CatchMark Reports Second Quarter 2020 Results and Declares Dividend
Managing effectively through pandemic-related disruptions impacting the overall economy, CatchMark Timber Trust, Inc. (“CatchMark”) reported second quarter 2020 results in line with our expectations, which bolstered meeting its full-year operating plan. The company also declared a cash dividend of $0.135 per share for its common stockholders of record on August 31, 2020, payable on September 15, 2020.
Second Quarter and Half Year 2020 Results
For the quarter ended June 30, 2020, CatchMark:
– Generated revenues of $21.8 million compared to $28.7 million in second quarter 2019, a decrease primarily related to reduced timberland sales given constraints in completing transactions due to the COVID-19 pandemic.
– Decreased net loss on a GAAP basis by $24.4 million to $6.2 million from $30.6 million in second quarter 2019, primarily due to a $26.3 million decrease in losses allocated from the Triple T joint venture.
– Generated Adjusted EBITDA of $9.4 million compared to $15.1 million in second quarter 2019, a decrease primarily from reduced timberland sales. For the second quarter, year-over-year Harvest EBITDA increased by 1% to $7.4 million, Real Estate EBITDA decreased by 80% to $1.6 million, and Investment Management EBITDA increased by 1% to $2.8 million.
– Produced timber sales revenue of $16.2 million consistent with the $16.3 million generated in second quarter 2019.
– Increased total harvest volume by 15% to 567,908 tons from 494,626 tons in second quarter 2019 primarily by capitalizing on increasing mill demand driven by robust sales of home remodeling and improvement products during the pandemic.
– Sold 1,100 acres for $1.7 million compared to 4,000 acres for $8.2 million in second quarter 2019, a decrease of $6.6 million in timberland sales revenue due to a decrease in transactions as a result of pandemic-related constraints. The lower per-acre sales price — $1,564 compared to $2,072 — resulted from selling timberlands with a lower percentage of pine plantations as part of strategic culling as well as from CatchMark retaining through timber reservations 25,000 tons of merchantable inventory with a 62% sawtimber mix.
– Generated $2.9 million in asset management fee revenues from the Triple T and Dawsonville Bluffs joint ventures, consistent with the prior year period.
– Paid a dividend of $0.135 per share to stockholders of record on June 15, 2020.
For the six months ended June 30, 2020, CatchMark:
– Generated revenues of $48.7 million compared to $51.2 million for the first six months of 2019 as higher timber sales revenue from increased harvest volumes was offset by reduced timberland sales revenue.
– Incurred a net loss of $10.4 million on a GAAP basis compared to $61.0 million in first half 2019, primarily due to a $53.8 million decrease in losses allocated from the Triple T joint venture.
– Realized Adjusted EBITDA of $22.3 million compared to $25.2 million for first half 2019. Harvest EBITDA increased by 10% to $16.0 million up from $14.5 million for first half 2019 due to increased timber sales from higher harvest volumes. Real Estate EBITDA declined to $6.1 million from $9.8 million due to reduced timberland sales; and Investment Management EBITDA decreased to $5.7 million from $6.2 million as a result of lower income from the Dawsonville Bluffs joint venture, which effectively roundtripped in the third quarter 2019.
– Increased timber sales revenue by 5% to $34.3 million up from $32.8 million for the first six months of 2019 as timber sales volume increased by 18% to 1.2 million tons from 1.0 million tons.
– Sold 4,100 acres of timberlands for $6.5 million compared to 4,900 acres for $10.3 million in first half 2019. The lower year-over-year, per-acre sales price resulted from lower average merchantable inventory stocking levels — 20 tons per acre compared to 31 tons per acre for prior year sales — as well as from CatchMark retaining through timber reservations 0.1 million tons of merchantable inventory with a 52% sawtimber mix.
– Generated $5.8 million in asset management fee revenues from the Triple T and Dawsonville Bluffs joint ventures, a 3% increase from the same period prior year due to earning incentive-based promotes for Dawsonville Bluffs for exceeding investment return hurdles.
Brian M. Davis, CatchMark’s Chief Executive Officer, said: “We delivered a strong second quarter from our harvest operations, managing effectively through the pandemic, and our outlook remains cautiously optimistic about the remainder of the year for meeting our operating plan, colored by the unpredictable impacts of COVID-19. In particular during the quarter, we stepped up harvests in the U.S. South to capitalize on consistent mill uptime and increasing demand for both pulpwood and sawtimber products after initial pullbacks by customers due to uncertainty related to the pandemic. We also closed nearly $2 million of timberland sales during the quarter, ahead of plan, but below the results of a typical quarter due to the pandemic. Working with an active transaction pipeline, we expect to normalize timberland sales during the second half of the year weighted to the fourth quarter. We also expect to benefit going forward from solid housing demand fundamentals and the recent rebound in homebuying.”
During the second quarter, CatchMark’s Triple T joint venture, which invests with institutional partners in 1.1 million acres of Texas timberlands, renegotiated its wood supply agreement with Georgia-Pacific. The renegotiated agreement allows Triple T to achieve market-based pricing on timber sales, increases Triple T’s reimbursement for extended haul distances, allows Triple T to sell sawtimber to other third parties, and expands Triple T’s ability to sell large timberland parcels to third-party buyers. In connection with amending the Georgia-Pacific wood supply agreement, CatchMark invested an additional $5.0 million in the Triple T joint venture on the same terms and conditions as its existing investment and the asset management agreement between CatchMark and Triple T was amended to increase CatchMark’s fees for the next two years.
Davis said: “The Triple T amendment was a big accomplishment during the quarter. Triple T, meanwhile, continues to operate to plan. We also will continue to concentrate on achieving our overriding goals of expanding CatchMark’s ownership of prime timberlands in high-demand mill markets and managing our operations to generate predictable and stable cash flow throughout the business cycle, supporting our dividend.”
Strong demand for home remodeling and improvement products by homeowners during the pandemic resulted in consistent mill uptime in CatchMark markets during the second quarter. As a result, CatchMark’s harvest volumes increased 14% year-over-year in the U.S. South, driven by a 69% increase in stumpage sales, including to key customers outside of existing supply agreements. CatchMark’s second quarter 2020 realized stumpage prices for pulpwood and sawtimber continued to hold a significant premium over South-wide averages as a result of assembling prime timberlands in strong micro markets. Realized stumpage prices for pulpwood and sawtimber were 12% and 8% lower, respectively, compared to second quarter 2019, trending with 12% and 13% decreases in South-wide average prices as tracked by TimberMart-South. Pacific Northwest harvest volumes increased ahead of plan to 21,260 tons from 14,513 tons in the three months ended June 30, 2019.
Todd P. Reitz, CatchMark’s Chief Resources Officer, said: “Our delivered wood crews were well positioned to respond to increasing mill needs that lined up nicely with our thinning and harvesting plans and we were able to negotiate more volume for the quarter from our mill customers. Again, our presence in strong mill markets and our emphasis on delivered wood sales gave us an advantage in supplying mills in a very tight inventory environment. In the Pacific Northwest, improving fundamentals created opportunity to sell into demand from key regional players.”
Capital Position and Share Repurchases
During the second quarter, CatchMark amended its credit agreement with CoBank: removing a reduction in the LTV ratio covenant which would have been effective at the end of 2021, increasing working capital by removing the minimum liquidity balance covenant, and enabling additional investments in joint ventures. The multi-draw term facility commitment was reduced from $200 million to $150 million which lowered unused commitment fees while still providing ample liquidity for future acquisitions.
CatchMark borrowed $5.0 million under the multi-draw term facility during the quarter to fund its additional equity investment in the Triple T joint venture. The asset management agreement amendment with Triple T, increasing CatchMark’s fees over the next two years, is CAD accretive for the company. As of June 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.
Ursula Godoy-Arbelaez, CatchMark’s Chief Financial Officer, said: “After these amendments and transactions, we continue to have ample liquidity for important growth initiatives and other capital allocation priorities, including direct acquisitions and joint venture investments.”
During the quarter, CatchMark repurchased 8,648 shares under its share repurchase program for $67,108 and has $13.7 million remaining in the program for future repurchases as of June 30, 2020.
Results for Three Months Ended June 30, 2020
Revenues for the three months ended June 30, 2020 were $21.8 million, $6.9 million lower than the three months ended June 30, 2019 as a result of a $6.6 million decrease in timberland sales revenue and a $0.3 million decrease in other revenues. Timberland sales revenue decreased due to selling fewer acres in the current quarter with a lower per-acre sales price as a result of retaining 25,000 tons of merchantable inventory through timber reservations and selling timberlands with lower percentage of pine plantation. Other revenues were higher in 2019 due to a $0.3 million gain from an early lease termination.
Net loss decreased by $24.4 million to $6.2 million for the three months ended June 30, 2020 from $30.6 million for the three months ended June 30, 2019 primarily due to a $26.3 million decrease in losses allocated from the Triple T joint venture, offset by a $1.1 million decrease in net timberland sales.
Results for Six Months Ended June 30, 2020
Revenues for the six months ended June 30, 2020 were $48.7 million, $2.5 million lower than the six months ended June 30, 2019 as a result of a $3.9 million decrease in timberland sales revenue offset by a $1.5 million increase in timber sales revenue. Timberland sales revenue decreased due to selling fewer acres in the first half of 2020, with a lower per-acre sales price as a result of timber reservations and a lower average merchantable inventory stocking level. Gross timber sales revenue increased 5% primarily as a result of a $1.8 million increase in timber sales revenue from the Pacific Northwest driven by volume increases.
Net loss decreased by $50.5 million to $10.4 million for the six months ended June 30, 2020 from $61.0 million for the six months ended June 30, 2019 primarily due to a $53.8 million decrease in losses allocated from the Triple T joint venture, offset by a $3.7 million increase in general and administrative expenses primarily due to non-recurring post-employment benefits related to the retirement of the company’s former CEO in January 2020.
The discussion below is intended to enhance the reader’s understanding of our operating performance and ability to satisfy lender requirements. EBITDA is a non-GAAP financial measure of operating performance. EBITDA is defined by the SEC as earnings before interest, taxes, depreciation and amortization; however, we have excluded certain other expenses which we believe are not indicative of the ongoing operating results of our timberland portfolio, and we refer to this measure as Adjusted EBITDA (see the reconciliation table below). As such, our Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. Due to the significant amount of timber assets subject to depletion, significant income (losses) from unconsolidated joint ventures based on hypothetical liquidation book value, or HLBV, and the significant amount of financing subject to interest and amortization expense, management considers Adjusted EBITDA to be an important measure of our financial performance. By providing this non-GAAP financial measure, together with the reconciliation below, we believe we are enhancing investors’ understanding of our business and our ongoing results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA is a supplemental measure of operating performance that does not represent and should not be considered in isolation or as an alternative to, or substitute for net income, cash flow from operations, or other financial statement data presented in accordance with GAAP in our consolidated financial statements as indicators of our operating performance. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of the limitations are:
– Adjusted EBITDA does not reflect our capital expenditures, or our future requirements for capital expenditures;
– Adjusted EBITDA does not reflect changes in, or our interest expense or the cash requirements necessary to service interest or principal payments on, our debt;
– Although depletion is a non-cash charge, we will incur expenses to replace the timber being depleted in the future, and Adjusted EBITDA does not reflect all cash requirements for such expenses;
– Although HLBV income and losses are primarily hypothetical and non-cash in nature, Adjusted EBITDA does not reflect cash income or losses from unconsolidated joint ventures for which we use the HLBV method of accounting to determine our equity in earnings; and
– Adjusted EBITDA does not reflect the cash requirements necessary to fund post-employment benefits or transaction costs related to acquisitions, investments, joint ventures or new business initiatives, which may be substantial.
Due to these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. Our credit agreement contains a minimum debt service coverage ratio based, in part, on Adjusted EBITDA since this measure is representative of adjusted income available for interest payments. We further believe that our presentation of this non-GAAP financial measurement provides information that is useful to analysts and investors because they are important indicators of the strength of our operations and the performance of our business.
For the three months ended June 30, 2020, Adjusted EBITDA was $9.4 million, a $5.7 million decrease from the three months ended June 30, 2019, primarily due to a $6.3 million decrease in net timberland sales, offset by a $0.4 million decrease in general and administrative expense.
For the six months ended June 30, 2020, Adjusted EBITDA was $22.3 million, a $2.9 million decrease from the six months ended June 30, 2019, primarily due to a $3.7 million decrease in net timberland sales, a $0.6 million decrease in Adjusted EBITDA generated by the Dawsonville Bluffs joint venture and a $0.3 million decrease in other revenues, offset by a $1.8 million increase in net timber sales.
For the full second quarter results, click here.
CatchMark (NYSE: CTT) seeks to deliver consistent and growing per share cash flow from disciplined acquisitions and superior management of prime timberlands located in high demand U.S. mill markets. Concentrating on maximizing cash flows throughout business cycles, the company strategically harvests its high-quality timberlands to produce durable revenue growth and takes advantage of proximate mill markets, which provide a reliable outlet for merchantable inventory. Headquartered in Atlanta and focused exclusively on timberland ownership and management, CatchMark began operations in 2007 and owns interests in 1.5 million acres* of timberlands located in Alabama, Florida, Georgia, North Carolina, Oregon, South Carolina and Texas. For more information, visit www.catchmark.com.
Ursula Godoy-Arbelaez – Investor Relations – (855) 858-9794
Source: CatchMark Timber Trust, Inc.