CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(unaudited)
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 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, was formed as a wholly owned subsidiary of
CatchMark Timber OP
in 2006. Unless otherwise noted, references herein to
CatchMark Timber Trust
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 Timber Trust 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 of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the statements for these 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 Timber Trust’s consolidated financial statements include the accounts of any entity in which CatchMark Timber Trust or its subsidiaries owns a controlling financial interest and any limited partnership in which CatchMark Timber Trust or its subsidiaries owns a controlling general partnership interest. All intercompany balances and transactions have been eliminated in consolidation. For further information, refer to the audited financial statements and footnotes included in
CatchMark Timber Trust
’s Annual Report on Form 10-K for the year ended
December 31, 2017
.
Investment in Joint Venture
For joint ventures that it does not control but exercises significant influence, CatchMark Timber Trust uses the equity method of accounting. CatchMark Timber Trust'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 Timber Trust 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 percentage. Any difference between the carrying amount of these investments on CatchMark Timber Trust’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 recognized as cash inflows from operating activities and distributions received in excess of cumulative equity in earnings represent returns of investment and therefore are classified as cash inflows from investing activities.
CatchMark Timber Trust evaluates the recoverability of its investments in unconsolidated joint ventures in accordance with accounting standards for equity investments by first reviewing each investment for any indicators of impairment. If indicators are present, CatchMark Timber Trust estimates the fair value of the investment. If the carrying value of the investment is greater than the estimated fair value, management assesses whether the impairment is “temporary” or “other-than-temporary.” In making this assessment, management considers the following: (1) the length of time and the extent to which fair value has been less than cost, (2) the financial condition and near-term prospects of the venture, and (3) CatchMark Timber Trust’s intent and ability to retain its interest long enough for a recovery in market value. If management concludes that the impairment is "other than temporary," CatchMark Timber Trust reduces the investment to its estimated fair value.
Reclassification
Certain prior period amounts have been reclassified to conform with the current period's financial statement presentation. Within expenses on the accompanying statements of operations, for the three months ended June 30, 2017, basis of timber related to lease terminations, timber deed expirations and casualty losses have been reclassified from basis of timberland sold to other operating expenses in the amount of
$311,000
. For the six months June 30, 2017, basis of timber related to lease terminations, timber deed expirations and casualty losses have been reclassified from depletion or basis of timberland sold to other operating expenses, in the amount of
$19,000
and
$321,000
, respectively. Within net cash provided by operating activities on the accompanying statements of cash flows,
$19,000
has been reclassified from depletion to basis of timberland sold, lease terminations and other, for the six months ended June 30, 2017.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
. Under this guidance, an entity is required to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the expected consideration for those goods or services. The update requires significant additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09, as amended by ASU 2015-14,
Revenue from Contracts with Customers: Deferral of the Effective Date (Topic 606
), became effective for CatchMark Timber Trust on January 1, 2018. The adoption of ASU 2014-09 did not have a material effect on CatchMark Timber Trust's consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. In January 2018, the FASB issued ASU 2018-01, Leases
(Topic 842):
Land Easement Practical Expedient for Transition to Topic 842,
to address concerns about the costs and complexity of complying with the transition provision of the new lease requirements under ASU 2016-02
.
The amendments in ASU 2018-01 permit an entity to elect an optional transition practical expedient to not evaluate under Topic 842 its land easements that exist or expired before its adoption of Topic 842 that were not previously accounted for as leases under Topic 840. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. A modified retrospective transition approach is required for lessees classified as capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. CatchMark Timber Trust continues to assess the impact ASU 2016-02 will have on its consolidated financial statement but does not expect the adoption of this standard will have a material effect on its consolidated financial statements.
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
." 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. ASU 2017-12 is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted in any interim period after issuance of ASU 2017-12. CatchMark Timber Trust adopted ASU 2017-12 on January 1, 2018 and the adoption did not have a material effect on its 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 Timber Trust is currently assessing the impact ASU 2018-07 will have on its consolidated financial statement but does not expect the adoption of this standard will have a material effect on its consolidated financial statements.
As of
June 30, 2018
and
December 31, 2017
, timber and timberlands consisted of the following, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018
|
(in thousands)
|
Gross
|
|
Accumulated
Depletion or
Amortization
|
|
Net
|
Timber
|
$
|
302,615
|
|
|
$
|
13,660
|
|
|
$
|
288,955
|
|
Timberlands
|
401,114
|
|
|
—
|
|
|
401,114
|
|
Mainline roads
|
1,417
|
|
|
679
|
|
|
738
|
|
Timber and timberlands
|
$
|
705,146
|
|
|
$
|
14,339
|
|
|
$
|
690,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
(in thousands)
|
Gross
|
|
Accumulated
Depletion or
Amortization
|
|
Net
|
Timber
|
$
|
332,253
|
|
|
$
|
29,035
|
|
|
$
|
303,218
|
|
Timberlands
|
406,284
|
|
|
—
|
|
|
406,284
|
|
Mainline roads
|
1,349
|
|
|
604
|
|
|
744
|
|
Timber and timberlands
|
$
|
739,886
|
|
|
$
|
29,639
|
|
|
$
|
710,246
|
|
Timberland Acquisitions
During the
six months ended
June 30, 2018
and 2017, CatchMark Timber Trust did
no
t complete any timberland acquisitions.
Timberland Sales
During the
three months ended
June 30, 2018
and
2017
,
CatchMark Timber Trust
sold approximately
3,100
and
4,000
acres of timberland for
$6.8 million
and
$8.0 million
, respectively.
CatchMark Timber Trust
's cost basis in the timberland sold was
$4.8 million
and
$5.9 million
, respectively.
During the
six months ended
June 30, 2018
and
2017
,
CatchMark Timber Trust
sold approximately
5,300
and
6,800
acres of timberland for
$11.1 million
and
$13.4 million
, respectively.
CatchMark Timber Trust
's cost basis in the timberland sold was
$7.7 million
and
$9.4 million
, respectively. Land sale acreage by state is listed below:
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
Acres Sold In:
|
|
2018
|
|
2017
|
Alabama
|
|
800
|
|
|
1,700
|
|
Georgia
|
|
1,700
|
|
|
4,700
|
|
Louisiana
|
|
200
|
|
|
400
|
|
North Carolina
|
|
100
|
|
|
—
|
|
South Carolina
|
|
2,400
|
|
|
—
|
|
Texas
|
|
100
|
|
|
—
|
|
Total
|
|
5,300
|
|
|
6,800
|
|
Current Timberland Portfolio
As of
June 30, 2018
,
CatchMark Timber Trust
directly owned interests in approximately
504,400
acres of timberlands in the U.S. South, approximately
474,100
acres of which were held in fee-simple interests and approximately
30,300
acres were held in leasehold interests. A detailed breakout of land acreage by state is listed below:
|
|
|
|
|
|
|
|
|
|
|
Acres by state as of June 30, 2018
|
|
Fee
|
|
Lease
|
|
Total
|
Alabama
|
|
73,600
|
|
|
5,300
|
|
|
78,900
|
|
Florida
|
|
2,000
|
|
|
—
|
|
|
2,000
|
|
Georgia
|
|
261,900
|
|
|
25,000
|
|
|
286,900
|
|
Louisiana
|
|
20,700
|
|
|
—
|
|
|
20,700
|
|
North Carolina
|
|
1,500
|
|
|
—
|
|
|
1,500
|
|
South Carolina
|
|
78,600
|
|
|
—
|
|
|
78,600
|
|
Tennessee
|
|
300
|
|
|
—
|
|
|
300
|
|
Texas
|
|
35,500
|
|
|
—
|
|
|
35,500
|
|
Total:
|
|
474,100
|
|
|
30,300
|
|
|
504,400
|
|
|
|
4.
|
Unconsolidated Joint Venture
|
In April 2017, CatchMark Timber Trust entered into a joint venture (the “Dawsonville Bluffs Joint Venture”) that acquired a portfolio of
11,000
acres of commercial timberlands located in North Georgia for an aggregate purchase price of
$20.0 million
, exclusive of transaction costs. CatchMark Timber Trust owns a
50%
membership interest in the Dawsonville Bluffs Joint Venture and MPERS owns the remaining
50%
interest. CatchMark Timber Trust 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 (in thousands):
|
|
|
|
|
|
|
|
|
|
As of
|
|
June 30, 2018
|
|
December 31, 2017
|
Dawsonville Bluffs Joint Venture:
|
|
|
|
Total Assets
|
$
|
14,610
|
|
|
$
|
24,014
|
|
Total Liabilities
|
$
|
656
|
|
|
$
|
660
|
|
Total Equity
|
$
|
13,954
|
|
|
$
|
23,354
|
|
CatchMark Timber Trust:
|
|
|
|
Carrying Value of Investment
|
$
|
6,977
|
|
|
$
|
11,677
|
|
Condensed income statement information for the Dawsonville Bluffs Joint Venture is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Dawsonville Bluffs Joint Venture:
|
|
|
|
|
|
|
|
Total Revenues
|
$
|
2,821
|
|
|
$
|
24
|
|
|
$
|
13,614
|
|
|
$
|
24
|
|
Net Income (Loss)
|
$
|
1,417
|
|
|
$
|
(254
|
)
|
|
$
|
5,059
|
|
|
$
|
(254
|
)
|
CatchMark Timber Trust:
|
|
|
|
|
|
|
|
Equity Share of Net Income (Loss)
|
$
|
709
|
|
|
$
|
(127
|
)
|
|
$
|
2,530
|
|
|
$
|
(127
|
)
|
During the three months and six months ended June 30, 2018, CatchMark Timber Trust received a cash distribution of
$5.0 million
and
$7.2 million
from the Dawsonville Bluffs Joint Venture.
CatchMark Timber Trust serves as the sole manager of the Dawsonville Bluffs Joint Venture, whereby it manages the day-to-day operations of the business, subject to certain major decisions that require the prior consent of MPERS, in exchange for a management fee. Such management fees are included in other revenues on the accompanying consolidated statement of operations. During the three months ended June 30, 2018 and 2017, CatchMark Timber Trust recognized approximately
$25,000
and
$29,000
of management fees in other revenues. During the
six months ended
June 30, 2018
and
2017
, CatchMark Timber Trust recognized approximately
$61,000
and
$29,000
of management fees in other revenues.
On July 6, 2018, CatchMark Timber Trust completed a
$200.0 million
investment in a joint venture that acquired
1.1 million
acres of prime East Texas timberlands (the "Triple T Timberlands"), which closed on July 6, 2018. See
Note 10 - Subsequent Events
for further details.
5. Notes Payable and Lines of Credit
As of
June 30, 2018
and
December 31, 2017
, CatchMark Timber Trust had the following debt balances outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Balance as of
|
Credit Facility
|
|
Maturity Date
|
|
Interest Rate
|
|
Current Interest Rate
(1)
|
|
June 30, 2018
|
|
December 31, 2017
|
Term Loan A-1
|
|
12/23/2024
|
|
LIBOR + 1.75%
|
|
3.84%
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Term Loan A-2
|
|
12/1/2026
|
|
LIBOR + 1.90%
|
|
4.00%
|
|
100,000
|
|
|
118,809
|
|
Term Loan A-3
|
|
12/1/2027
|
|
LIBOR + 2.00%
|
|
4.10%
|
|
68,619
|
|
|
118,810
|
|
Multi-Draw Term Facility
|
|
12/1/2024
|
|
LIBOR + 1.50%
|
|
3.59%
|
|
$
|
30,000
|
|
|
$
|
—
|
|
Total Principal Balance
|
|
|
|
|
|
|
|
$
|
298,619
|
|
|
$
|
337,619
|
|
Less: Net Unamortized Deferred Financing Costs
|
|
$
|
(5,674
|
)
|
|
$
|
(7,531
|
)
|
Total
|
|
|
|
|
|
|
|
$
|
292,945
|
|
|
$
|
330,088
|
|
|
|
(1)
|
Represents weighted-average interest rate as of
June 30, 2018
. 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.
|
2017 Amended Credit Agreement
On December 1, 2017, CatchMark Timber Trust amended and restated its existing credit facilities by entering into a fifth amended and restated credit agreement (the “2017 Amended Credit Agreement”) with CoBank, AgFirst, Rabobank and certain other financial institutions. The 2017 Amended Credit Agreement increased the maximum amounts available for borrowing from
$500.0 million
to
$637.6 million
, consisting of the following:
|
|
•
|
a
$35.0 million
five
-year revolving credit facility (the “2017 Revolving Credit Facility”);
|
|
|
•
|
a
$265.0 million
seven
-year multi-draw term credit facility (the “2017 Multi-Draw Term Facility”);
|
|
|
•
|
a continuation of a
$100.0 million
ten
-year term loan (the “Term Loan A-1”), all of which was outstanding under the previous credit agreement;
|
|
|
•
|
a
$118.8 million
nine
-year term loan (the “Term Loan A-2”); and
|
|
|
•
|
a
$118.8 million
ten
-year term loan (the “Term Loan A-3”, together with the Term Loan A-1 and Term Loan A-2, the “2017 Term Loan Facilities”).
|
Proceeds from the Term Loan A-2 and the Term Loan A-3 were used to repay the outstanding balance of the multi-draw term facility under the previous credit agreement.
During the three months ended June 30, 2018, CatchMark Timber Trust made a
$30.0 million
draw on the 2017 Multi-Draw Term Facility to fund the earnest money deposit on the Triple T Timberlands transaction, which closed on July 6, 2018. See
Note 10 - Subsequent Events
for further details. The earnest money deposit was included in prepaid expenses and other assets on the accompanying consolidated balance sheets.
During the three months ended March 31, 2018, CatchMark Timber Trust repaid
$69.0 million
of its outstanding debt balance on the Term Loan A-2 and A-3 with net proceeds received from the 2018 Equity Offering (See
Note 8 - Stockholders' Equity
for further information). CatchMark Timber Trust expensed
$1.4 million
of previously deferred financing costs as a result of the repayments.
As of
June 30, 2018
,
$270.0 million
remained available under the 2017 Amended Credit Agreement, consisting of
$235.0 million
from the 2017 Multi-Draw Term Facility and
$35.0 million
from the 2017 Revolving Credit Facility.
Borrowings under the 2017 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 other general corporate purposes. The 2017 Revolving Credit Facility will bear 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 Timber Trust’s LTV Ratio, and will terminate and all amounts outstanding under the facility will be due and payable on December 1, 2022.
The 2017 Multi-Draw Term Facility may be used to finance timber acquisitions and associated expenses, to fund investment in joint ventures, and to reimburse payments of drafts under letters of credit. The 2017 Multi-Draw Term Facility, which is interest only until its maturity date, will bear 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 Timber Trust’s LTV Ratio, and will terminate and all amounts outstanding under the facility will be due and payable on December 1, 2024.
CatchMark Timber Trust will pay the lenders an unused commitment fee on the unused portion of the 2017 Revolving Credit Facility and the 2017 Multi-Draw Term Facility at an adjustable rate ranging from
0.15%
to
0.35%
, depending on the LTV Ratio.
Under the 2017 Amended Credit Agreement, CatchMark Timber Trust continues to be eligible to receive annual patronage refunds, which are profit distributions made by CoBank and other Farm Credit System banks. The annual patronage refund is dependent on the weighted-average debt balance for the fiscal year under the 2017 Term Loan Facilities and the 2017 Multi-Draw Term Facility, as well as the financial performance of CoBank and other Farm Credit System banks.
CatchMark Timber Trust’s obligations under the 2017 Amended Credit Agreement are collateralized by a first priority lien on the timberlands owned by CatchMark Timber Trust’s subsidiaries and substantially all of CatchMark Timber Trust’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, CatchMark Timber Trust's obligations under the 2017 Amended Credit Agreement are jointly and severally guaranteed by all of CatchMark Timber Trust and its subsidiaries pursuant to the terms of the 2017 Amended Credit Agreement. CatchMark
Timber Trust has also agreed to guarantee certain losses caused by certain willful acts of CatchMark Timber Trust or its subsidiaries.
On June 29, 2018, CatchMark Timber Trust amended the 2017 Amended Credit Agreement by entering into a Consent and Amendment Agreement to finance CatchMark's investment in the Triple T Timberlands transaction. This amendment made no other significant changes to the terms of the 2017 Amended Credit Agreement.
Patronage
CatchMark Timber Trust 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. In March 2018 and 2017, CatchMark Timber Trust received patronage refunds of
$2.7 million
and
$2.1 million
, respectively, on its eligible borrowings under the 2017 Amended Credit Agreement and the previous credit agreement. Of the total amount received,
75%
was received in cash and
25%
was received in equity in Patronage Banks. As of
June 30, 2018
and
December 31, 2017
, CatchMark Timber Trust had approximately
$1.5 million
and
$0.8 million
, respectively, of equity in Patronage Banks included in prepaid expenses and other assets on the accompanying consolidated balance sheets.
CatchMark Timber Trust has received a patronage refund on its eligible patronage loans for each year it has been party to its previous credit agreements, and the eligibility remains the same under the 2017 Amended Credit Agreement. Therefore, CatchMark Timber Trust accrues patronage refunds it expects to receive in 2019 based on actual patronage refunds received as a percentage of its weighted-average debt balance. For the
three months ended
June 30, 2018
and 2017, CatchMark Timber Trust recorded
$0.6 million
and
$0.7 million
, respectively, in expected patronage refunds against interest expense on the consolidated statements of operations. For the
six months ended
June 30, 2018
and 2017, CatchMark Timber Trust recorded
$1.2 million
and
$1.3 million
, respectively, in expected patronage refunds against interest expense on the consolidated statements of operations. As of
June 30, 2018
and
December 31, 2017
, approximately
$1.2 million
and
$2.7 million
of patronage refunds were included in accounts receivable on the consolidated balance sheets.
Debt Covenants
The 2017 Amended Credit Agreement contains, among others, the following financial covenants:
|
|
•
|
limits the LTV ratio to (i)
50%
at any time prior to the last day of fiscal quarter corresponding to the fourth anniversary of the effective date and (ii)
45%
at any time thereafter;
|
|
|
•
|
requires that we maintain a FCCR of not less than 1.05:1.00; and
|
|
|
•
|
requires maintenance of a minimum liquidity balance of no less than
$25.0 million
at any time; and
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|
|
•
|
limits the aggregated capital expenditures not exceeding
1%
of the value of the timberlands during any fiscal year.
|
CatchMark Timber Trust
was in compliance with the financial covenants of the 2017 Amended Credit Agreement as of
June 30, 2018
.
Interest Paid and Fair Value of Outstanding Debt
During the
three months ended
June 30, 2018
and
2017
,
CatchMark Timber Trust
made interest payments of
$2.7 million
and
$2.8 million
, respectively, on its borrowings. Included in the interest payments for the
three months ended
June 30,
2017
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, 2018
and
2017
,
CatchMark Timber Trust
made interest payments of
$5.6 million
and
$5.3 million
, respectively, on its borrowings. Included in the interest payments for the
six months ended
June 30, 2018
and
2017
were unused commitment fees of
$0.1 million
and
$0.3 million
, respectively.
As of
June 30, 2018
and
December 31, 2017
, the weighted-average interest rate on these borrowings, after consideration of interest rate swaps (see
Note 6 - Interest Rate Swaps
), was
3.93%
and
3.61%
, respectively. After further consideration of expected patronage refunds,
CatchMark Timber Trust
's weighted-average interest rate as of
June 30, 2018
and
December 31, 2017
was
3.13%
and
2.81%
, respectively.
The fair value of CatchMark Timber Trust's outstanding debt approximated its book value as of June 30, 2018. The fair value was estimated based on discounted cash flow analysis using the current market borrowing rates for similar types of borrowing arrangements as of the measurement dates.
6. Interest Rate Swaps
CatchMark Timber Trust uses interest rate swaps to mitigate its exposure to changing interest rates on its variable rate debt instruments. During the first quarter of 2018, CatchMark Timber Trust entered into
two
separate interest rate swaps with Rabobank on
$30.0 million
and
$20.0 million
of the 2017 Term Loan Facilities (collectively, the "2018 Rabobank Swaps"). CatchMark Timber Trust had
seven
interest rate swaps outstanding as of
June 30, 2018
, with terms below:
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|
|
|
|
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|
|
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|
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|
(in thousands)
|
Interest Rate Swap
|
|
Effective Date
|
|
Maturity Date
|
|
Pay Rate
|
|
Receive Rate
|
|
Notional Amount
|
2014 Rabobank Swap
|
|
12/23/2014
|
|
12/23/2024
|
|
2.395%
|
|
one-month LIBOR
|
|
$
|
35,000
|
|
2016 Rabobank Swap
|
|
8/23/2016
|
|
12/23/2024
|
|
1.280%
|
|
one-month LIBOR
|
|
$
|
45,000
|
|
2017 Rabobank Swap
|
|
3/23/2017
|
|
3/23/2024
|
|
2.330%
|
|
one-month LIBOR
|
|
$
|
20,000
|
|
2017 Rabobank Swap
|
|
3/28/2017
|
|
3/28/2020
|
|
1.800%
|
|
one-month LIBOR
|
|
$
|
30,000
|
|
2017 Rabobank Swap
|
|
3/28/2017
|
|
11/28/2021
|
|
2.045%
|
|
one-month LIBOR
|
|
$
|
20,000
|
|
2018 Rabobank Swap
|
|
2/28/2018
|
|
11/28/2022
|
|
2.703%
|
|
one-month LIBOR
|
|
$
|
30,000
|
|
2018 Rabobank Swap
|
|
2/28/2018
|
|
11/28/2026
|
|
2.884%
|
|
one-month LIBOR
|
|
$
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
200,000
|
|
As of
June 30, 2018
, CatchMark Timber Trust’s interest rate swaps effectively fixed the interest rate on
$200.0 million
of its
$298.6 million
variable rate debt at
3.92%
. All
seven
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 Timber Trust
's interest rate swaps measured at fair value as of
June 30, 2018
and
December 31, 2017
:
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(in thousands)
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Estimated Fair Value as of
|
Instrument Type
|
|
Balance Sheet Classification
|
|
June 30, 2018
|
|
December 31, 2017
|
Derivatives designated as hedging instruments:
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|
|
|
|
|
|
Interest rate swaps
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|
Prepaid expenses and other assets
|
|
$
|
5,992
|
|
|
$
|
2,935
|
|
Interest rate swaps
|
|
Other liabilities
|
|
$
|
(165
|
)
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|
$
|
(559
|
)
|
As of June 30, 2018, CatchMark Timber Trust estimated that approximately
$0.5 million
will be reclassified from accumulated other comprehensive income to interest expense over the next 12 months.
During the
six months ended
June 30, 2018
and
2017
,
CatchMark Timber Trust
recognized a change in fair value of the interest rate swaps of approximately
$3.5 million
and
$0.6 million
as other comprehensive income and other comprehensive loss, respectively. There was
no
hedge ineffectiveness on the interest rate swaps required to be recognized in current earnings.
During the three months ended
June 30, 2018
and
2017
, net payments of approximately
$0.1 million
and
$0.3 million
were made under the interest rate swaps, respectively. During the
six months ended
June 30, 2018
and
2017
, net payments of approximately
$0.3 million
and
$0.5 million
were made under the interest rates swaps, respectively. Interest rate swaps payments were recorded as interest expense.
7. Commitments and Contingencies
Mahrt Timber Agreements
CatchMark Timber Trust
is party to a fiber supply agreement and a master stumpage agreement (collectively, the “Mahrt Timber Agreements”) with a wholly owned subsidiary of
WestRock
. The fiber supply agreement provides that WestRock will purchase specified tonnage of timber from CatchMark TRS at specified prices per ton, depending upon the type of timber. The fiber supply agreement is subject to quarterly market pricing adjustments based on an index published by Timber Mart-South, a quarterly trade publication that reports raw forest product prices in
11
southern states. The master stumpage agreement provides that
CatchMark Timber Trust
will sell specified amounts of timber and make available certain portions of its timberlands to CatchMark TRS for harvesting. 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 Timber Trust
with a reliable customer for the wood products from its timberlands.
Timberland Operating Agreements
Pursuant to the terms of the timberland operating agreement between CatchMark Timber Trust and
FRC
(the "FRC Timberland Operating Agreement"), FRC manages and operates
CatchMark Timber Trust
'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 Timber Trust
pays FRC (i) a monthly management fee based on the actual acreage 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, 2019, and is automatically extended for
one
-year periods unless written notice is provided by CatchMark Timber Trust 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 Timber Trust
with or without cause upon providing
120
days’ prior written notice.
Pursuant to the terms of the timberland operating agreement between CatchMark Timber Trust and AFM (the "AFM Timberland Operating Agreement"), AFM manages and operates
CatchMark Timber Trust
'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 Timber Trust
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, 2018, and is automatically extended for
one
-year periods unless written notice is provided by CatchMark Timber Trust 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 Timber Trust
with or without cause upon providing
120
days’ prior written notice.
Litigation
From time to time,
CatchMark Timber Trust
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 Timber Trust
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 Timber Trust
accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount,
CatchMark Timber Trust
accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated,
CatchMark Timber Trust
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 Timber Trust
discloses the nature and estimate of the possible loss of the litigation.
CatchMark Timber Trust
does not disclose information with respect to litigation where an unfavorable outcome is considered to be remote.
CatchMark Timber Trust
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 Timber Trust
.
CatchMark Timber Trust
is not aware of any legal proceedings contemplated by governmental authorities.
8. Stockholders' Equity
Equity Offering
On June 2, 2017, CatchMark Timber Trust filed a shelf registration statement on Form S-3 (File No. 333-218466) with the SEC (the "Shelf Registration Statement"), which was declared effective by the SEC on June 16, 2017. The Shelf Registration Statement provides CatchMark Timber Trust with future flexibility to offer, from time to time and in one or more offerings, debt securities, common stock, preferred stock, depositary shares, warrants, or any combination thereof. The terms of any such future offerings are established at the time of an offering. In March 2018, under the Shelf Registration Statement, CatchMark Timber Trust issued
5.75 million
shares of its Class A common stock at a price of
$12.60
per share (the "2018 Equity Offering"). After deducting
$3.5 million
in underwriting commissions and fees and other issuance costs, CatchMark Timber Trust received net proceeds of
$69.0 million
from the 2018 Equity Offering. CatchMark Timber Trust used the net proceeds from the 2018 Equity Offering to pay down its outstanding debt.
9. Stock-based Compensation
Stock-based Compensation - Independent Directors
On June 25, 2018, CatchMark Timber Trust issued
23,736
shares to its
six
independent directors,
4,154
shares of which were repurchased for estimated income tax payments. CatchMark Timber Trust recognized approximately
$0.3
million and
$0.3
million of fair value of the award within general and administrative expenses for the three months and six months ended June 30, 2018, respectively.
Stock-based Compensation - Employees
During the three months ended June 30, 2018, CatchMark Timber Trust did
no
t issue any share of service-based
restricted stock grants to its non-executive employees.
A rollforward of CatchMark Timber Trust's unvested, service-based restricted stock awards to employees for the
six months ended
June 30, 2018
is as follows:
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Number of
Underlying Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
Unvested at December 31, 2017
|
278,633
|
|
|
$
|
11.05
|
|
Granted
|
73,000
|
|
|
$
|
12.97
|
|
Vested
|
(140,984
|
)
|
|
$
|
11.46
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Unvested at June 30, 2018
|
210,649
|
|
|
$
|
11.44
|
|
Stock-based Compensation Expense
A summary of
CatchMark Timber Trust
's stock-based compensation expense for the three months and
six months ended
June 30, 2018
and
2017
is presented below:
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|
(in thousands)
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
Stock-based Compensation Expense classified as:
|
2018
|
|
2017
|
|
2018
|
|
2017
|
General and administrative expenses
|
$
|
758
|
|
|
$
|
678
|
|
|
$
|
1,274
|
|
|
$
|
1,004
|
|
Forestry management expenses
|
38
|
|
|
240
|
|
|
287
|
|
|
334
|
|
Total
|
$
|
796
|
|
|
$
|
918
|
|
|
$
|
1,561
|
|
|
$
|
1,338
|
|
As of
June 30, 2018
, approximately
$3.3 million
of unrecognized compensation expense related to non-vested restricted stock and RSU's remained and will be recognized over a weighted-average period of
2.2
years.
10. Subsequent Events
Triple T Joint Venture
On July 6, 2018, CatchMark Timber Trust and affiliates, together with a consortium of institutional investors, including BTG Pactual Timberland Investment Group, Highland Capital Management, Medley Management Inc., and British Columbia Investment Management Corporation (the "Triple T Joint Venture"), completed the acquisition of
1.1 million
acres of prime East Texas timberlands, or the Triple T Timberlands, for approximately
$1.39 billion
. The property was sold by Campbell Global on behalf of the institutional owners of the property. The purchase price of the Triple T Timberlands was financed through the proceeds of the Triple T Joint Venture partners' equity contributions, including a
$200 million
equity contribution by CatchMark Timber Trust, and a
$600 million
,
seven
-year term loan made pursuant to a credit agreement, dated July 6, 2018, between the Triple T Joint Venture and its affiliates and the lenders.
Borrowings under the term loan bear interest at a floating rate equal to LIBOR or a base rate, plus a margin determined based upon a LTV ratio and are secured by all of the assets of the Triple T Joint Venture and its subsidiaries. CatchMark Timber Trust funded its
$200 million
equity contribution with borrowings under the 2017 Multi-Draw Term Facility, including the
$30 million
earnest money deposit made during the quarter and
$170 million
borrowed on July 5, 2018.
In connection with the Triple T Joint Venture, a subsidiary of CatchMark entered into an asset management agreement pursuant to which CatchMark will receive an asset management fee equal to
1%
, subject to reduction in certain circumstances, of the value of the equity contributions from the institutional investors in the Triple T Joint Venture during the term of the joint venture. As a result, for its investment of
$200 million
, CatchMark Timber Trust tripled the number of acres under its management to approximately
1.6 million
acres and significantly expanded its fee-based asset management business.
CatchMark Timber Trust expects to use the equity method to account for its investment in the Triple T Joint Venture. Income (loss) and cash distributions from the Triple T Joint Venture will be allocated according to the provisions of the joint venture agreement, which is different than stated ownership percentage. Accordingly, CatchMark Timber Trust anticipates using the hypothetical-liquidation-at-book-value approach (“HLBV”) to determine its equity in earnings of the Triple T Joint Venture. As a result of transaction costs and distribution preferences, CatchMark Timber Trust anticipates incurring non-cash GAAP losses from the unconsolidated Triple T Joint Venture equal to its initial investment in the joint venture in the near term.
Dividend Declaration
On August 2, 2018, CatchMark Timber Trust declared a cash dividend of
$0.135
per share for its common stockholders of record on August 30, 2018, payable on September 14, 2018.