as of September 30, 2019 is calculated as follows:
|
|
|
|
|
|
|
|
(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, the Dawsonville Bluffs Joint Venture had mitigation bank credits with a book basis of $2.9 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)
|
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
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,
|
(in thousands)
|
2019
|
|
2018
|
Dawsonville Joint Venture:
|
|
|
|
Net cash provided by operating activities
|
$
|
8,873
|
|
|
$
|
12,673
|
|
Net cash provided by investing activities
|
$
|
—
|
|
|
$
|
—
|
|
Net cash used in financing activities
|
$
|
(9,616
|
)
|
|
$
|
(17,031
|
)
|
Net change in cash and cash equivalents
|
$
|
(743
|
)
|
|
$
|
(4,358
|
)
|
Cash and cash equivalents, beginning of period
|
$
|
1,731
|
|
|
$
|
5,375
|
|
Cash and cash equivalents, end of period
|
$
|
988
|
|
|
$
|
1,017
|
|
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, 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. Additionally, CatchMark receives an incentive-based promote earned for exceeding investment hurdles.
During the three and nine months ended September 30, 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.
|
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
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
|
|
|
•
|
a $140.0 million seven-year term loan (the "Term Loan A-4").
|
As of September 30, 2019, $185.1 million remained available under CatchMark's credit facilities, consisting of $150.1 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 September 30, 2019 and 2018, CatchMark accrued $0.9 million and $1.0 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 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 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 September 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:
|
|
September 30, 2019
|
|
December 31, 2018
|
Accounts receivable
|
|
$
|
2,873
|
|
|
$
|
3,323
|
|
Prepaid expenses and other assets (1)
|
|
2,329
|
|
|
1,499
|
|
Total
|
|
$
|
5,202
|
|
|
$
|
4,822
|
|
|
|
(1)
|
Represents cumulative patronage refunds 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.
Interest Paid and Fair Value of Outstanding Debt
During the three months ended September 30, 2019 and 2018, CatchMark made interest payments of $5.0 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 million, respectively, on its borrowings. Included in the interest payments for the nine months ended September 30, 2019 and 2018 were unused commitment fees of $0.1 million and $0.2 million, respectively.
As of September 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 4.21% and 4.31%, respectively. After further consideration of expected patronage refunds, CatchMark's weighted-average interest rate as of September 30, 2019 and December 31, 2018 was 3.41% 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 September 30, 2019, CatchMark had ten 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
|
|
As of September 30, 2019, CatchMark’s interest rate swaps effectively fixed the interest rate on $350.0 million of its $458.6 million variable-rate debt at 4.26%, inclusive of the applicable spread and before consideration of expected patronage refunds. 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 September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
(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, CatchMark estimated that approximately $2.7 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 paid $0.1 million and $0.1 million during the three months ended September 30, 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, 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, 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 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-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 holds leasehold interests in 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 LTC Lease, which is, therefore, a lease of biological assets, and is excluded from the scope of ASC 842.
As of September 30, 2019, CatchMark had the following future lease payments under its LTC Lease:
|
|
|
|
|
(in thousands)
|
Required Payments
|
2019
|
$
|
19
|
|
2020
|
504
|
|
2021
|
504
|
|
2022
|
449
|
|
|
$
|
1,476
|
|
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 not 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, 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 230,885 shares of service-based restricted stock to its employees in 2019, all 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 nine months ended September 30, 2019 is as follows:
|
|
|
|
|
|
|
|
|
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 LTIP Units Grants
On July 12, 2019, CatchMark granted 184,944 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 pre-established peer groups’ TSRs and to the Russell 3000 Index. 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, 2018 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 2022 and 2023. The fair value of the 2019 Performance LTIP Units awards was calculated using a Monte-Carlo simulation with the following:
|
|
|
|
|
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
|
%
|
Stock-based Compensation Expense
A summary of CatchMark's stock-based compensation expense for the three and nine months ended September 30, 2019 and 2018 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
As of September 30, 2019, approximately $5.5 million of unrecognized compensation expense related to unvested restricted stock and LTIP Units remained and will be recognized over a weighted-average period of 2.6 years.
9. Segment Information
As of September 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 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 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 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.
|
10. Subsequent Events
Dividend Declaration
On October 31, 2019, CatchMark declared a cash dividend of $0.135 per share for its common stockholders of record on, November 26, 2019, payable on December 13, 2019.
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 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. As a result of these transactions, CatchMark extended the
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%.