CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (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 99.76% of its Common 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 Units. The remaining 0.23% of CatchMark Timber OP’s common units are owned by current and former officers and directors of CatchMark Timber Trust. In addition, CatchMark Timber Trust conducts certain aspects 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.
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 notes included in CatchMark’s Annual Report on Form 10-K for the year ended December 31, 2020.
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 percentage. 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, 2021.
Earnings Per Share Attributable to Common Stockholders
Basic earnings (loss) per common share is calculated as net income (loss) attributable to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share equals basic earnings (loss) per common share, adjusted to reflect the dilution that would occur if all outstanding securities convertible into common shares or contracts to issue common shares were converted or exercised and the related proceeds are then used to repurchase common shares. The following table provides the reconciliation of CatchMark's basic weighted-average common shares to diluted weighted-average common shares for the three months and nine months ended September 30, 2021:
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|
|
|
|
|
|
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Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2021
|
Weighted-average common shares outstanding - basic
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|
48,441
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|
|
48,412
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|
Effect of potentially dilutive securities
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|
196
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|
|
201
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|
Weighted-average common shares outstanding - diluted
|
|
48,637
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|
|
48,613
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|
Anti-dilutive shares excluded from diluted weighted-average common shares
|
|
52
|
|
|
37
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|
For the three months and nine months ended September 30, 2021, potentially dilutive securities included unvested shares of service-based restricted stock and contingently issuable performance-based restricted stock and LTIP Units as of September 30, 2021. Vested Common Units have been excluded from the computation of earnings per common share because all income attributable to the Common Units has been recorded as noncontrolling interest and excluded from net income attributable to common stockholders. All potentially dilutive securities outstanding during the three months and nine months ended September 30, 2020 were anti-dilutive as a result of incurring net loss for each of the respective periods.
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 those operating segments into three reportable segments: Harvest, Real Estate and Investment Management. See Note 9 — Segment Information for additional information.
Recent Accounting Pronouncements
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 entities 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. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which refines the scope of Topic 848 and clarifies some of its guidance to reduce diversity in practice related to accounting for (1) modifications to the terms of affected derivatives and (2) existing hedging relationships in which the affected derivatives are designated as hedging instruments. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. CatchMark has elected the optional expedients, which will be applied to all eligible contracts and hedging relationships as reference rate replacement activities occur.
3. Timber Assets
As of September 30, 2021 and December 31, 2020, timber and timberlands consisted of the following, respectively:
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As of September 30, 2021
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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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184,635
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$
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13,473
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$
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171,162
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Timberlands
|
299,099
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|
—
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299,099
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Mainline roads
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1,052
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|
872
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|
|
180
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Timber and timberlands
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$
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484,786
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|
|
$
|
14,345
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|
|
$
|
470,441
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As of December 31, 2020
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(in thousands)
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Gross
|
|
Accumulated
Depletion or
Amortization
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Net
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Timber
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$
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278,361
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|
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$
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29,112
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|
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$
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249,249
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Timberlands
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327,089
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—
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327,089
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Mainline roads
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1,176
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|
834
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|
|
342
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|
Timber and timberlands
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$
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606,626
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|
|
$
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29,946
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|
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$
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576,680
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Timberland Sales
During the three months ended September 30, 2021 and 2020, CatchMark sold 1,000 and 1,200 acres of timberland for $2.1 million and $2.4 million, respectively. CatchMark's cost basis in the timberland sold was $1.2 million and $1.8 million, respectively.
During the nine months ended September 30, 2021 and 2020, CatchMark sold 7,100 and 5,200 acres of timberland for $13.1 million and $8.9 million, respectively. CatchMark's cost basis in the timberland sold was $8.5 million and $6.3 million, respectively.
Large Dispositions
CatchMark closed two large dispositions during the nine months ended September 30, 2021. On June 23, 2021, CatchMark completed the sale of 5,000 acres of its wholly-owned timberlands in Georgia for $7.5 million. CatchMark's cost basis was $6.6 million. CatchMark recognized a gain of $0.8 million from this large disposition. Of the total net proceeds, $7.3 million was used to pay down CatchMark's outstanding debt balance on the Multi-Draw Term Facility. On August 11, 2021, CatchMark completed the sale of approximately 18,100 acres of its wholly-owned timberlands in Oregon (the "Bandon Disposition") for $100.0 million. CatchMark's cost basis was $76.0 million. CatchMark recognized a gain of $23.4 million from the Bandon Disposition. Of the total net proceeds, $95.4 million was used to pay down CatchMark's outstanding debt balance on the Multi-Draw Term Facility and Term Loan A-3.
The disposition of the Bandon property was not considered a strategic shift that had or will have a major effect on CatchMark's operations or financial results and, therefore, did not meet the requirements for presentation as discontinued operations. Condensed income statement information for the Bandon property 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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2021
|
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2020
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2021
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2020
|
Revenues
|
$
|
372
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|
$
|
2,676
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|
|
$
|
9,028
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|
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$
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6,181
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Depletion expense
|
$
|
233
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|
|
$
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1,583
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|
|
$
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5,468
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|
|
$
|
4,084
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Other operating expenses (1)
|
$
|
357
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|
|
$
|
1,592
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|
|
$
|
5,875
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|
|
$
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4,182
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|
$
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(218)
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|
$
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(499)
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|
|
$
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(2,315)
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|
$
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(2,085)
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(1)Excludes general and administrative expense and interest expense, which are not allocated to the property level.
CatchMark closed one large disposition during the nine months ended September 30, 2020. On January 31, 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 and CatchMark recognized a gain of $1.3 million on the disposition.
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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2021
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2020
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Timberland Sales
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Alabama
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1,800
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2,200
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Florida
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500
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|
|
—
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Georgia
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4,700
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|
|
1,500
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South Carolina
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|
100
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1,200
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Tennessee
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—
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300
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7,100
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5,200
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Large Dispositions
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Georgia
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5,000
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14,400
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Oregon
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18,100
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—
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23,100
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14,400
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Total
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30,200
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19,600
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Current Timberland Portfolio
As of September 30, 2021, CatchMark directly owned interests in 370,100 acres of timberlands in the U.S. South, 356,300 acres of which were fee-simple interests and 13,800 acres were leasehold interests. Land acreage by state is listed below:
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Acres by state as of September 30, 2021 (1)
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Fee
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Lease
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Total
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Alabama
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65,600
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1,800
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67,400
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Georgia
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221,100
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12,000
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233,100
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South Carolina
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69,600
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—
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69,600
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Total
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356,300
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13,800
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370,100
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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, 2021, 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). CatchMark accounts for these investments using the equity method of accounting. On October 14, 2021, CatchMark redeemed its interests in the Triple T Joint Venture (the "Triple T Exit"). See Note 10 — Subsequent Events for further details.
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, was 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 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 secured, non-recourse 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.
CatchMark used the equity method to account for its investment in the Triple T Joint Venture since it did not possess the power to direct the activities that most significantly impact the economic performance of the Triple T Joint Venture, and accordingly, CatchMark did not possess the first characteristic of a primary beneficiary described in GAAP. CatchMark appointed three common board members of the Triple T Joint Venture, including its Chief Executive Officer, Chief Resources Officer and Vice President - Acquisitions, which provided CatchMark with significant influence over the Triple T Joint Venture. Accordingly, pursuant to the applicable accounting literature, it was 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 provided for liquidation rights and distribution priorities that were significantly different from CatchMark's stated ownership percentage based on total equity contributions. The Preferred Investors were 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 used 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 applied HLBV using a balance sheet approach. A calculation was 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, was CatchMark's income or loss from the Triple T Joint Venture for the period.
On September 1, 2021, the Triple T Joint Venture sold 300,000 acres of its East Texas timberlands for $497 million, or approximately $1,656 per acre, to an entity that is a client of Hancock Natural Resource Group, Inc. (the "Hancock Disposition"). The Triple T Joint Venture's cost basis was $407.8 million and it recognized a gain of $78.8 million on the disposition. Despite the gain on the Hancock Disposition, CatchMark recognized no equity share of income from the Triple T Joint Venture for the three months and nine months ended September 30, 2021 due to CatchMark's subordinated common limited partnership interest.
Condensed balance sheet information for the Triple T Joint Venture is as follows:
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As of
|
(in thousands)
|
September 30, 2021
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|
December 31, 2020
|
Triple T Joint Venture
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Total assets
|
$
|
1,494,831
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|
|
$
|
1,547,344
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Total liabilities
|
$
|
648,728
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|
|
$
|
763,715
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|
Total equity
|
$
|
846,103
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|
|
$
|
783,629
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|
CatchMark
|
|
|
|
Carrying value of investment
|
$
|
—
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|
|
$
|
—
|
|
Condensed income statement information for the Triple T 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)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Triple T Joint Venture
|
|
|
|
|
|
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Total revenues
|
$
|
40,037
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|
|
$
|
44,222
|
|
|
$
|
100,629
|
|
|
$
|
114,091
|
|
Gain on large disposition
|
$
|
78,811
|
|
|
$
|
—
|
|
|
$
|
78,811
|
|
|
$
|
—
|
|
Net income (loss)
|
$
|
71,862
|
|
|
$
|
(9,973)
|
|
|
$
|
55,556
|
|
|
$
|
(25,636)
|
|
CatchMark
|
|
|
|
|
|
|
|
Equity share of income (loss)
|
$
|
—
|
|
|
$
|
(2,689)
|
|
|
$
|
—
|
|
|
$
|
(5,000)
|
|
As of December 31, 2020, CatchMark had recognized cumulative HLBV losses of $205.0 million, reducing the carrying value of its investment to zero.
On October 14, 2021, CatchMark entered into a recapitalization and redemption agreement with the Triple T Joint Venture and the Preferred Investors for the redemption of CatchMark's common equity interest in the Triple T Joint Venture. See Note 10 — Subsequent Events for further details.
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, 2021, the Dawsonville Bluffs Joint Venture had a mitigation bank with a book basis of $2.1 million remaining in its portfolio. Condensed balance sheet information for the Dawsonville Bluffs Joint Venture is as follows:
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|
|
|
|
|
|
|
|
|
As of
|
(in thousands)
|
September 30, 2021
|
|
December 31, 2020
|
Dawsonville Bluffs Joint Venture
|
|
|
|
Total assets
|
$
|
2,666
|
|
|
$
|
3,059
|
|
Total liabilities
|
$
|
11
|
|
|
$
|
39
|
|
Total equity
|
$
|
2,655
|
|
|
$
|
3,020
|
|
CatchMark
|
|
|
|
Carrying value of investment
|
$
|
1,327
|
|
|
$
|
1,510
|
|
Condensed income statement information for the Dawsonville Bluffs Joint Venture is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in thousands)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Dawsonville Bluffs Joint Venture
|
|
|
|
|
|
|
|
Total revenues
|
$
|
228
|
|
|
$
|
1,246
|
|
|
$
|
2,126
|
|
|
$
|
1,246
|
|
Net income (loss)
|
$
|
(85)
|
|
|
$
|
790
|
|
|
$
|
1,240
|
|
|
$
|
546
|
|
CatchMark
|
|
|
|
|
|
|
|
Equity share of net income (loss)
|
$
|
(43)
|
|
|
$
|
395
|
|
|
$
|
620
|
|
|
$
|
273
|
|
Condensed statement of cash flow information for the Dawsonville Joint Venture is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
(in thousands)
|
|
2021
|
|
2020
|
Dawsonville Joint Venture
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
1,634
|
|
|
$
|
633
|
|
Net cash used in financing activities
|
|
$
|
(1,605)
|
|
|
$
|
(800)
|
|
Net change in cash and cash equivalents
|
|
$
|
29
|
|
|
$
|
(167)
|
|
Cash and cash equivalents, beginning of period
|
|
$
|
559
|
|
|
$
|
1,441
|
|
Cash and cash equivalents, end of period
|
|
$
|
588
|
|
|
$
|
1,274
|
|
For the nine months ended September 30, 2021 and 2020, CatchMark received cash distributions of $0.8 million and $0.4 million, respectively, from the Dawsonville Bluffs Joint Venture.
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%. The amended asset management agreement provided that, effective June 24, 2020, CatchMark earned 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 decreased from 1% to 0.75% at October 1, 2021, and to 0.25% at July 1, 2022.
On October 14, 2021, the amended and restated asset management agreement was terminated and replaced by a transition services agreement, effective September 1, 2021, under which CatchMark will provide transition services through March 2022 in exchange for a one-time payment of $5.0 million in cash. CatchMark received the payment on October 14, 2021. See Note 10 — Subsequent Events for further details.
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, 2021 and 2020, CatchMark earned the following fees from these unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in thousands)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Triple T Joint Venture (1)
|
$
|
2,789
|
|
|
$
|
3,112
|
|
|
$
|
9,013
|
|
|
$
|
8,789
|
|
Dawsonville Bluffs Joint Venture (2)
|
195
|
|
|
6
|
|
|
300
|
|
|
161
|
|
|
$
|
2,984
|
|
|
$
|
3,118
|
|
|
$
|
9,313
|
|
|
$
|
8,950
|
|
(1)Includes $0.1 million of reimbursements of compensation costs for each of the three months ended September 30, 2021 and 2020. Includes $0.3 million and $0.4 million of reimbursements of compensation costs for the nine months ended September 30, 2021 and 2020, respectively.
(2)Includes $0.2 million of incentive-based promote earned for exceeding investment hurdles for the three months ended September 30, 2021. Includes $0.3 million and $0.1 million of incentive-based promote for the nine months ended September 30, 2021 and 2020, respectively.
5. Notes Payable and Lines of Credit
Credit Agreement Amendment
CatchMark is party to a credit agreement dated as of December 1, 2017, as amended on August 22, 2018, June 28, 2019, February 12, 2020, May 1, 2020, and August 4, 2021 with a syndicate of lenders, including CoBank, which serves as the administrative agent (the "Amended Credit Agreement"). Prior to the amendment dated August 4, 2021 (the “Amendment”), the credit agreement provided 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, among other things: (1) consented to CatchMark’s prepayment of the outstanding balance on its Multi-Draw Term Facility and Term Loan A-3 with the proceeds from the Bandon Disposition, and after the outstanding balance of any Multi-Draw Term Facility and Term Loan A-3 have been repaid in full, permits CatchMark to retain up to $5.0 million of such remaining proceeds for working capital purposes; (2) permits CatchMark, for a period of 18 months from the effective date of the Amendment, to, upon the repayment of the outstanding Term Loan A-3, reborrow Term Loan A-3 using borrowing mechanics substantially similar to those that apply to the Revolving Credit Facility, the proceeds of which shall be used solely to finance acquisitions of additional real property, all as set forth in the Amendment, with the same pricing and maturity date as the existing Term Loan A-3; and (3) extended the maturity date of the Revolving Credit Facility from December 1, 2022 to August 4, 2026.
CatchMark accounted for the Amendment as debt modification in accordance with ASC 470-50. Of the $322,000 financing costs incurred, $289,000 was deferred and, together with the existing deferred financing costs, is amortized
over the remaining term of the respective facility. Approximately $33,000 of third-party related financing costs was expensed.
Credit Facilities
During the second and the third quarters of 2021, CatchMark repaid $7.3 million and $95.4 million, respectively, of its outstanding debt balances with net proceeds from large dispositions (see Note 3 — Timber Assets). As of September 30, 2021 and December 31, 2020, 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, 2021
|
|
December 31, 2020
|
Term Loan A-1
|
|
12/23/2024
|
|
LIBOR + 1.75%
|
|
1.83%
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Term Loan A-2
|
|
12/1/2026
|
|
LIBOR + 1.90%
|
|
1.98%
|
|
100,000
|
|
|
100,000
|
|
Term Loan A-3
|
|
12/1/2027
|
|
LIBOR + 2.00%
|
|
—%
|
|
—
|
|
|
68,619
|
|
Term Loan A-4
|
|
8/22/2025
|
|
LIBOR + 1.70%
|
|
1.78%
|
|
140,000
|
|
|
140,000
|
|
Multi-Draw Term Facility
|
|
12/1/2024
|
|
LIBOR + 1.90%
|
|
—%
|
|
—
|
|
|
34,086
|
|
Total principal balance
|
|
|
|
|
|
|
|
$
|
340,000
|
|
|
$
|
442,705
|
|
Less: net unamortized deferred financing costs
|
|
(2,165)
|
|
|
(5,215)
|
|
Total
|
|
|
|
|
|
|
|
$
|
337,835
|
|
|
$
|
437,490
|
|
(1) 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 a result of reducing the Multi-Draw Term Facility and the Term Loan A-3 balances to zero, CatchMark reclassified $2.5 million of unamortized deferred financing costs from Notes Payable and Lines of Credit, where it was presented as a direct reduction from debt liabilities, to Deferred Financing Costs asset on the accompanying consolidated balance sheets.
As of September 30, 2021, CatchMark had access to additional borrowing of $253.6 million, consisting of $35.0 million under the Revolving Credit Facility, $150.0 million under the Multi-Draw Term Facility and $68.6 million under Term Loan A-3.
On October 14, 2021, CatchMark further amended the Amended Credit Agreement and on October 15, 2021, CatchMark paid down $40.0 million of its outstanding debt balances with proceeds from the Triple T Exit transaction. See Note 10 — Subsequent Events for further details.
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 1.90%, in each case depending on CatchMark's LTV ratio, and will terminate and all amounts outstanding under the facility due and payable on August 4, 2026.
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 1.90%, 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, 2021 and 2020, CatchMark recognized $0.2 million and $0.1 million of unused commitment fees as interest expense on its consolidated statements of operations, respectively. For each of the nine months ended September 30, 2021, and 2020, CatchMark recognized $0.4 million of unused commitment fees as interest expense on its consolidated statements of operations, respectively.
CatchMark’s obligations under the Amended 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, these obligations are jointly and severally guaranteed by CatchMark and all of its subsidiaries pursuant to the terms of the Amended 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 the three months ended September 30, 2021 and 2020, CatchMark accrued $0.8 million and $0.9 million, respectively, as patronage dividends receivable on its consolidated balance sheets and as an offset against interest expense on the consolidated statements of operations. For each of the nine months ended September 30, 2021 and 2020, CatchMark accrued $2.7 million, as patronage dividends receivable on its consolidated balance sheets and as an offset against interest expense on the consolidated statements of operations.
In March 2021, CatchMark received patronage dividends of $4.1 million on its patronage eligible borrowings. Of the total patronage dividends received, $3.1 million was received in cash and $1.0 million was received in equity of the Patronage Banks.
As of September 30, 2021 and December 31, 2020, 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, 2021
|
|
December 31, 2020
|
Accounts receivable
|
|
$
|
2,727
|
|
|
$
|
3,597
|
|
Prepaid expenses and other assets (1)
|
|
4,311
|
|
|
3,335
|
|
Total
|
|
$
|
7,038
|
|
|
$
|
6,932
|
|
(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 Amended Credit Agreement. However, if CatchMark has suffered a bankruptcy event or a change of control, the Amended 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. See Note 10 — Subsequent Events for details of an amendment CatchMark entered into on October 14, 2021.
CatchMark was in compliance with the financial covenants of the Amended Credit Agreement as of September 30, 2021.
Interest Paid and Fair Value of Outstanding Debt
During the three months and nine months ended September 30, 2021 and 2020, CatchMark made the following cash interest payments on its borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in thousands)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Cash paid for interest
|
$
|
2,000
|
|
|
$
|
2,200
|
|
|
$
|
6,600
|
|
|
$
|
9,200
|
|
Included in the interest payments for the three months ended September 30, 2021, were unused commitment fees of $0.1 million. No unused commitment fee was paid during the three months ended September 30, 2020. Included in the interest payments for the nine months ended September 30, 2021 and 2020, were unused commitment fees of $0.4 million and $0.3 million, respectively.
As of September 30, 2021 and December 31, 2020, the weighted-average interest rate on CatchMark's borrowings, after consideration of its interest rate swaps (see Note 6 — Interest Rate Swaps), was 3.55% and 3.25%, respectively. After further consideration of expected patronage dividends, CatchMark's weighted-average interest rate as of September 30, 2021 and December 31, 2020 was 2.70% and 2.45%, respectively.
As of September 30, 2021 and December 31, 2020, the fair value of CatchMark's outstanding debt approximated its book value. 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 uses interest rate swaps to mitigate its exposure to changing interest rates on its variable rate debt instruments. As of September 30, 2021, 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, 2021, CatchMark’s interest rate swaps effectively fixed the interest rate on $275.0 million of its $340.0 million variable-rate debt at 3.95%, 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.
All of CatchMark's outstanding interest rate swaps during the nine months ended September 30, 2021 and 2020 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, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Estimated Fair Value as of
|
Instrument Type
|
|
Balance Sheet Classification
|
|
September 30, 2021
|
|
December 31, 2020
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other liabilities
|
|
$
|
(17,279)
|
|
|
$
|
(30,029)
|
|
During the three months ended September 30, 2021 and 2020, CatchMark recognized a change in fair value of its interest rate swaps of $2.2 million and $3.4 million, as other comprehensive income, respectively. During the nine months ended September 30, 2021 and 2020, CatchMark recognized a change in fair value of its interest rate swaps of $12.8 million as other comprehensive income and $24.2 million as other comprehensive loss, respectively.
During the three months ended September 30, 2021 and 2020, CatchMark reclassified $0.2 million and $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, 2021 and 2020, CatchMark reclassified $0.8 million and $1.3 million from accumulated other comprehensive loss to interest expense related to the off-market swap value at hedge inception. These reclassifications were netted with the market value adjustment to interest rate swaps in the consolidated statements of comprehensive income (loss).
Pursuant to the terms of its interest rate swaps, CatchMark paid $1.5 million and $1.4 million during the three months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, CatchMark paid $4.3 million and $2.9 million, respectively. All amounts were included in interest expense in the consolidated statements of operations.
As of September 30, 2021, CatchMark estimated that approximately $6.0 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 2021, WestRock is required to purchase a minimum of 380,800 tons and we are committed to make available for purchase by WestRock a minimum of 443,200 tons of timber under the Mahrt Timber Agreements. For the nine months ended September 30, 2021, WestRock purchased 303,000 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, 2022, 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, 2022 for the U.S. South 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. The AFM Timberland Operating Agreement for the Pacific Northwest region terminated as of the close of the Bandon Disposition, except for limited administrative services which will terminate as of December 31, 2021.
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 $110,000 and $108,400 of operating lease expense for the three months ended September 30, 2021 and 2020, respectively. For each of the nine months ended September 30, 2021 and 2020, CatchMark recorded $328,000 and $325,000 of operating lease expense, respectively. For the three months ended September 30, 2021 and 2020, CatchMark paid $105,000 and $100,000, respectively, in cash for its office lease. For the nine months ended September 30, 2021 and 2020, CatchMark paid $312,000 and $297,000, respectively, in cash for its office lease, which was included in operating cash flows on its consolidated statements of cash flows.
CatchMark had the following future annual payments for its operating lease as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
(in thousands)
|
September 30, 2021
|
|
December 31, 2020
|
Required payments
|
|
|
|
2021
|
$
|
103
|
|
|
412
|
|
2022
|
424
|
|
|
424
|
|
2023
|
435
|
|
|
435
|
|
2024
|
447
|
|
|
447
|
|
2025
|
459
|
|
|
459
|
|
Thereafter
|
1,414
|
|
|
1,414
|
|
|
$
|
3,282
|
|
|
$
|
3,591
|
|
Less: imputed interest
|
(503)
|
|
|
|
Operating lease liability
|
$
|
2,779
|
|
|
|
|
|
|
|
Remaining lease term (years)
|
7.2
|
|
|
Discount rate
|
4.58
|
%
|
|
|
CatchMark holds leasehold interests in 13,800 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, 2021, CatchMark had the following future lease payments under the LTC Lease:
|
|
|
|
|
|
(in thousands)
|
Required Payments
|
2021
|
$
|
11
|
|
2022
|
261
|
|
|
$
|
272
|
|
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.
8. Stock-based Compensation
Long-Term Incentive Plans
On June 24, 2021, CatchMark's stockholders approved a long-term incentive plan (the "2021 Incentive Plan") at its 2021 annual meeting of stockholders. The 2021 Incentive Plan replaced CatchMark's 2017 long-term incentive plan. The 2021 Incentive Plan allows for the award of options, stock appreciation rights, restricted stock, RSUs, deferred stock units, performance awards, other stock-based awards, LTIP Units or any other right or interest relating to stock or cash to the employees, directors, and consultants of CatchMark or its affiliates. A total of 2.0 million shares of CatchMark's common stock are reserved and available for issuance pursuant to awards granted under the 2021 Incentive Plan.
Service-based Restricted Stock Grants to Employees
During the three months ended September 30, 2021, CatchMark did not issue any shares of service-based restricted stock to its employees. During the nine months ended September 30, 2021, CatchMark granted 148,817 shares of service-based restricted stock to its employees, vesting in equal installments over a four-year period. The fair value of $1.6 million was determined based on the closing price of CatchMark's common stock on the grant date and is amortized evenly over the vesting period.
A rollforward of CatchMark's unvested, service-based restricted stock awards to employees for the nine months ended September 30, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Unvested at December 31, 2020
|
374,822
|
|
|
$
|
10.51
|
|
|
Granted
|
148,817
|
|
|
$
|
10.77
|
|
|
Vested
|
(124,745)
|
|
|
$
|
10.54
|
|
|
Forfeited
|
(875)
|
|
|
$
|
10.74
|
|
|
Unvested at September 30, 2021
|
398,019
|
|
|
$
|
10.60
|
|
|
Performance-based Awards
During the three months ended September 30, 2021, CatchMark did not make any performance-based grants. On March 11, 2021, CatchMark granted 202,930 performance-based LTIP Units to its executive officers and 44,180 shares of performance-based restricted stock to its eligible officers (the "2021 Performance-based Grant"). The issuance represents the maximum number of LTIP Units or shares of restricted stock that could be earned based on the relative performance of CatchMark's TSR against pre-established benchmarks over a three-year performance period from January 1, 2021 to December 31, 2023. The total compensation cost of the 2021 Performance-based Grant was $1.5 million and will be amortized over a weighted-vesting period of 3.5 years.
A rollforward of CatchMark's unvested, performance-based LTIP Units grants for the nine months ended September 30, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Units
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Unvested at December 31, 2020
|
349,703
|
|
|
$
|
6.03
|
|
|
Granted
|
202,930
|
|
|
$
|
6.26
|
|
|
Vested
|
(7,705)
|
|
|
$
|
1.31
|
|
|
Forfeited
|
(39,020)
|
|
|
$
|
1.82
|
|
|
Unvested at September 30, 2021
|
505,908
|
|
|
$
|
6.52
|
|
|
A rollforward of CatchMark's unvested, performance-based restricted stock grants for the nine months ended September 30, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Unvested at December 31, 2020
|
31,526
|
|
|
$
|
4.90
|
|
|
Granted
|
44,180
|
|
|
$
|
6.26
|
|
|
Vested
|
—
|
|
|
$
|
—
|
|
|
Forfeited
|
(7,937)
|
|
|
$
|
1.84
|
|
|
Unvested at September 30, 2021
|
67,769
|
|
|
$
|
6.14
|
|
|
Equity Grants to Independent Directors
A rollforward of CatchMark's unvested restricted stock and LTIP Unit grants to the directors for the nine months ended September 30, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
LTIP Units
|
|
Number of Shares
|
Weighted-Average
Grant Date
Fair Value
|
|
Number of Units
|
Weighted-Average
Grant Date
Fair Value
|
Unvested as of December 31, 2020
|
20,744
|
|
$
|
8.17
|
|
|
25,302
|
|
$
|
8.30
|
|
Granted
|
5,838
|
|
$
|
11.99
|
|
|
23,353
|
|
$
|
11.99
|
|
Vested
|
(20,744)
|
|
$
|
8.17
|
|
|
(25,302)
|
|
$
|
8.30
|
|
Forfeited
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
Unvested as of September 30, 2021
|
5,838
|
|
$
|
11.99
|
|
|
23,353
|
|
$
|
11.99
|
|
Stock-based Compensation Expense
A summary of CatchMark's stock-based compensation expense for the three months and nine months ended September 30, 2021 and 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
General and administrative expenses (1)
|
|
$
|
624
|
|
|
$
|
520
|
|
|
$
|
1,760
|
|
|
$
|
2,900
|
|
Forestry management expenses
|
|
142
|
|
|
110
|
|
|
392
|
|
|
307
|
|
Total (2)
|
|
$
|
766
|
|
|
$
|
630
|
|
|
$
|
2,152
|
|
|
$
|
3,207
|
|
(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)The three months and nine months ended September 30, 2021 includes $0.3 million and $0.9 million of stock-based compensation recognized as noncontrolling interest, respectively.
As of September 30, 2021, approximately $5.6 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, 2021, 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)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Harvest
|
$
|
16,967
|
|
|
$
|
19,065
|
|
|
$
|
59,275
|
|
|
$
|
55,510
|
|
Real Estate
|
2,122
|
|
|
2,430
|
|
|
13,111
|
|
|
8,882
|
|
Investment Management
|
2,984
|
|
|
3,118
|
|
|
9,313
|
|
|
8,950
|
|
Total
|
$
|
22,073
|
|
|
$
|
24,613
|
|
|
$
|
81,699
|
|
|
$
|
73,342
|
|
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)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Harvest
|
$
|
7,077
|
|
|
$
|
8,502
|
|
|
$
|
25,371
|
|
|
$
|
24,497
|
|
Real Estate
|
1,974
|
|
|
2,272
|
|
|
12,451
|
|
|
8,342
|
|
Investment Management
|
2,951
|
|
|
3,653
|
|
|
10,046
|
|
|
9,363
|
|
Corporate
|
(2,138)
|
|
|
(2,028)
|
|
|
(7,490)
|
|
|
(7,479)
|
|
Total
|
$
|
9,864
|
|
|
$
|
12,399
|
|
|
$
|
40,378
|
|
|
$
|
34,723
|
|
A reconciliation of Adjusted EBITDA to GAAP net income (loss) is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in thousands)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Adjusted EBITDA
|
$
|
9,864
|
|
|
$
|
12,399
|
|
|
$
|
40,378
|
|
|
$
|
34,723
|
|
Subtract:
|
|
|
|
|
|
|
|
Depletion
|
4,560
|
|
|
7,286
|
|
|
18,942
|
|
|
20,934
|
|
Interest expense (1)
|
2,679
|
|
|
2,865
|
|
|
7,773
|
|
|
9,121
|
|
Amortization (1)
|
577
|
|
|
747
|
|
|
1,846
|
|
|
2,621
|
|
Depletion, amortization, and basis of timberland and mitigation credits sold included in loss from unconsolidated joint venture (2)
|
10
|
|
|
140
|
|
|
113
|
|
|
140
|
|
Basis of timberland sold, lease terminations and other (3)
|
1,165
|
|
|
1,991
|
|
|
8,832
|
|
|
6,988
|
|
Stock-based compensation expense
|
766
|
|
|
630
|
|
|
2,152
|
|
|
3,207
|
|
Gain on large dispositions (4)
|
(23,377)
|
|
|
—
|
|
|
(24,136)
|
|
|
(1,274)
|
|
HLBV loss from unconsolidated joint venture (5)
|
—
|
|
|
2,689
|
|
|
—
|
|
|
5,000
|
|
Post-employment benefits (6)
|
11
|
|
|
10
|
|
|
34
|
|
|
2,307
|
|
Other (7)
|
165
|
|
|
190
|
|
|
312
|
|
|
260
|
|
Net income (loss)
|
$
|
23,308
|
|
|
$
|
(4,149)
|
|
|
$
|
24,510
|
|
|
$
|
(14,581)
|
|
(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.
(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 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 paid in installments over agreed-upon periods of time.
(7)Includes certain cash expenses paid, or reimbursement received, that management believes do not directly reflect the core business operations of our timberland portfolio on an on-going basis, including costs required to be expensed by GAAP related to acquisitions, transactions, joint ventures or new business initiatives.
10. Subsequent Events
Triple T Exit
On October 14, 2021, CatchMark entered into a recapitalization and redemption agreement with the Triple T Joint Venture and the preferred limited partners of Triple T Joint Venture for the redemption of CatchMark’s common equity interests in the Triple T Joint Venture in exchange for $35.0 million in cash (the “Triple T Exit”). The amended and restated asset management agreement between CatchMark and the Triple T Joint Venture was terminated and replaced by a transition services agreement, effective September 1, 2021 through March 2022, under which CatchMark will provide transition services in exchange for a service fee of $5.0 million, which will be recognized as asset management fee revenue on a straight-line basis over the term of the transition services agreement.
Credit Agreement Amendment and Debt Repayments
On October 14, 2021, CatchMark further amended the Amended Credit Agreement to, among other things, provide for consent to the Triple T Exit and permit CatchMark to retain the net proceeds from higher-and-better use timberland sales until it exceeds 3% of the aggregate value of the timberlands before any repayment of the outstanding debt is required.
On October 15, 2021, CatchMark used the proceeds from the Triple T Exit of $35.0 million and the $5.0 million transition services fee to pay down $40.0 million of its outstanding debt balances as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in thousands)
|
|
Repayments
|
|
Outstanding
Balance as of
October 15, 2021
|
Credit Facility
|
|
Maturity Date
|
|
|
Term Loan A-1
|
|
12/23/2024
|
|
$
|
15,294
|
|
|
$
|
84,706
|
|
Term Loan A-2
|
|
12/1/2026
|
|
10,294
|
|
|
89,706
|
|
Term Loan A-4
|
|
8/22/2025
|
|
14,412
|
|
|
125,588
|
|
Total
|
|
|
|
$
|
40,000
|
|
|
$
|
300,000
|
|
Dividend Declaration
On October 15, 2021, CatchMark declared a cash dividend of $0.075 per share for its common stockholders of record on November 30, 2021, payable on December 15, 2021.