CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020 (UNAUDITED)
1. Organization
CatchMark Timber Trust Inc. ("CatchMark Timber Trust") (NYSE: CTT) owns and operates timberlands located in the United States and has elected to be taxed as a REIT for federal income tax purposes. CatchMark Timber Trust acquires, owns, operates, manages, and disposes of timberland directly, through wholly-owned subsidiaries, or through joint ventures. CatchMark Timber Trust was incorporated in Maryland in 2005 and commenced operations in 2007. CatchMark Timber Trust conducts substantially all of its business through CatchMark Timber Operating Partnership, L.P. (“CatchMark Timber OP”), a Delaware limited partnership. CatchMark Timber Trust is the general partner of CatchMark Timber OP, possesses full legal control and authority over its operations, and owns 99.82% 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 a limited partner of CatchMark Timber OP and owns 0.01% of its common partnership units. The remaining 0.17% of CatchMark Timber OP’s common partnership units are owned by current and former officers and directors of CatchMark Timber Trust. In addition, CatchMark Timber Trust conducts certain of its business through CatchMark Timber TRS, Inc. (“CatchMark TRS”), a Delaware corporation formed as a wholly-owned subsidiary of CatchMark Timber OP in 2006. CatchMark TRS is a 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.
Risks and Uncertainties
CatchMark is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on CatchMark’s business and that of its customers and contractors is uncertain and difficult to predict. The rapid spread of the outbreak has caused significant disruptions in the U.S. and global economies and capital markets, and the impact is expected to continue to be significant during the remainder of 2020 and into 2021. Such economic disruption could have a material adverse effect on CatchMark’s business due to declines in sawtimber harvest volumes resulting from a deterioration in the housing market; a decline in production level at CatchMark’s customers' mills due to instances of COVID-19 among their employees or decreased demand for their products; the inability to complete timberland sales due to the inability of potential buyers to complete title searches and other customary due diligence, including as a result of state and local government office closures; effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating CatchMark’s financial reporting and internal controls; and market volatility and market downturns negatively impacting the trading of CatchMark’s common stock.
The severity of the impact of the COVID-19 pandemic on CatchMark’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on CatchMark’s customers, all of which are uncertain and cannot be predicted. CatchMark’s future results of operations and liquidity could be adversely impacted by uncertain customer demand and the impact of any initiatives or programs that CatchMark may undertake to address financial and operational challenges faced by its customers. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact CatchMark’s financial condition, liquidity, or results of operations is uncertain. See Note 5 — Notes Payable and Lines of Credit for additional information on CatchMark’s outstanding indebtedness and debt covenants.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of CatchMark have been prepared in accordance with the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all the
information and footnotes required by GAAP for complete financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Results for these interim periods are not necessarily indicative of results for a full year.
CatchMark’s consolidated financial statements include the accounts of CatchMark and any VIE in which CatchMark is deemed the primary beneficiary. With respect to entities that are not VIEs, CatchMark's consolidated financial statements also include the accounts of any entity in which CatchMark owns a controlling financial interest and any limited partnership in which CatchMark owns a controlling general partnership interest. In determining whether a controlling interest exists, CatchMark considers, among other factors, the ownership of voting interests, protective rights, and participatory rights of the investors. All intercompany balances and transactions have been eliminated in consolidation. For further information, refer to the audited financial statements and footnotes included in CatchMark’s Annual Report on Form 10-K for the year ended December 31, 2019.
Investments in Joint Ventures
For joint ventures that it does not control but exercises significant influence, CatchMark uses the equity method of accounting. CatchMark's judgment about its level of influence or control of an entity involves consideration of various factors including the form of its ownership interest; its representation in the entity's governance; its ability to participate in policy-making decisions; and the rights of other investors to participate in the decision-making process, to replace CatchMark as manager, and/or to liquidate the venture. Under the equity method, the investment in a joint venture is recorded at cost and adjusted for equity in earnings and cash contributions and distributions. Income or loss and cash distributions from an unconsolidated joint venture are allocated according to the provisions of the respective joint venture agreement, which may be different from its stated ownership percentages. Any difference between the carrying amount of these investments on CatchMark’s balance sheets and the underlying equity in net assets on the joint venture’s balance sheets is adjusted as the related underlying assets are depreciated, amortized, or sold. Distributions received from unconsolidated joint ventures are classified in the accompanying consolidated statements of cash flows using the cumulative earnings approach under which distributions received in an amount equal to cumulative equity in earnings are classified as cash inflows from operating activities and distributions received in excess of cumulative equity in earnings represent returns of investment and therefore are classified as cash inflows from investing activities.
CatchMark evaluates the recoverability of its investments in unconsolidated joint ventures in accordance with accounting standards for equity investments by first reviewing each investment for any indicators of impairment. If indicators are present, CatchMark estimates the fair value of the investment. If the carrying value of the investment is greater than the estimated fair value, management assesses whether the impairment is “temporary” or “other-than-temporary.” In making this assessment, management considers the following: (1) the length of time and the extent to which fair value has been less than cost, (2) the financial condition and near-term prospects of the entity, and (3) CatchMark’s intent and ability to retain its interest long enough for a recovery in market value. If management concludes that the impairment is "other than temporary," CatchMark reduces the investment to its estimated fair value.
For information on CatchMark’s unconsolidated joint ventures, which are accounted for using the equity method of accounting, see Note 4 — Unconsolidated Joint Ventures.
Impairment Testing
ASC 360-10 requires impairment testing to be completed whenever events or changes in circumstances indicate the asset's carrying value may not be recoverable. Examples of such circumstances for CatchMark include, but are not limited to, a significant decrease in market price of the timber assets, a significant adverse change in the extent or manner in which timber assets are being used, or a significant adverse change in legal factors or in the business climate that could affect the value of the timber assets. CatchMark monitors such events and changes in circumstances, and when indicators of potential impairment are present, evaluates if the carrying amounts of its timber assets exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposal of its timber assets (the "Recoverable Amount") and if the carrying amount exceeds the timber assets' fair value. The
Recoverable Amount and fair value are estimated based on the following information in order of preference, dependent upon availability: (i) recently quoted market prices, (ii) market prices for comparable assets, or (iii) the present value of undiscounted cash flows, including estimated salvage value, using data from one harvest cycle. CatchMark has determined that there has been no impairment to its timber assets as of September 30, 2020.
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.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removed certain exceptions for intra-period tax allocation, recognition of deferred tax liabilities, and calculation of income taxes in interim periods. This ASU also added guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, and interim periods therein. CatchMark is currently assessing the impact ASU 2019-12 will have on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, which provides clarifications on seven topics related to financial instruments in the ASC. The update became effective for CatchMark upon issuance and the adoption did not have a material impact on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides companies with optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform if certain criteria are met. CatchMark has elected the optional expedients offered in this update. The amendments did not apply to any transaction in the current quarter and will be applied prospectively to all eligible contracts and hedging relationships.
3. Timber Assets
As of September 30, 2020 and December 31, 2019, timber and timberlands consisted of the following, respectively:
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As of September 30, 2020
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(in thousands)
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Gross
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Accumulated
Depletion or
Amortization
|
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Net
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Timber
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$
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280,284
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$
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20,934
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|
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$
|
259,350
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Timberlands
|
330,605
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—
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|
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330,605
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Mainline roads
|
1,153
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|
811
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|
|
342
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Timber and timberlands
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$
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612,042
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|
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$
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21,745
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|
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$
|
590,297
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As of December 31, 2019
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(in thousands)
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Gross
|
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Accumulated
Depletion or
Amortization
|
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Net
|
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Timber
|
$
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312,452
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$
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28,064
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$
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284,388
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Timberlands
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348,825
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—
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348,825
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Mainline roads
|
1,106
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738
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|
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368
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Timber and timberlands
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$
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662,383
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|
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$
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28,802
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$
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633,581
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Timberland Sales
During the three months ended September 30, 2020 and 2019, CatchMark sold 1,200 and 1,100 acres of timberland for $2.4 million and $2.3 million, respectively. CatchMark's cost basis in the timberland sold was $1.8 million and $1.8 million, respectively.
During the nine months ended September 30, 2020 and 2019, CatchMark sold 5,200 and 6,000 acres of timberland for $8.9 million and $12.6 million, respectively. CatchMark's cost basis in the timberland sold was $6.3 million and $9.8 million, respectively.
Large Dispositions
CatchMark did not close any large dispositions in the current quarter. During the nine months ended September 30, 2020, CatchMark completed the sale of 14,400 acres of its wholly-owned timberlands for $21.3 million. CatchMark's cost basis was $19.6 million. Of the total net proceeds, $20.9 million was used to pay down CatchMark's outstanding debt balance on the Multi-Draw Term Facility.
During the three months ended September 30, 2019, CatchMark completed the sale of 10,800 acres of its wholly-owned timberlands for $19.9 million. CatchMark's total cost basis was $12.6 million. During the nine months ended September 30, 2019, CatchMark completed the sale of 14,400 acres of its wholly-owned timberlands for $25.4 million in two transactions. CatchMark's total cost basis was $17.2 million. Of the total net proceeds, $20.1 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:
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Nine Months Ended September 30,
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Acres Sold In
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2020
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2019
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South
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Timberland Sales
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Alabama
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2,200
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700
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Georgia
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1,500
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1,100
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North Carolina
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—
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500
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South Carolina
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1,200
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3,700
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Tennessee
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300
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—
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5,200
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6,000
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Large Dispositions
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Alabama
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—
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2,200
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Georgia
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14,400
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12,200
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14,400
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14,400
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Total
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19,600
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20,400
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Current Timberland Portfolio
As of September 30, 2020, CatchMark directly owned interests in 412,500 acres of timberlands in the U.S. South and Pacific Northwest, 390,500 acres of which were fee-simple interests and 22,000 acres were leasehold interests. Land acreage by state is listed below:
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Acres by state as of September 30, 2020 (1)
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Fee
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Lease
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Total
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South
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Alabama
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67,800
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|
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1,800
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|
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69,600
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Florida
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2,000
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|
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—
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|
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2,000
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Georgia
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232,100
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20,200
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|
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252,300
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North Carolina
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100
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|
—
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100
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South Carolina
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70,400
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—
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70,400
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372,400
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22,000
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394,400
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Pacific Northwest
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Oregon
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18,100
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—
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18,100
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Total
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390,500
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22,000
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412,500
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(1)Represents CatchMark wholly-owned acreage only; excludes ownership interest in acreage held by joint ventures.
4. Unconsolidated Joint Ventures
As of September 30, 2020, 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).
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As of September 30, 2020
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Dawsonville Bluffs Joint Venture
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Triple T Joint Venture
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Ownership percentage
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50.0%
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22.0%
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(1)
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Acreage owned by the joint venture
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—
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1,085,000
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Merchantable timber inventory (million tons)
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—
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41.1
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(2)
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Location
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Georgia
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Texas
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(1)Represents our share of total partner capital contributions.
(2)The Triple T Joint Venture considers inventory to be merchantable at age 12. Merchantable timber inventory does not include current year growth.
CatchMark accounts for these investments using the equity method of accounting.
Triple T Joint Venture
During 2018, CatchMark formed 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 at that time, 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.
On June 24, 2020, CatchMark invested an additional $5.0 million of equity on the same terms and conditions as its existing investment in the Triple T Joint Venture in connection with amendments to the joint venture agreement and asset management agreement. The amended asset management agreement designated Brian M. Davis, Chief Executive Officer and President of CatchMark, as the “Key Man” and increased the asset management fee payable to CatchMark as described below in Asset Management Fees. The amended joint venture agreement increased the 10.25% cumulative return on the preferred investors’ interests in the Triple T Joint Venture’s subsidiary REIT by 0.5% per quarter, subject to a maximum increase of 2.0% and subject to decreases in other circumstances. The proceeds of CatchMark’s additional $5.0 million investment, along with the proceeds from $140.0 million of borrowings under the Triple T Joint Venture’s credit facility, were used to make a payment of $145.0 million to GP in connection with an amendment to a wood supply agreement between the Triple T Joint Venture and GP. This amendment was intended to achieve market-based pricing on timber sales, increase reimbursement for extended haul distances, provide the ability for the Triple T Joint Venture to sell sawtimber to other third parties, and expand the Triple T Joint Venture’s ability to sell large timberland parcels to third-party buyers. The supply agreement between the Triple T Joint Venture and GP was also extended by two years from 2029 to 2031.
CatchMark uses the equity method to account for its investment in the Triple T Joint Venture since it does not possess the power to direct the activities that most significantly impact the economic performance of the Triple T Joint Venture, and accordingly, CatchMark does not possess the first characteristic of a primary beneficiary described in GAAP. CatchMark has appointed three common board members of the Triple T Joint Venture, including its Chief Executive Officer, Chief Resources Officer and Vice President - Acquisitions, which provides CatchMark with significant influence over the Triple T Joint Venture. Accordingly, pursuant to the applicable accounting literature, it is appropriate for CatchMark to apply the equity method of accounting to its investment in the Triple T Joint Venture.
The Triple T Joint Venture agreement provides for liquidation rights and distribution priorities that are significantly different from CatchMark's stated ownership percentage based on total equity contributions. The Preferred Investors are entitled to a minimum 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:
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As of
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(in thousands)
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September 30, 2020
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December 31, 2019
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Triple T Joint Venture
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Total assets
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$
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1,567,084
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$
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1,573,172
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Total liabilities
|
$
|
773,660
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|
|
$
|
751,655
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Total equity
|
$
|
793,424
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|
|
$
|
821,517
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|
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CatchMark
|
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Carrying value of investment
|
$
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—
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$
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—
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Condensed income statement information for the Triple T Joint Venture is as follows:
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Three Months Ended September 30,
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Nine Months Ended September 30,
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(in thousands)
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2020
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2019
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2020
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2019
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Triple T Joint Venture
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Total revenues
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$
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44,222
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$
|
41,509
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|
|
$
|
114,091
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|
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$
|
121,450
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Net loss
|
$
|
(9,973)
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|
$
|
(4,613)
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|
$
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(25,636)
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|
$
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(10,480)
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CatchMark
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Equity share of net loss
|
$
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(2,689)
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|
|
$
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(25,712)
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|
$
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(5,000)
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|
|
$
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(81,800)
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Condensed statement of cash flow information for the Triple T Joint Venture is as follows:
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Nine Months Ended September 30,
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(in thousands)
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2020
|
|
2019
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Triple T Joint Venture
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Net cash provided by operating activities
|
$
|
2,305
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|
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$
|
9,040
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|
Net cash used in investing activities
|
$
|
(151,473)
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|
|
$
|
(3,263)
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|
|
Net cash provided by financing activities
|
$
|
154,111
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|
|
$
|
87
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|
|
Net change in cash and cash equivalents
|
$
|
4,943
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|
|
$
|
5,864
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|
|
Cash and cash equivalents, beginning of period
|
$
|
39,614
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|
|
$
|
39,300
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Cash and cash equivalents, end of period
|
$
|
44,557
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|
|
$
|
45,164
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|
As of September 30 2020, CatchMark had recognized cumulative HLBV losses of $205.0 million, reducing the carrying value of its investment to zero. CatchMark does not expect to recognize any additional losses from the Triple T Joint Venture as CatchMark has not guaranteed obligations of the venture and is not otherwise committed to provide it additional financial support.
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.
As of September 30, 2020, the Dawsonville Bluffs Joint Venture had a mitigation bank with a book basis of $2.3 million remaining in its portfolio. Condensed balance sheet information for the Dawsonville Bluffs Joint Venture is as follows:
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As of
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(in thousands)
|
September 30, 2020
|
|
December 31, 2019
|
|
Dawsonville Bluffs Joint Venture
|
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Total assets
|
$
|
3,707
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|
|
$
|
4,041
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|
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Total liabilities
|
$
|
31
|
|
|
$
|
111
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|
|
Total equity
|
$
|
3,676
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|
|
$
|
3,930
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|
|
CatchMark
|
|
|
|
|
Carrying value of investment
|
$
|
1,838
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|
|
$
|
1,965
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|
Condensed income statement information for the Dawsonville Bluffs Joint Venture is as follows:
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|
|
|
|
|
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|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Dawsonville Bluffs Joint Venture
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
1,246
|
|
|
$
|
8,648
|
|
|
$
|
1,246
|
|
|
$
|
10,068
|
|
|
Net income
|
$
|
790
|
|
|
$
|
1,323
|
|
|
$
|
546
|
|
|
$
|
1,578
|
|
|
CatchMark
|
|
|
|
|
|
|
|
|
Equity share of net income
|
$
|
395
|
|
|
$
|
661
|
|
|
$
|
273
|
|
|
$
|
789
|
|
Condensed statement of cash flow information for the Dawsonville Joint Venture is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
Dawsonville Joint Venture
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
633
|
|
|
$
|
8,873
|
|
|
Net cash used in financing activities
|
|
$
|
(800)
|
|
|
$
|
(9,616)
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(167)
|
|
|
$
|
(743)
|
|
|
Cash and cash equivalents, beginning of period
|
|
$
|
1,441
|
|
|
$
|
1,731
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,274
|
|
|
$
|
988
|
|
For the nine months ended September 30, 2020 and 2019, CatchMark received cash distributions of $0.4 million and $4.8 million, respectively, from the Dawsonville Bluffs Joint Venture.
Risks and Uncertainties Related to Unconsolidated Joint Ventures
CatchMark’s unconsolidated joint ventures, most notably the Triple T Joint Venture, are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Triple T Joint Venture’s business and that of its customers and contractors is uncertain and difficult to predict. The rapid spread of the outbreak has caused significant disruptions in the U.S. and global economies and capital markets, and the impact is expected to continue to be significant during the remainder of 2020 and into 2021. Such economic disruption could have a material adverse effect on the Triple T Joint Venture’s business due to the same reasons discussed in Note 1 — Organization with respect to CatchMark. The severity of the impact of the COVID-19 pandemic on the Triple T Joint Venture’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Triple T Joint Venture’s customers, all of which are uncertain and cannot be predicted. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the financial condition, liquidity, or results of operations of CatchMark’s unconsolidated joint ventures is uncertain.
Asset Management Fees
CatchMark provides asset management services to the Triple T Joint Venture and the Dawsonville Bluffs Joint Venture. Under these arrangements, CatchMark oversees the day-to-day operations of these joint ventures and their properties, including accounting, reporting and other administrative services, subject to certain major decisions that require partner approval.
On June 24, 2020, in connection with its additional $5.0 million equity investment in the Triple T Joint Venture, CatchMark entered into an amended and restated asset management agreement with the Triple T Joint Venture. Prior to this amendment, for management of the Triple T Joint Venture, CatchMark received a fee equal to 1% of the Acquisition Price multiplied by 78.4%, which represented the percentage of the original equity contributions made to the Triple T Joint Venture by the Preferred Investors. In the event the Preferred Investors had not received a return of their capital contributions plus their preferred return as described above, then the asset management fee percentage would have decreased from 1% to 0.75% at October 1, 2021, and to 0.50% at October 1, 2022. The amended asset management agreement provides that, effective June 24, 2020, CatchMark earns an asset management fee equal to 1% of (a) the sum of the Acquisition Price and the $145.0 million paid to GP, multiplied by (b) 78.4%, and in the event the Preferred Investors have not received a return of their capital contributions plus their preferred return, then the asset management fee percentage decreases from 1% to 0.75% at October 1, 2021, and to 0.25% at July 1, 2022. The fee is also subject to deferment in certain circumstances.
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 months and nine months ended September 30, 2020 and 2019, CatchMark earned the following fees from these unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Triple T Joint Venture (1)
|
$
|
3,112
|
|
|
$
|
2,821
|
|
|
$
|
8,789
|
|
|
$
|
8,464
|
|
|
Dawsonville Bluffs Joint Venture (2)
|
6
|
|
|
615
|
|
|
161
|
|
|
655
|
|
|
|
$
|
3,118
|
|
|
$
|
3,436
|
|
|
$
|
8,950
|
|
|
$
|
9,119
|
|
(1)Includes $0.1 million of reimbursements of compensation costs for the three months ended September 30, 2020 and 2019. Includes $0.4 million of reimbursements of compensation costs for the nine months ended September 30, 2020 and 2019.
(2)Includes $0.1 million and $0.6 million of incentive-based promote earned for exceeding investment hurdle in the first quarter of 2020 and in the third quarter of 2019, respectively.
5. Notes Payable and Lines of Credit
Amended Credit Agreement
As of September 30, 2020, CatchMark was party to a credit agreement dated as of December 1, 2017, as amended on August 22, 2018, June 28, 2019, February 12, 2020, and May 1, 2020 (the "Amended Credit Agreement"), with a syndicate of lenders, including CoBank, which serves as the administrative agent. 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 $150.0 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").
The amendment dated May 1, 2020 provided for, among other things: (1) the removal of the LTV ratio covenant reduction, from 50% to 45%, which would have otherwise been effective on December 31, 2021; (2) the removal of the minimum liquidity balance of $25.0 million, which enables CatchMark to draw down more proceeds for working capital or other purposes if needed under its Revolving Credit Facility; (3) a reduction in the Multi-Draw Term Facility commitment from $200 million to $150 million, which provides CatchMark ample capacity for future acquisitions while lowering its unused commitment fees; and (4) the ability to make additional investments in joint ventures during 2020 if CatchMark meets certain LTV ratio requirements.
During the nine months ended September 30, 2020, CatchMark borrowed $5.0 million under its Multi-Draw Term Facility to fund its additional equity investment in the Triple T Joint Venture (see Note 4 — Unconsolidated Joint Ventures). CatchMark paid down $20.9 million of its outstanding balance on the Multi-Draw Term Facility with proceeds from a large disposition during the first quarter of 2020. As of September 30, 2020 and December 31, 2019, CatchMark had the following debt balances outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in thousands)
|
|
|
|
Current Interest Rate (1)
|
|
Outstanding Balance as of
|
|
Credit Facility
|
|
Maturity Date
|
|
Interest Rate
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Term Loan A-1
|
|
12/23/2024
|
|
LIBOR + 1.75%
|
|
1.90%
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
Term Loan A-2
|
|
12/1/2026
|
|
LIBOR + 1.90%
|
|
2.05%
|
|
100,000
|
|
|
100,000
|
|
|
Term Loan A-3
|
|
12/1/2027
|
|
LIBOR + 2.00%
|
|
2.15%
|
|
68,619
|
|
|
68,619
|
|
|
Term Loan A-4
|
|
8/22/2025
|
|
LIBOR + 1.70%
|
|
1.85%
|
|
140,000
|
|
|
140,000
|
|
|
Multi-Draw Term Facility
|
|
12/1/2024
|
|
LIBOR + 1.90%
|
|
2.05%
|
|
34,086
|
|
|
49,936
|
|
|
Total principal balance
|
|
|
|
|
|
|
|
$
|
442,705
|
|
|
$
|
458,555
|
|
|
Less: net unamortized deferred financing costs
|
|
(5,469)
|
|
|
(5,568)
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
437,236
|
|
|
$
|
452,987
|
|
(1)For the Multi-Draw Term Facility, the interest rate represents weighted-average interest rate as of September 30, 2020. The weighted-average interest rate excludes the impact of the interest rate swaps (see Note 6 — Interest Rate Swaps), amortization of deferred financing costs, unused commitment fees, and estimated patronage dividends.
As of September 30, 2020, CatchMark had $150.9 million of borrowing capacity remaining under its credit facilities, consisting of $115.9 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, to fund the repurchase of CatchMark's common stock, and to reimburse payments of drafts under letters of credit. The Multi-Draw Term Facility, which is interest only until its maturity date, bears interest at an adjustable rate equal to a base rate plus between 0.50% and 1.20% or a LIBOR rate plus between 1.50% and 2.20%, in each case depending on CatchMark's LTV Ratio, and will terminate and all amounts outstanding under the facility will be due and payable on December 1, 2024.
CatchMark pays the lenders an unused commitment fee on the unused portions of the Revolving Credit Facility and the Multi-Draw Term Facility at an adjustable rate ranging from 0.15% to 0.35%, depending on the LTV Ratio. For the three months ended September 30, 2020 and 2019, CatchMark recognized $0.1 million and $0.2 million of unused commitment fees as interest expense on its consolidated statements of operations. For the nine month ended September 30, 2020 and 2019, CatchMark recognized $0.4 million and $0.5 million of unused commitment fees as interest expense on its consolidated statements of operations.
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 Dividends
CatchMark is eligible to receive annual patronage dividends 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 dividend on its eligible patronage loans annually since 2015. The eligibility remains the same under the Amended Credit Agreement. Therefore, CatchMark accrues patronage dividends it expects to receive based on actual patronage dividends received as a percentage of its weighted-average eligible debt balance. For each of the three months ended September 30, 2020 and 2019, CatchMark accrued $0.9 million as patronage dividends 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, 2020 and 2019, CatchMark accrued $2.7 million and $2.9 million, respectively, as patronage dividends receivable on its consolidated balance sheets and as an offset against interest expense on the consolidated statements of operations.
In March 2020 and 2019, CatchMark received patronage dividends of $4.1 million and $3.3 million, respectively, on its patronage eligible borrowings. Of the total patronage dividends received in March 2020, $3.1 million was received in cash, including a $0.1 million special cash distribution, and $1.0 million was received in equity of the Patronage Banks.
As of September 30, 2020 and December 31, 2019, the following balances related to the patronage dividend program were included on CatchMark's consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
As of
|
|
Patronage dividends classified as:
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Accounts receivable
|
|
$
|
2,691
|
|
|
$
|
3,810
|
|
|
Prepaid expenses and other assets (1)
|
|
3,335
|
|
|
2,329
|
|
|
Total
|
|
$
|
6,026
|
|
|
$
|
6,139
|
|
(1)Represents cumulative patronage dividends received as equity in the Patronage Banks.
Debt Covenants
The Amended Credit Agreement contains, among others, the following financial covenants which:
•limit the LTV ratio to 50% at any time;
•require maintenance of a FCCR of not less than 1.05:1.00 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. 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, 2020. See Note 1 — Organization for discussion of uncertainties and risks to CatchMark’s financial position, liquidity and results of operations, including impacts of the global COVID-19 pandemic.
Interest Paid and Fair Value of Outstanding Debt
During the three months ended September 30, 2020 and 2019, CatchMark made interest payments of $2.2 million and $5.0 million, respectively, on its borrowings. No unused commitment fee was paid during the three months ended September 30, 2020 and 2019.
During the nine months ended September 30, 2020 and 2019, CatchMark made interest payments of $9.2 million and $15.6 million, respectively, on its borrowings. Included in the interest payments for the nine months ended September 30, 2020 and 2019 were unused commitment fees of $0.3 million and $0.1 million, respectively.
As of September 30, 2020 and December 31, 2019, the weighted-average interest rate on CatchMark's borrowings, after consideration of its interest rate swaps (see Note 6 — Interest Rate Swaps), was 3.22% and 3.87%, respectively. After further consideration of expected patronage dividends, CatchMark's weighted-average interest rate as of September 30, 2020 and December 31, 2019 was 2.42% and 3.07%, respectively.
6. Interest Rate Swaps
CatchMark uses interest rate swaps to mitigate its exposure to changing interest rates on its variable rate debt instruments. As of September 30, 2020, CatchMark had two outstanding interest rate swaps with terms below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Interest Rate Swap
|
|
Effective Date
|
|
Maturity Date
|
|
Pay Rate
|
|
Receive Rate
|
|
|
2019 Swap - 10YR
|
|
11/29/2019
|
|
11/30/2029
|
|
2.2067%
|
|
one-month LIBOR
|
|
$
|
200,000
|
|
|
2019 Swap - 7YR
|
|
11/29/2019
|
|
11/30/2026
|
|
2.0830%
|
|
one-month LIBOR
|
|
$
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
275,000
|
|
As of September 30, 2020, CatchMark’s interest rate swaps effectively fixed the interest rate on $275.0 million of its $442.7 million variable-rate debt at 3.98%, inclusive of the applicable spread and before consideration of expected patronage dividends. The 2019 swaps contain an other-than-insignificant financing element and, accordingly, the associated cash flows are reported as financing activities in the accompanying consolidated statements of cash flows.
During the nine months ended September 30, 2019, CatchMark had ten interest rate swaps that effectively fixed the interest rates on $350.0 million of CatchMark's variable-rate debt at 4.26%, inclusive of the applicable spread but before considering patronage dividends.
All of CatchMark's outstanding interest rate swaps during the nine months ended September 30, 2020 and 2019 qualified for hedge accounting treatment.
Fair Value and Cash Paid for Interest Under Interest Rate Swaps
The following table presents information about CatchMark's interest rate swaps measured at fair value as of September 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Estimated Fair Value as of
|
|
Instrument Type
|
|
Balance Sheet Classification
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other liabilities
|
|
$
|
(33,015)
|
|
|
$
|
(8,769)
|
|
During the three months ended September 30, 2020 and 2019, CatchMark recognized a change in fair value of its interest rate swaps of $3.4 million and $3.1 million, as other comprehensive gain and other comprehensive loss, respectively. During the three months ended September 30, 2020, CatchMark reclassified $0.4 million from accumulated other comprehensive loss to interest expense related to the off-market swap value at hedge inception.
During the nine months ended September 30, 2020 and 2019, CatchMark recognized a change in fair value of its interest rate swaps of $24.2 million and $14.0 million, respectively, as other comprehensive loss. During the nine months ended September 30, 2020, CatchMark reclassified $1.3 million from accumulated other comprehensive loss to interest expense related to the off-market swap value at hedge inception.
Pursuant to the terms of its interest rate swaps, CatchMark paid $1.4 million and $0.1 million during the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, CatchMark paid $2.9 million and $0.1 million, respectively. All amounts were included in interest expense in the consolidated statements of operations.
As of September 30, 2020, CatchMark estimated that approximately $6.7 million will be reclassified from accumulated other comprehensive loss to interest expense over the next 12 months.
7. Commitments and Contingencies
Mahrt Timber Agreements
In connection with its acquisition of timberlands from WestRock in 2007, 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. In addition, the Mahrt Timber Agreements provide for adjustments to both parties' obligations in the event of a force majeure, which is defined to include, among other things, lightning, fires, storms, floods, infestation and other acts of God or nature.
For the nine months ended September 30, 2020, WestRock purchased 308,900 tons under the Mahrt Timber Agreements, which represented 12% of CatchMark's net timber sales revenue.
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, 2021, 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, 2021 for the U.S. South region and December 31, 2021 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'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 right-of-use (“ROU”) asset and an operating lease liability of $3.4 million on its balance sheet, which represents the net present value of lease payments over the lease term discounted using CatchMark's incremental borrowing rate at commencement date. CatchMark’s office lease contains renewal options; however, the options were not included in the calculation of the operating lease ROU asset and operating lease liability as it is not reasonably certain that CatchMark will exercise the renewal options. CatchMark recorded $108,400 of operating lease expense for each of the three months ended September 30, 2020 and 2019. For the nine months ended September 30, 2020 and 2019, CatchMark recorded $325,000 and $256,000 of operating lease expense, respectively, which was included in general and administrative expenses on its consolidated statements of operations. For the three months ended September 30, 2020 and 2019, CatchMark paid $100,000 and $98,000, respectively, in cash for its office lease. For the nine months ended September 30, 2020 and 2019, CatchMark paid $297,000 and $215,000, respectively, in cash for its office lease, which was included in operating cash flows on its consolidated statements of cash flows. The adoption of ASC 842 did not result in a cumulative-effect adjustment to CatchMark's retained earnings, as its office lease commenced in January 2019.
CatchMark had the following future annual payments for its operating lease as of September 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
September 30, 2020
|
|
December 31, 2019
|
|
Required payments
|
|
|
|
|
2020
|
$
|
100
|
|
|
397
|
|
|
2021
|
412
|
|
|
412
|
|
|
2022
|
424
|
|
|
424
|
|
|
2023
|
435
|
|
|
435
|
|
|
2024
|
447
|
|
|
447
|
|
|
Thereafter
|
1,873
|
|
|
1,873
|
|
|
|
$
|
3,691
|
|
|
$
|
3,988
|
|
|
Less: imputed interest
|
(637)
|
|
|
|
|
Operating lease liability
|
$
|
3,054
|
|
|
|
|
|
|
|
|
|
Remaining lease term (years)
|
8.2
|
|
|
|
Discount rate
|
4.58
|
%
|
|
|
CatchMark holds leasehold interests in 22,000 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, 2020, CatchMark had the following future lease payments under the LTC Lease:
|
|
|
|
|
|
|
|
(in thousands)
|
Required Payments
|
|
2020
|
$
|
16
|
|
|
2021
|
397
|
|
|
2022
|
349
|
|
|
|
$
|
762
|
|
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
Accelerated Vesting of Former CEO's Outstanding Equity Awards
On January 21, 2020, Jerrold Barag retired as the Chief Executive Officer of CatchMark and as a member of CatchMark's board of directors. In connection with Mr. Barag's retirement, 103,135 shares of his time-based restricted stock awards vested immediately, 46,912 shares of which were withheld to cover required tax withholding. CatchMark repurchased the remaining 56,223 fully vested shares at a per-share price of $11.05, which was the average closing price of the common stock for the five-day trading period ended prior to January 21, 2020, payable to Mr. Barag in 24 equal installments through January 2022. During the three months and nine months ended September 30, 2020, CatchMark made installment payments totaling $78,000 and $207,000 related to the repurchase of 56,223 shares from Mr. Barag. Mr. Barag’s 72,272 performance-based LTIP Units issued under the executive officer’s 2017 compensation program had a performance period from January 1, 2017 to December 31, 2019. 25,218 of these 72,272 LTIP Units were earned and vested on January 29, 2020. Mr. Barag’s remaining 142,909 performance-based LTIP units issued under the executive officers' 2018 and 2019 compensation programs were treated as if the performance period for such awards ended on January 21, 2020. The Compensation Committee determined that Mr. Barag earned a total of 32,780 LTIP Units, which were vested on January 29, 2020. In accordance with ASC 718: Compensation - Stock Compensation, CatchMark applied modification accounting and recognized the incremental fair value of these awards in the amount of $1.2 million as stock-based compensation expense in the first quarter of 2020. For complete terms and conditions of the Separation Agreement, see the Form 8-K filed with the SEC on January 21, 2020.
Restricted Stock Vesting
On July 13, 2020, 14,224 shares of service-based restricted stock granted to CatchMark's executive officers vested, which represents one quarter of shares of restricted stock granted on July 12, 2019 pursuant to the 2019 executive compensation plan previously approved by the compensation committee of the board of directors. Of these vested shares, 5,810 shares were withheld to satisfy tax withholding requirements.
Stock-based Compensation Expense
A summary of CatchMark's stock-based compensation expense for the three months and nine months ended September 30, 2020 and 2019 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
General and administrative expenses (1)
|
|
$
|
520
|
|
|
$
|
729
|
|
|
$
|
2,900
|
|
|
$
|
1,763
|
|
|
Forestry management expenses
|
|
110
|
|
|
74
|
|
|
307
|
|
|
189
|
|
|
Total (2)
|
|
$
|
630
|
|
|
$
|
803
|
|
|
$
|
3,207
|
|
|
$
|
1,952
|
|
(1)The nine months ended September 30, 2020 includes $1.2 million of accelerated stock-based compensation expense related to the retirement of CatchMark's former CEO in January 2020.
(2)Includes $0.2 million and $1.0 million of stock-based compensation recognized as noncontrolling interest for the three months and nine months ended September 30, 2020, respectively.
As of September 30, 2020, approximately $5.0 million of compensation expense related to unvested restricted stock and LTIP Units remained to be recognized over a weighted-average period of 2.4 years.
9. Segment Information
As of September 30, 2020, CatchMark had the following reportable segments: Harvest, Real Estate and Investment Management. Harvest includes wholly-owned timber assets and associated timber sales, other revenues and related expenses. Real Estate includes timberland sales, cost of timberland sales and large dispositions. Investment Management includes investment in and income (loss) from unconsolidated joint ventures and asset management fee revenues earned for the management of these joint ventures. General and administrative expenses, along with other expense and income items, are not allocated among segments. Asset information and capital expenditures by segment are not reported because CatchMark does not use these measures to assess performance. CatchMark’s investments in unconsolidated joint ventures are reported separately on the accompanying consolidated balance sheets. During the periods presented, there have been no material intersegment transactions.
The following table presents revenues by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Harvest
|
$
|
19,065
|
|
|
$
|
20,680
|
|
|
$
|
55,510
|
|
|
$
|
55,916
|
|
|
Real Estate
|
2,430
|
|
|
2,264
|
|
|
8,882
|
|
|
12,578
|
|
|
Investment Management
|
3,118
|
|
|
3,436
|
|
|
8,950
|
|
|
9,119
|
|
|
Total
|
$
|
24,613
|
|
|
$
|
26,380
|
|
|
$
|
73,342
|
|
|
$
|
77,613
|
|
Adjusted EBITDA is the primary performance measure reviewed by management to assess operating performance. The following table presents Adjusted EBITDA by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Harvest
|
$
|
8,502
|
|
|
$
|
9,390
|
|
|
$
|
24,497
|
|
|
$
|
23,935
|
|
|
Real Estate
|
2,272
|
|
|
2,036
|
|
|
8,342
|
|
|
11,821
|
|
|
Investment Management
|
3,653
|
|
|
7,250
|
|
|
9,363
|
|
|
13,455
|
|
|
Corporate
|
(2,028)
|
|
|
(2,154)
|
|
|
(7,479)
|
|
|
(7,440)
|
|
|
Total
|
$
|
12,399
|
|
|
$
|
16,522
|
|
|
$
|
34,723
|
|
|
$
|
41,771
|
|
A reconciliation of Adjusted EBITDA to GAAP net loss is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Adjusted EBITDA
|
$
|
12,399
|
|
|
$
|
16,522
|
|
|
$
|
34,723
|
|
|
$
|
41,771
|
|
|
Subtract:
|
|
|
|
|
|
|
|
|
Depletion
|
7,286
|
|
|
8,235
|
|
|
20,934
|
|
|
19,533
|
|
|
Interest expense (1)
|
2,865
|
|
|
4,220
|
|
|
9,121
|
|
|
12,987
|
|
|
Amortization (1)
|
747
|
|
|
299
|
|
|
2,621
|
|
|
986
|
|
|
Depletion, amortization, and basis of timberland and mitigation credits sold included in loss from unconsolidated joint venture (2)
|
140
|
|
|
3,152
|
|
|
140
|
|
|
3,547
|
|
|
Basis of timberland sold, lease terminations and other (3)
|
1,991
|
|
|
1,854
|
|
|
6,988
|
|
|
10,329
|
|
|
Stock-based compensation expense
|
630
|
|
|
803
|
|
|
3,207
|
|
|
1,952
|
|
|
Gain on large dispositions (4)
|
—
|
|
|
(7,197)
|
|
|
(1,274)
|
|
|
(7,961)
|
|
|
HLBV loss from unconsolidated joint venture (5)
|
2,689
|
|
|
25,712
|
|
|
5,000
|
|
|
81,800
|
|
|
Post-employment benefits (6)
|
10
|
|
|
—
|
|
|
2,307
|
|
|
—
|
|
|
Other (7)
|
190
|
|
|
1
|
|
|
260
|
|
|
115
|
|
|
Net loss
|
$
|
(4,149)
|
|
|
$
|
(20,557)
|
|
|
$
|
(14,581)
|
|
|
$
|
(81,517)
|
|
(1)For the purpose of the above reconciliation, amortization includes amortization of deferred financing costs, amortization of operating lease assets and liabilities, amortization of intangible lease assets, and amortization of mainline road costs, which are included in either interest expense, land rent expense, or other operating expenses in the accompanying consolidated statements of operations. Includes non-cash basis of timber and timberland assets written-off related to timberland sold, terminations of timberland leases and casualty losses.
(2)Reflects our share of depletion, amortization, and basis of timberland and mitigation credits sold of the unconsolidated Dawsonville Bluffs Joint Venture.
(3)Includes non-cash basis of timber and timberland assets written-off related to timberland sold, terminations of timberland leases and casualty losses.
(4)Large dispositions are sales of blocks of timberland properties in one or several transactions with the objective to generate proceeds to fund capital allocation priorities. Large dispositions may or may not have a higher or better use than timber production or result in a price premium above the land’s timber production value. Such dispositions are infrequent in nature, are not part of core operations, and would cause material variances in comparative results if not reported separately.
(5)Reflects HLBV (income) losses from the Triple T Joint Venture, which is determined based on a hypothetical liquidation of the underlying joint venture at book value as of the reporting date.
(6)Reflects one-time, non-recurring post-employment benefits associated with the retirement of our former CEO, including severance pay, payroll taxes, professional fees, and accrued dividend equivalents.
(7)Includes certain cash expenses paid, or reimbursement received, that management believes do not directly reflect the core business operations of our timberland portfolio on an on-going basis, including costs required to be expensed by GAAP related to acquisitions, transactions, joint ventures or new business initiatives.
10. Subsequent Event
Dividend Declaration
On October 29, 2020, CatchMark declared a cash dividend of $0.135 per share for its common stockholders of record on November 30, 2020, payable on December 15, 2020.