CatchMark Timber Trust, Inc. - FORM 10-Q - November 2, 2017

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EX-32.1 - SECTION 906 CERT - CatchMark Timber Trust, Inc.exhibit321section906cert_2.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
___________________________________________________
FORM 10-Q
___________________________________________________ 
(Mark One)
 
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2017
OR
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from             to             
Commission file number 001-36239
CATCHMARK TIMBER TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland
 
20-3536671
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
5 Concourse Parkway, Suite 2325
Atlanta, GA 30328
(Address of principal executive offices)
(Zip Code)

(855) 858-9794
(Registrant’s telephone number, including area code)
N/A 
___________________________________________________ 
(Former name, former address, and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x    No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files)
Yes  x    No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act (check one).
Large accelerated filer
o
 
Accelerated filer 
x
 
 
 
 
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
Emerging growth company
o

If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o    No  x
Number of shares outstanding of the registrant’s common stock, as of October 31, 2017: 43,423,999 shares




FORM 10-Q

CATCHMARK TIMBER TRUST, INC.

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
Page No.
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016
 
 
 
 
 
 
 
 
Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2017 (unaudited) and 2016 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Loss for the Three Months and Nine Months Ended September 30, 2017 (unaudited) and 2016 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 2017 (unaudited) and 2016 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 (unaudited) and 2016 (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 1A.
 
 
 
 
 
 
 
Item 5.
 
 
 
 
 
 
 
Item 6.
 


1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q of CatchMark Timber Trust, Inc. and subsidiaries (“CatchMark Timber Trust,” “we,” “our,” or “us”) may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, CatchMark Timber Trust, or the executive officers on CatchMark Timber Trust’s behalf, may from time to time make forward-looking statements in reports and other documents CatchMark Timber Trust files with the Securities and Exchange Commission (the "SEC") or in connection with oral statements made to the press, potential investors, or others. We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in the Securities Act and the Exchange Act. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods.
 
Forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date that this report is filed with the SEC. We make no representations or warranties (express or implied) about the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
 
Any such forward-looking statements are subject to risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, make distributions to stockholders, and maintain the value of our timberland properties, may be significantly hindered. See Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2016 and Item 1A in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017 for a discussion of some, although not all, of the risks and uncertainties that could cause actual results to differ materially from those presented in our forward-looking statements.




2

GLOSSARY

The following abbreviations or acronyms may be used in this document and shall have the adjacent meanings set forth below:


AgFirst
 
Agfirst Farm Credit Bank
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
CoBank
 
CoBank, ACB
Code
 
Internal Revenue Code of 1986, as amended
EBITDA
 
Earnings before Interest, Taxes, Depletion, and Amortization
FASB
 
Financial Accounting Standards Board
FCCR
 
Fixed Charge Coverage Ratio
FRC
 
Forest Resource Consultants, Inc.
GAAP
 
Generally Accepted Accounting Principles
HBU
 
Higher and Better Use
LIBOR
 
London Interbank Offered Rate
LTIP
 
Long-Term Incentive Plan
LTV
 
Loan-to-Value
MPERS
 
Missouri Department of Transportation & Patrol Retirement System
NYSE
 
New York Stock Exchange
Rabobank
 
Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A.
REIT
 
Real Estate Investment Trust
RSU
 
Restricted Stock Unit
TRS
 
Taxable REIT Subsidiary
TSR
 
Total Shareholder Return
U.S.
 
United States
VIE
 
Variable Interest Entity
WestRock
 
WestRock Company (formerly known as MeadWestvaco Corporation)



3

PART I.
FINANCIAL INFORMATION

ITEM 1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The information furnished in the accompanying consolidated balance sheets and related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows reflects all adjustments, consisting of solely of normal and recurring adjustments, that are, in management’s opinion, necessary for a fair and consistent presentation of the aforementioned financial statements.

The accompanying consolidated financial statements should be read in conjunction with the condensed notes to CatchMark Timber Trust’s consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q and with CatchMark Timber Trust’s Annual Report on Form 10-K for the year ended December 31, 2016. CatchMark Timber Trust’s results of operations for the three months and nine months ended September 30, 2017 are not necessarily indicative of the operating results expected for the full year.


4

CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for per-share amounts)
 
 
 
 
 
(Unaudited)
September 30, 2017
 
December 31, 2016
Assets:
 
 
 
Cash and cash equivalents
$
11,828

 
$
9,108

Accounts receivable
4,372

 
3,882

Prepaid expenses and other assets
8,153

 
4,815

Deferred financing costs, net
232

 
313

Timber assets (Note 3):
 
 
 
Timber and timberlands, net
665,097

 
691,687

Intangible lease assets, less accumulated amortization of $941 and $938 as of September 30, 2017 and December 31, 2016, respectively
16

 
19

Investment in unconsolidated joint venture (Note 4)
10,370

 
—

Total assets
$
700,068

 
$
709,824

 
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued expenses
$
6,006

 
$
4,393

Other liabilities
5,198

 
3,610

Note payable and line of credit, less net deferred financing costs (Note 5)
332,253

 
320,751

Total liabilities
343,457

 
328,754

 
 
 
 
Commitments and Contingencies (Note 7)
—

 
—

 
 
 
 
Stockholders’ Equity:
 
 
 
Common stock, $0.01 par value; 900,000 shares authorized; 38,824 and 38,797 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively
388

 
388

Additional paid-in capital
606,406

 
605,728

Accumulated deficit and distributions
(250,827
)
 
(226,793
)
Accumulated other comprehensive income
644

 
1,747

Total stockholders’ equity
356,611

 
381,070

Total liabilities and stockholders’ equity
$
700,068

 
$
709,824

See accompanying notes.

5

CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per-share amounts)
 
(Unaudited)
Three Months Ended,
September 30,
 
(Unaudited)
Nine Months Ended,
September 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Timber sales
$
17,049

 
$
15,988

 
$
50,928

 
$
47,673

Timberland sales
342

 
1,199

 
13,745

 
10,708

Other revenues
1,221

 
1,123

 
3,900

 
3,076

 
18,612

 
18,310

 
68,573

 
61,457

Expenses:
 
 
 
 
 
 
 
Contract logging and hauling costs
6,876

 
6,485

 
21,857

 
18,602

Depletion
7,265

 
7,072

 
20,511

 
20,836

Cost of timberland sales
211

 
734

 
9,706

 
9,125

Forestry management expenses
1,737

 
1,516

 
4,874

 
4,240

General and administrative expenses
2,257

 
2,206

 
7,477

 
6,584

Land rent expense
146

 
163

 
452

 
455

Other operating expenses
1,340

 
1,156

 
3,988

 
3,212

 
19,832

 
19,332

 
68,865

 
63,054

Operating loss
(1,220
)
 
(1,022
)
 
(292
)
 
(1,597
)
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest income
37

 
12

 
74

 
35

Interest expense
(2,819
)
 
(1,887
)
 
(8,101
)
 
(4,567
)
 
(2,782
)
 
(1,875
)
 
(8,027
)
 
(4,532
)
 
 
 
 
 
 
 
 
Net loss before unconsolidated joint venture
(4,002
)
 
(2,897
)
 
(8,319
)
 
(6,129
)
Loss from unconsolidated joint venture
(42
)
 
—

 
(169
)
 
—

Net loss
$
(4,044
)
 
$
(2,897
)
 
$
(8,488
)
 
$
(6,129
)
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding - basic and diluted
38,823

 
38,831

 
38,799

 
38,837

 
 
 
 
 
 
 
 
Net loss per share - basic and diluted
$
(0.10
)
 
$
(0.07
)
 
$
(0.22
)
 
$
(0.16
)

See accompanying notes.

6


CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
 
(Unaudited)
Three Months Ended,
September 30,
 
(Unaudited)
Nine Months Ended,
September 30,
 
2017
 
2016
 
2017
 
2016
Net loss
$
(4,044
)
 
$
(2,897
)
 
$
(8,488
)
 
$
(6,129
)
Other comprehensive loss:
 
 
 
 
 
 
 
     Market value adjustment to interest rate swaps
(531
)
 
(15
)
 
(1,103
)
 
(2,205
)
Comprehensive loss
$
(4,575
)
 
$
(2,912
)
 
$
(9,591
)
 
$
(8,334
)


See accompanying notes.


7

CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except for per-share amounts)


 

Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit and Distributions
 
Accumulated Other Comprehensive Income (Loss)
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
 
Balance, December 31, 2016
38,797

 
$
388

 
$
605,728

 
$
(226,793
)
 
$
1,747

 
$
381,070

Common stock issued pursuant to:
 
 
 
 
 
 
 
 
 
 
 
Long-term incentive plan, net of forfeitures and amounts withheld for income taxes
124

 
1

 
1,713

 
 
 
 
 
1,714

Dividends to common stockholders ($0.405 per share)
 
 
 
 
 
 
(15,546
)
 
 
 
(15,546
)
Repurchases of common shares
(97
)
 
(1
)
 
(1,035
)
 
 
 
 
 
(1,036
)
Net loss
 
 
 
 
 
 
(8,488
)
 


 
(8,488
)
Other comprehensive loss
 
 
 
 
 
 
 
 
(1,103
)
 
(1,103
)
Balance, September 30, 2017
38,824

 
$
388

 
$
606,406

 
$
(250,827
)
 
$
644

 
$
356,611

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit and Distributions
 
Accumulated Other Comprehensive Loss
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
 
Balance, December 31, 2015
38,975

 
$
390

 
$
607,409

 
$
(195,341
)
 
$
(1,420
)
 
$
411,038

Common stock issued pursuant to:
 
 
 
 
 
 
 
 
 
 
 
Long-term incentive plan, net of amounts withheld for income taxes
131

 
1

 
1,120

 
 
 
 
 
1,121

Dividends to common stockholders ($0.395 per share)
 
 
 
 
 
 
(15,190
)
 
 
 
(15,190
)
Repurchases of common shares
(274
)
 
(3
)
 
(2,837
)
 
 
 
 
 
(2,840
)
Net loss
 
 
 
 
 
 
(6,129
)
 
 
 
(6,129
)
Other comprehensive loss
 
 
 
 
 
 
 
 
(2,205
)
 
(2,205
)
Balance, September 30, 2016
38,832

 
$
388

 
$
605,692

 
$
(216,660
)
 
$
(3,625
)
 
$
385,795



See accompanying notes.

8

CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
(Unaudited)
Nine Months Ended,
September 30,
 
2017
 
2016
Cash Flows from Operating Activities:
 
 
 
Net loss
$
(8,488
)
 
$
(6,129
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depletion
20,511

 
20,836

Basis of timberland sold, lease terminations and other
9,647

 
8,591

Stock-based compensation expense
2,025

 
1,320

Noncash interest expense
834

 
699

Other amortization
127

 
97

Loss from unconsolidated joint venture
169

 
—

Changes in assets and liabilities:
 
 
 
Accounts receivable
(1,005
)
 
(1,236
)
Prepaid expenses and other assets
(531
)
 
61

Accounts payable and accrued expenses
1,632

 
1,618

Other liabilities
809

 
1,390

Net cash provided by operating activities
25,730

 
27,247

 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Timberland acquisitions and earnest money paid
(2,722
)
 
(113,288
)
Capital expenditures (excluding timberland acquisitions)
(3,654
)
 
(2,307
)
Investment in unconsolidated joint venture
(10,539
)
 
—

Net cash used in investing activities
(16,915
)
 
(115,595
)
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
Proceeds from note payable
11,000

 
116,000

Repayments of note payable
—

 
(1,933
)
Financing costs paid
(202
)
 
(1,696
)
Dividends paid to common stockholders
(15,546
)
 
(15,190
)
Repurchase of common shares under the share repurchase program
(1,036
)
 
(2,840
)
Repurchase of common shares for minimum tax withholdings
(311
)
 
(198
)
Net cash (used in) provided by financing activities
(6,095
)
 
94,143

Net increase in cash and cash equivalents
2,720

 
5,795

Cash and cash equivalents, beginning of period
9,108

 
8,025

Cash and cash equivalents, end of period
$
11,828

 
$
13,820


See accompanying notes.

9

CATCHMARK TIMBER TRUST, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017 (unaudited)

1.
Organization

CatchMark Timber Trust Inc. ("CatchMark Timber Trust") (NYSE: CTT) owns and operates timberlands located in the United States and has elected to be taxed as a REIT for federal income tax purposes. CatchMark Timber Trust acquires, owns, operates, manages, and disposes of timberland directly, through wholly-owned subsidiaries, or through joint ventures. CatchMark Timber Trust was incorporated in Maryland in 2005 and commenced operations in 2007. CatchMark Timber Trust conducts substantially all of its business through CatchMark Timber Operating Partnership, L.P. (“CatchMark Timber OP”), a Delaware limited partnership. CatchMark Timber Trust is the general partner of CatchMark Timber OP, possesses full legal control and authority over its operations, and owns 99.99% of its common partnership units. CatchMark LP Holder, LLC (“CatchMark LP Holder”), a wholly owned subsidiary of CatchMark Timber Trust, is the sole limited partner of CatchMark Timber OP. In addition, CatchMark Timber TRS, Inc. (“CatchMark TRS”), a Delaware corporation, was formed as a wholly owned subsidiary of CatchMark Timber OP in 2006. Unless otherwise noted, references herein to CatchMark Timber Trust shall include CatchMark Timber Trust and all of its subsidiaries, including CatchMark Timber OP, and the subsidiaries of CatchMark Timber OP, including CatchMark TRS.

2.    Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation
The consolidated financial statements of CatchMark Timber Trust have been prepared in accordance with the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the statements for these unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Results for these interim periods are not necessarily indicative of results for a full year. CatchMark Timber Trust’s consolidated financial statements include the accounts of any entity in which CatchMark Timber Trust or its subsidiaries owns a controlling financial interest and any limited partnership in which CatchMark Timber Trust or its subsidiaries owns a controlling general partnership interest. All intercompany balances and transactions have been eliminated in consolidation. For further information, refer to the audited financial statements and footnotes included in CatchMark Timber Trust’s Annual Report on Form 10-K for the year ended December 31, 2016.

Investment in Joint Venture

For joint ventures that it does not control, but exercises significant influence, CatchMark Timber Trust uses the equity method of accounting. CatchMark Timber Trust's judgment about its level of influence or control of an entity involves consideration of various factors including the form of its ownership interest; its representation in the entity's governance; its ability to participate in policy-making decisions; and the rights of other investors to participate in the decision-making process, to replace CatchMark Timber Trust as manager, and/or to liquidate the venture. Under the equity method, the investment in a joint venture is recorded at cost and adjusted for equity in earnings and cash contributions and distributions. Income or loss and cash distributions from an unconsolidated joint venture are allocated according to the provisions of the respective joint venture agreement, which may be different from its stated ownership percentage. Any difference between the carrying amount of these investments on CatchMark Timber Trust’s balance sheets and the underlying equity in net assets on the joint venture’s balance sheets is adjusted as the related underlying assets are depreciated, amortized, or sold.

CatchMark Timber Trust evaluates the recoverability of its investment in unconsolidated joint ventures in accordance with accounting standards for equity investments by first reviewing each investment for any indicators of impairment. If indicators are present, CatchMark Timber Trust estimates the fair value of the investment. If the carrying value of

10

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 Timber Trust’s intent and ability to retain its interest long enough for a recovery in market value. If management concludes that the impairment is "other than temporary," CatchMark Timber Trust reduces the investment to its estimated fair value.

Reclassification

Certain prior period amounts have been reclassified to conform with the current period's financial statement presentation. Share repurchases of common shares have been presented separately as share repurchases of common stock under the share repurchase program and share repurchases of common stock for tax withholdings in the accompanying consolidated statement of cash flows, for all periods presented. Within expenses on the accompanying statements of operations, basis of timber related to lease terminations, timber deed expirations and casualty losses have been reclassified from basis of timberland sold to other operating expenses, for all periods presented.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under this guidance, an entity is required to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the expected consideration for those goods or services. The update requires significant additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09, as amended by ASU 2015-14, "Revenue from Contracts with Customers: Deferral of the Effective Date (Topic 606)", is effective for years beginning after December 15, 2017, including interim periods, with early adoption permitted for years beginning after December 15, 2016. CatchMark Timber Trust will adopt ASU 2014-09 in our consolidated financial statements on January 1, 2018. CatchMark Timber Trust does not expect the adoption of ASU 2014-09 will have a material effect on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. A modified retrospective transition approach is required for lessees classified as capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. CatchMark Timber Trust does not expect the adoption of ASU 2016-02 will have a material effect on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Cash Receipts and Payments, which addresses the statement of cash flow classification requirements for several types of receipts and payments. ASU 2016-15 provides that, among other things, (i) debt prepayments and extinguishment costs should be classified as financing activities, (ii) insurance proceeds should be classified in accordance with the nature of the respective claims, and (iii) distributions from equity method investees should be classified based on the underlying nature of the investee activity according to specific guidelines. ASU 2016-15 is effective for CatchMark Timber Trust on January 1, 2018, with early adoption permitted. CatchMark Timber Trust has early adopted ASU No. 2016-15 as of January 1, 2017 and the adoption did not have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which provides a more narrow definition of a business to be used in determining the accounting treatment of an acquisition, and, as a result, certain acquisitions that previously may have qualified as business combinations will be treated as asset acquisitions. For asset acquisitions, acquisition costs may be capitalized and purchase price may be allocated on a relative fair value basis.

11

ASU 2017-01 is effective prospectively for CatchMark Timber Trust on January 1, 2018, with early adoption permitted. CatchMark Timber Trust does not expect it to have a material impact on its consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. ASU 2017-05 defines an in-substance nonfinancial asset, unifies guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing the sales of real estate, removes exceptions to the financial asset derecognition model, and clarifies the accounting for contributions of nonfinancial assets to joint ventures. It will require the gain from the transfer of nonfinancial assets and any non-controlling interest received from the transfer to be measured at fair value. ASU 2017-05 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. CatchMark Timber Trust has early adopted ASU 2017-05 and the adoption did not have a material impact on its consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends the hedge accounting recognition and presentation requirements in ASC 815, "Derivatives and Hedging." The amendments in this update are to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting by preparers. ASU 2017-12 is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted in any interim period after issuance of ASU 2017-12. CatchMark Timber Trust is currently assessing the impact this standard will have on its consolidated financial statements.
3.
Timber Assets

As of September 30, 2017 and December 31, 2016, timber and timberlands consisted of the following, respectively:
 
As of September 30, 2017
(in thousands)
Gross
 
Accumulated
Depletion or
Amortization
 
Net
Timber
$
295,870

 
$
20,511

 
$
275,359

Timberlands
389,178

 
—

 
389,178

Mainline roads
1,133

 
573

 
560

Timber and timberlands
$
686,181

 
$
21,084

 
$
665,097


 
As of December 31, 2016
(in thousands)
Gross
 
Accumulated
Depletion or
Amortization
 
Net
Timber
$
324,796

 
$
28,897

 
$
295,899

Timberlands
395,348

 
—

 
395,348

Mainline roads
935

 
495

 
440

Timber and timberlands
$
721,079

 
$
29,392

 
$
691,687


Timberland Acquisitions

During the nine months ended September 30, 2017, CatchMark Timber Trust did not complete any timberland acquisitions. During the nine months ended September 30, 2016, CatchMark Timber Trust acquired fee-simple interests in approximately 60,400 acres of timberland for $112.7 million, exclusive of closing costs.


12

Timberland Sales

During the three months ended September 30, 2017 and 2016, CatchMark Timber Trust sold approximately 230 and 800 acres of timberland for $0.3 million and $1.2 million , respectively. CatchMark Timber Trust's cost basis in the timberland sold was $0.2 million and $0.7 million, respectively.

During the nine months ended September 30, 2017 and 2016, CatchMark Timber Trust sold approximately 7,000 and 6,300 acres of timberland for $13.7 million and $10.7 million, respectively. CatchMark Timber Trust's cost basis in the timberland sold was $9.2 million and $8.6 million, respectively. Land sale acreage by state is listed below:
 
 
Nine Months Ended
September 30,
Acres Sold In:
 
2017
 
2016
Alabama
 
1,900

 
500

Georgia
 
4,700

 
5,200

Florida
 
—

 
600

Louisiana
 
400

 
—

Total
 
7,000

 
6,300


Timberland Portfolio

As of September 30, 2017, CatchMark Timber Trust wholly owned interests in approximately 491,400 acres of timberlands in the U.S. South, of which 460,500 acres were held in fee-simple interests and 30,900 acres were held in leasehold interests. Wholly-owned land acreage by state is listed below:
 
 
As of September 30, 2017
Acres Located In:
 
Fee
 
Lease
 
Total
Alabama
 
74,800

 
5,600

 
80,400

Florida
 
2,000

 
—

 
2,000

Georgia
 
248,900

 
25,300

 
274,200

Louisiana
 
20,900

 
—

 
20,900

North Carolina
 
1,600

 
—

 
1,600

South Carolina
 
76,400

 
—

 
76,400

Tennessee
 
300

 
—

 
300

Texas
 
35,600

 
—

 
35,600

Total:
 
460,500

 
30,900

 
491,400


4.
Unconsolidated Joint Venture

On April 25, 2017, CatchMark Timber Trust entered into a joint venture (the “Dawsonville Bluffs Joint Venture”) that acquired a portfolio of 11,000 acres of commercial timberlands located in North Georgia (the “Dawsonville Portfolio") for an aggregate purchase price of $20.0 million, exclusive of transaction costs. CatchMark Timber Trust owns a 50% membership interest in the Dawsonville Bluffs Joint Venture and MPERS owns the remaining 50% interest. CatchMark Timber Trust shares substantive participation rights with MPERS, including management selection and termination, and the approval of material operating and capital decisions and, as such, uses the equity method of accounting to record its investment. Income or loss and cash distributions are allocated according to the provisions of the joint venture agreement, which are consistent with the ownership percentages for the Dawsonville Bluffs Joint Venture. CatchMark Timber Trust funded its equity investment of approximately $10.5 million in the Dawsonville Bluffs Joint Venture with funds borrowed under its existing multi-draw credit facility (see Note 5 - Note Payable and Line of Credit for additional information).


13

Condensed balance sheet information for the Dawsonville Bluffs Joint Venture is as follows (in thousands):
 
As of
September 30, 2017
Total Assets
$
21,491

Total Liabilities
$
751

Total Equity
$
20,740

CatchMark Timber Trust’s investment
$
10,370

Condensed income statement information for the Dawsonville Bluffs Joint Venture is as follows (in thousands):
 
Three Month Ended September 30, 2017
 
From Inception through September 30, 2017
Total Revenues
$
390

 
$
414

Net Loss
$
(84
)
 
$
(339
)
CatchMark Timber Trust's share
$
(42
)
 
$
(169
)

Included in the net loss of the Dawsonville Bluffs Joint Venture for the period from inception through September 30, 2017 is approximately $0.2 million of non-recurring start-up costs.

CatchMark Timber Trust serves as the sole manager of the Dawsonville Bluffs Joint Venture, whereby it manages the day-to-day operations of the business, subject to certain major decisions that require the prior consent of MPERS, in exchange for a management fee. Such management fees are included in other revenues on the accompanying consolidated statement of operations.


5.    Note Payable and Line of Credit

2014 Amended Credit Agreement

CatchMark Timber Trust is party to a credit agreement, which was amended and restated as of May 13, 2016 (the “2014 Amended Credit Agreement”) with CoBank, AgFirst, Rabobank, and certain other financial institutions, which provides for borrowings consisting of:

•
a $35.0 million revolving credit facility (the “2014 Revolving Credit Facility”);
•
a $365.0 million multi-draw term credit facility (the “2014 Multi-Draw Term Facility”); and
•
a $100.0 million term loan (the “2014 Term Loan Facility”, and together with the 2014 Revolving Credit Facility and the 2014 Multi-Draw Term Facility, the “2014 Amended Credit Facilities”).

The 2014 Amended Credit Facilities may be increased, upon the agreement of lenders willing to increase their loans, by an additional $110.0 million.


14

As of September 30, 2017 and December 31, 2016, CatchMark Timber Trust's amounts outstanding under the 2014 Amended Credit Facilities consisted of the following:
 
 
 
 
 
 
 
Outstanding Balance as of
(dollars in thousands)
Maturity Date
 
Interest Rate (2)
 
Current Interest Rate (3)
 
September 30, 2017
 
December 31, 2016
2014 Term Loan Facility
12/23/2024
 
LIBOR + 1.75%
 
2.99%
 
$
100,000

 
$
100,000

2014 Multi-Draw Term Facility
12/23/2021
 
LIBOR + 2.25%
 
3.49%
 
236,656

 
225,656

Total Principal Balance
 
 
 
 
 
 
$
336,656

 
$
325,656

Less: Net Unamortized Deferred Financing Costs (1)
 
 
 
 
 
 
(4,403
)
 
(4,905
)
      Total
 
 
 
 
 
 
$
332,253

 
$
320,751

(1) 
Represents costs incurred for borrowings under the 2014 Term Loan Facility and the 2014 Multi-Draw Term Facility only.
(2) 
The applicable LIBOR margin on the 2014 Multi-Draw Term Facility ranges between 1.75% and 2.75%, depending on the LTV ratio.
(3) 
Represents the weighted-average interest rate as of September 30, 2017. The weighted-average interest rate excludes the impact of interest rate swaps (see Note 6 – Interest Rate Swaps), amortization of deferred financing costs, unused commitment fees, and estimated patronage refunds.

As of September 30, 2017, $163.3 million of capacity remained under the 2014 Amended Credit Facilities, $128.3 million from the 2014 Multi-Draw Term Facility and $35.0 million from the 2014 Revolving Credit Facility.

Patronage

CatchMark Timber Trust is eligible to receive annual patronage refunds from its lenders (the "Patronage Banks") under a profit-sharing program made available to borrowers of the Farm Credit System. In March 2017 and 2016, CatchMark Timber Trust received patronage refunds of $2.1 million and $1.2 million, respectively, on its eligible borrowings under the 2014 Amended Credit Agreement. Of the total amount received, 75% was received in cash and 25% was received in equity in Patronage Banks. As of September 30, 2017 and December 31, 2016, CatchMark Timber Trust had approximately $0.8 million and $0.3 million, respectively, of equity in Patronage Banks included in prepaid expenses and other assets on the accompanying consolidated balance sheets.

CatchMark Timber Trust has received a patronage refund on its eligible patronage loans for each year it has been party to the 2014 Amended Credit Agreement. Therefore, CatchMark Timber Trust accrues patronage refunds it expects to receive in 2018 based on actual patronage refunds received as a percentage of its weighted-average debt balance. For the three months ended September 30, 2017 and 2016, CatchMark Timber Trust recorded $0.7 million and $0.7 million, respectively, in expected patronage refunds against interest expense on the consolidated statements of operations. For the nine months ended September 30, 2017 and 2016, CatchMark Timber Trust recorded $2.0 million and $1.6 million, respectively, in expected patronage refunds against interest expense on the consolidated statements of operations. As of September 30, 2017 and December 31, 2016, approximately $2.0 million and $2.3 million of patronage refunds were included in accounts receivable on the consolidated balance sheets.

Debt Covenants

The 2014 Amended Credit Agreement contains, among others, the following financial covenants:
•
limits the LTV Ratio to 45% at the end of each fiscal quarter and upon the sale or acquisition of any property;
•
requires a FCCR of not less than 1.05:1.00; and
•
requires maintenance of a minimum liquidity balance of no less than $20.0 million at any time.

CatchMark Timber Trust was in compliance with the financial covenants of the 2014 Amended Credit Agreement as of September 30, 2017.


15

CatchMark Timber Trust’s obligations under the 2014 Amended Credit Agreement are collateralized by a first priority lien on the timberlands owned by CatchMark Timber Trust’s subsidiaries and substantially all of CatchMark Timber Trust’s subsidiaries’ other assets in which a security interest may lawfully be granted, including, without limitation, accounts, equipment, inventory, intellectual property, bank accounts and investment property. In addition, CatchMark Timber Trust's obligations under the 2014 Amended Credit Agreement are jointly and severally guaranteed by CatchMark Timber Trust and all of its subsidiaries pursuant to the terms of the 2014 Amended Credit Agreement. CatchMark Timber Trust has also agreed to guarantee certain losses caused by certain willful acts of CatchMark Timber Trust or its subsidiaries.

Interest Paid and Fair Value of Outstanding Debt

CatchMark Timber Trust pays its lenders a commitment fee on the unused portion of the 2014 Multi-Draw Term Facility and 2014 Revolving Credit Facility, at an adjustable rate ranging from 0.20% to 0.35%, depending on the LTV ratio.

During the three months ended September 30, 2017 and 2016, CatchMark Timber Trust made interest payments of $3.0 million and $2.1 million, respectively, on its borrowings. Included in the interest payments for the three months ended September 30, 2017 and 2016 were unused commitment fees of $0.1 million and $0.2 million, respectively.

During the nine months ended September 30, 2017 and 2016, CatchMark Timber Trust made interest payments of $8.3 million and $4.8 million, respectively, on its borrowings. Included in the interest payments for the nine months ended September 30, 2017 and 2016 were unused commitment fees of $0.4 million and $0.5 million , respectively.

As of September 30, 2017 and December 31, 2016, the weighted-average interest rate on these borrowings, after consideration of interest rate swaps, was 3.63% and 3.09%, respectively. After further consideration of estimated patronage refunds, CatchMark Timber Trust's weighted average interest rate as of September 30, 2017 and December 31, 2016 was 2.83% and 2.19%, respectively.

As of September 30, 2017, the fair value of CatchMark Timber Trust'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 Timber Trust uses interest rate swaps to mitigate its exposure to changing interest rates on its variable rate debt instruments. During the first quarter of 2017, CatchMark Timber Trust entered into three separate interest rate swaps with Rabobank on $20.0 million of the 2014 Term Loan Facility and a total of $50.0 million of the 2014 Multi-Draw Term Facility (collectively, the "2017 Rabobank Swaps"). CatchMark Timber Trust had five interest rate swaps outstanding as of September 30, 2017, with terms below:

 
 
 
 
 
 
 
 
 
 
(in thousands)
Hedged Debt
 
Effective Date
 
Maturity Date
 
Pay Rate
 
Receive Rate
 
Notional Amount
2014 Term Loan Facility
 
12/23/2014
 
12/23/2024
 
2.395%
 
one-month LIBOR
 
$
35,000

2014 Term Loan Facility
 
8/23/2016
 
12/23/2024
 
1.280%
 
one-month LIBOR
 
$
45,000

2014 Term Loan Facility
 
3/23/2017
 
3/23/2024
 
2.330%
 
one-month LIBOR
 
$
20,000

2014 Multi-Draw Term Facility
 
3/28/2017
 
3/28/2020
 
1.800%
 
one-month LIBOR
 
$
30,000

2014 Multi-Draw Term Facility
 
3/28/2017
 
11/28/2021
 
2.045%
 
one-month LIBOR
 
$
20,000

 
 
 
 
 
 
 
 
 
 
$
150,000


As of September 30, 2017, CatchMark Timber Trust’s interest rate swaps effectively fixed the interest rate on $150 million of its $336.7 million variable rate debt at 3.80%. All five interest rate swaps qualify for hedge accounting treatment.


16

Fair Value and Cash Paid for Interest Under Interest Rate Swaps

The following table presents information about CatchMark Timber Trust's interest rate swaps measured at fair value as of September 30, 2017 and December 31, 2016:
(in thousands)
 
 
Estimated Fair Value as of
Instrument Type
Balance Sheet Classification
 
September 30, 2017
 
December 31, 2016
Derivatives designated as hedging instruments:
 
 
 
 
 
Interest rate swaps
Prepaid and other assets
 
$
2,258

 
$
2,632

Interest rate swaps
Other liabilities
 
$
(1,614
)
 
$
(885
)

During the nine months ended September 30, 2017 and 2016, CatchMark Timber Trust recognized a change in fair value of the interest rate swaps of approximately $1.1 million and $2.2 million as other comprehensive loss. There was no hedge ineffectiveness on the interest rate swaps required to be recognized in current earnings.

During the three months ended September 30, 2017 and 2016, net payments of approximately $0.3 million and $0.2 million were made under the interest rates swaps, respectively. During the nine months ended September 30, 2017 and 2016, net payments of approximately $0.8 million and $0.5 million were made under the interest rate swaps, respectively. Interest rate swaps payments were recorded as interest expense.

7.    Commitments and Contingencies

Mahrt Timber Agreements

CatchMark Timber Trust is party to a fiber supply agreement and a master stumpage agreement (collectively, the “Mahrt Timber Agreements”) with a wholly owned subsidiary of WestRock. The fiber supply agreement provides that WestRock will purchase specified tonnage of timber from CatchMark TRS at specified prices per ton, depending upon the type of timber. The fiber supply agreement is subject to quarterly market pricing adjustments based on an index published by Timber Mart-South, a quarterly trade publication that reports raw forest product prices in 11 southern states. The master stumpage agreement provides that CatchMark Timber Trust will sell specified amounts of timber and make available certain portions of its timberlands to CatchMark TRS for harvesting. The initial term of the Mahrt Timber Agreements is October 9, 2007 through December 31, 2032, subject to extension and early termination provisions. The Mahrt Timber Agreements ensure a long-term source of supply of wood fiber products for WestRock in order to meet its paperboard and lumber production requirements at specified mills and provide CatchMark Timber Trust with a reliable customer for the wood products from its timberlands.

Timberland Operating Agreements

Pursuant to the terms of the timberland operating agreement between CatchMark Timber Trust and FRC (the "FRC Timberland Operating Agreement"), FRC manages and operates CatchMark Timber Trust's timberlands and related timber operations, including ensuring delivery of timber to WestRock in compliance with the Mahrt Timber Agreements. In consideration for rendering the services described in the timberland operating agreement, CatchMark Timber Trust pays FRC (i) a monthly management fee based on the actual acreage FRC manages, which is payable monthly in advance, and (ii) an incentive fee based on timber harvest revenues generated by the timberlands, which is payable quarterly in arrears. The FRC Timberland Operating Agreement, as amended, is effective through March 31, 2018, and is automatically extended for one-year periods unless written notice is provided by CatchMark Timber Trust or FRC to the other party at least 120 days prior to the current expiration. The FRC Timberland Operating Agreement may be terminated by either party with mutual consent or by CatchMark Timber Trust with or without cause upon providing 120 days’ prior written notice.


17

Pursuant to the terms of the timberland operating agreement between CatchMark Timber Trust and AFM (the "AFM Timberland Operating Agreement"), AFM manages and operates CatchMark Timber Trust's timberlands and related timber operations, including ensuring delivery of timber to customers. In consideration for rendering the services described in the AFM Timberland Operating Agreement, CatchMark Timber Trust pays AFM (i) a monthly management fee based on the actual acreage AFM manages, which is payable monthly in advance, and (ii) an incentive fee based on revenues generated by the timber operations. The incentive fee is payable quarterly in arrears. The AFM Timberland Operating Agreement is effective through November 30, 2017, and is automatically extended for one-year periods unless written notice is provided by CatchMark Timber Trust or AFM to the other party at least 120 days prior to the current expiration. The AFM Timberland Operating Agreement may be terminated by either party with mutual consent or by CatchMark Timber Trust with or without cause upon providing 120 days’ prior written notice.

Litigation

From time to time, CatchMark Timber Trust may be a party to legal proceedings, claims, and administrative proceedings that arise in the ordinary course of its business. Management makes assumptions and estimates concerning the likelihood and amount of any reasonably possible loss relating to these matters using the latest information available. CatchMark Timber Trust records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, CatchMark Timber Trust accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, CatchMark Timber Trust accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, CatchMark Timber Trust discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, CatchMark Timber Trust discloses the nature and estimate of the possible loss of the litigation. CatchMark Timber Trust does not disclose information with respect to litigation where an unfavorable outcome is considered to be remote.

CatchMark Timber Trust is 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, financial condition, or cash flows of CatchMark Timber Trust. CatchMark Timber Trust is not aware of any such legal proceedings contemplated by governmental authorities.

8.    Stockholders' Equity

Share Repurchase Program

On August 7, 2015, the board of directors authorized a stock repurchase program under which CatchMark Timber Trust may repurchase up to $30.0 million of its outstanding common shares. The program has no set duration and the board may discontinue or suspend it at any time. During the three months ended September 30, 2017, CatchMark Timber Trust did not repurchase any shares under the share repurchase program. During the nine months ended September 30, 2017 and 2016, CatchMark Timber Trust purchased 97,469  shares and 273,541 shares of common stock for approximately $1.0 million and $2.8 million, respectively. As of September 30, 2017, CatchMark Timber Trust may purchase up to an additional $19.8 million under the program.

Long-term Incentive Plans

CatchMark Timber Trust's Amended and Restated 2005 Long-term Incentive Plan (the "2005 LTIP") allowed for the issuance of options, stock appreciation rights, restricted stock, RSUs, and deferred stock units of its common stock to its employees and independent directors. The 2005 LTIP provided for issuance of up to 1.3 million shares through October 25, 2023. Prior to its replacement on June 23, 2017, 406,667 shares remained to be issued under the 2005 LTIP.

On June 23, 2017, CatchMark Timber Trust's stockholders approved the 2017 Incentive Plan (the "2017 Plan"), which replaced the 2005 LTIP. The 2017 Plan allows for the award of options, stock appreciation rights, restricted stock, RSUs, deferred stock units, performance awards, other stock-based awards, or any other right or interest relating to

18

stock or cash to the employees, directors, and consultants of CatchMark or its affiliates. The 2017 Plan provides for issuance of up to 1.8 million shares through CatchMark Timber Trust's 2027 annual stockholders meeting, or, in the case of an amendment approved by stockholders to increase the number of shares subject to the 2017 Plan, the 10th anniversary of such amendment date.

Stock-based Compensation - Independent Directors

Pursuant to the Amended and Restated Independent Directors' Compensation Plan (a sub-plan of the 2005 LTIP), each of the independent directors receives, on the first business day immediately prior to the date on which CatchMark Timber Trust holds its annual stockholders meeting, a number of shares of CatchMark Timber Trust common stock having a value of $50,000 on the grant date. The number of shares granted to each independent director is determined by dividing $50,000 by the fair market value per share of CatchMark Timber Trust's common stock on the grant date. The shares are fully-vested and non-forfeitable upon the respective grant date. On June 22, 2017, CatchMark Timber Trust issued 21,890 shares to its five independent directors, 5,166 shares of which were repurchased for estimated income tax payments. CatchMark Timber Trust recognized approximately $0.3 million of fair value of the award within general and administrative expenses during the nine months ended September 30, 2017.

Stock-based Compensation - Employees

On May 2, 2017, the board of directors approved a special, one-time stock-settled outperformance award (the "OPP") to the executive officers of CatchMark Timber Trust, pursuant to the provisions of the 2005 LTIP. Under the OPP, an outperformance pool with a maximum award dollar amount of $5.0 million was created and executive officers were granted a certain participation percentage of the outperformance pool. The dollar amount of the awards earned will be determined based on the total returns of CatchMark Timber Trust common stock during a performance period from April 1, 2017 to March 31, 2020. Earned awards will be settled in shares of CatchMark Timber Trust common stock after the amount of earned award is determined at the end of the performance period. The grant-date fair value of the OPP was approximately $1.0 million as calculated using Monte-Carlo simulations and is amortized over the performance period.

A rollforward of CatchMark Timber Trust's unvested, service-based restricted stock awards to employees for the nine months ended September 30, 2017 is as follows:
 
Number of 
Underlying Shares
 
Weighted- Average
Grant Date
Fair Value
Unvested at December 31, 2016
255,098

 
$
11.56

Granted
133,591

 
$
11.18

Vested
(65,506
)
 
$
11.47

Forfeited
(4,500
)
 
$
10.80

Unvested at September 30, 2017
318,683

 
$
11.44



19

Stock-based Compensation Expense Summary

A summary of CatchMark Timber Trust's stock-based compensation expense for the three months and nine months ended September 30, 2017 and 2016 is presented below:

Stock-based Compensation Expense classified as:
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in thousands)
2017
 
2016
 
2017
 
2016
General and administrative expenses
$
447

 
$
320

 
$
1,450

 
$
1,115

Forestry management expenses
240

 
85

 
575

 
205

Total
$
687

 
$
405

 
$
2,025

 
$
1,320


As of September 30, 2017, approximately $3.9 million of unrecognized compensation expense related to non-vested restricted stock and RSU's remained and will be recognized over a weighted-average period of 2.2 years.

9.    Subsequent Events

Timberland Acquisitions

On October 11, 2017, CatchMark Timber Trust acquired approximately 4,641 acres of timberland located in southeastern South Carolina (the “Carolina Midlands V Acquisition”) for approximately $10.9 million, exclusive of closing costs. Based on current estimates, the Carolina Midlands V tracts contain approximately 206,000 tons of merchantable timber, comprised of 94% pine plantations or convertible natural pine stands by acreage and 72% chip-n-saw or sawtimber by tons. CatchMark Timber Trust funded the Carolina Midlands V Acquisition with proceeds from its 2014 Multi-Draw Term Facility, which were repaid with net proceeds from CatchMark’s October 2017 underwritten public offering (see Equity Offering below for more information).

On October 31, 2017, CatchMark Timber Trust acquired approximately 14,923 acres of timberland located in coastal Georgia (the “Coastal Georgia Acquisition”) for approximately $43.3 million, exclusive of closing costs. The Coastal Georgia Acquisition increased CatchMark Timber Trust’ regional ownership by 36%. The Coastal Georgia Acquisition includes a supply agreement with International Paper Company through 2031. Based on current estimates, the Coastal Georgia Acquisition contains approximately 1.2 million tons of merchantable timber, comprised of 72% pine plantations by acreage and 65% chip-n-saw or sawtimber by tons. CatchMark Timber Trust funded the Coastal Georgia Acquisition with net proceeds from its October 2017 underwritten public offering (see Equity Offering below for more information).

Equity Offering

On October 17, 2017, CatchMark Timber Trust raised gross offering proceeds of $56.8 million through its previously-announced underwritten public offering of 4.6 million shares of its Class A common stock at a price to the public of $12.35 per share (the “2017 Follow-On Offering”). CatchMark Timber Trust issued the shares of its Class A common stock pursuant to its shelf registration statement on Form S-3 filed with and declared effective by the SEC in June 2017. CatchMark Timber Trust used the net proceeds from the 2017 Follow-On Offering to finance the Coastal Georgia Acquisition and to repay indebtedness incurred to fund the Carolina Midlands V Acquisition. After the closing of the 2017 Follow-On Offering, CatchMark Timber Trust had approximately 43.4 million shares of its Class A common stock outstanding as of October 17, 2017.

Dividend Declaration

On November 2, 2017, CatchMark Timber Trust declared a cash dividend of $0.135 per share for its common stockholders of record on November 30, 2017, payable on December 15, 2017.


20

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and notes thereto. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I, as well as our consolidated financial statements and the notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2016.
Overview

We primarily engage in the ownership, management, acquisition, and disposition of timberland properties located in the United States. We generate recurring income and cash flow from the harvest and sale of timber, as well as from non-timber related revenue sources, such as rent from hunting and recreational leases. When and where we believe appropriate, we also generate income and cash flow from timberland sales.

We strive to deliver superior long-term returns for our stockholders through disciplined acquisitions, sustainable harvest, and well-timed sales. Our immediate emphasis is to grow through selective acquisitions in high demand fiber basket markets and to efficiently integrate the new acquisitions. Operationally, we focus on generating cash flows from sustainable harvests and improved harvest mix on prime timberlands as well as opportunistic land sales to provide recurring dividends to our stockholders. We continue to practice intensive forest management and silvicultural techniques that increase the biological growth of the forest.

We also seek to create additional value by entering into joint ventures with long-term, institutional equity partners to opportunistically acquire, own, and manage timberland properties that fit our core investment strategy. In addition, we expect that our joint venture activities will create a platform for future growth by establishing a new fee-based business that leverages our scale and timberland management efficiencies. We entered into our first joint venture on April 25, 2017. See Note 4 - Unconsolidated Joint Venture of our accompanying consolidated financial statements for more information.

Timberland Portfolio

As of September 30, 2017, we wholly owned interests in approximately 491,400 acres of high-quality industrial timberlands that have been intensively managed for sustainable commercial timber production, consisting of 74% pine stands and 26% hardwood stands. Our timberlands are within an attractive and competitive fiber basket encompassing a diverse group of pulp, paper and wood products manufacturing facilities. Wholly-owned land acreage by state is listed below:
 
 
As of September 30, 2017
Acres Located In:
 
Fee
 
Lease
 
Total
Alabama
 
74,800

 
5,600

 
80,400

Florida
 
2,000

 
—

 
2,000

Georgia
 
248,900

 
25,300

 
274,200

Louisiana
 
20,900

 
—

 
20,900

North Carolina
 
1,600

 
—

 
1,600

South Carolina
 
76,400

 
—

 
76,400

Tennessee
 
300

 
—

 
300

Texas
 
35,600

 
—

 
35,600

Total:
 
460,500

 
30,900

 
491,400



21

As of September 30, 2017, our wholly-owned timber inventory consisted of an estimated 18.3 million tons of merchantable inventory with the following components:
 
 
Tons (in millions)
Merchantable timber inventory(1):
 
Fee
 
Lease
 
Total
Pulpwood
 
8.6
 
0.5
 
9.1
Sawtimber (2)
 
8.7
 
0.5
 
9.2
Total
 
17.3
 
1.0
 
18.3
(1) 
Merchantable timber inventory does not include current year growth, which we expect to approximate current year harvest volume (see Results of Operations below for information on current year harvest volume).
(2) 
Includes chip-n-saw and sawtimber.

In addition to the wholly-owned timber assets listed above, we own a 50% member interest in a joint venture that owns approximately 11,000 acres of high-quality commercial timberlands located in north Georgia, or the Dawsonville Portfolio.

Timber Agreements

A substantial portion of our timber sales is derived from the Mahrt Timber Agreements under which we sell specified amounts of timber to WestRock subject to market pricing adjustments. For the year ended December 31, 2017, WestRock is required to purchase approximately 518,000 tons of timber under the Mahrt Timber Agreements. For the nine months ended September 30, 2017, WestRock purchased approximately 401,200 tons under the Mahrt Timber Agreements, which contributed approximately 18% of our net timber sales revenue. WestRock has historically purchased tonnage that exceeded the minimum requirement under the Mahrt Timber Agreements. See Note 7 – Commitments and Contingencies to our accompanying consolidated financial statements for additional information regarding the material terms of the Mahrt Timber Agreements.

For the year ended December 31, 2017, we are required to sell approximately 150,000 tons of pulpwood under a pulpwood supply agreement (the "Carolinas Supply Agreement") assumed in connection with a timberland acquisition that closed in June 2016. During the nine months ended September 30, 2017, we sold approximately 118,200 tons under the Carolinas Supply Agreement, which contributed approximately 6% of our net timber revenue.

Liquidity and Capital Resources

Overview

Cash flows generated from our operations are primarily used to fund recurring expenditures and distributions to our stockholders. The amount of distributions to common stockholders is determined by our board of directors and is dependent upon a number of factors, including funds deemed available for distribution, which is based principally on our current and future projected operating cash flows, less capital requirements necessary to maintain and grow our existing timberland portfolio. In determining the amount of distributions to common stockholders, we also consider our financial condition, our expectations of future sources of liquidity, current and future economic conditions, market demand for timber and timberlands, and tax conditions, including the annual distribution requirements necessary to maintain our status as a REIT under the Code.
In determining how to allocate cash resources in the future, we will initially consider the source of the cash. We anticipate using a portion of cash generated from operations, after payments of periodic operating expenses and interest expense, to fund certain capital expenditures required for our timberlands. Any remaining cash generated from operations may be used to partially fund timberland acquisitions and pay distributions to stockholders. Therefore, to the extent that cash flows from operations are lower, timberland acquisitions and stockholder distributions are anticipated to be lower as well. Capital expenditures, including new timberland acquisitions, are generally funded with cash from operations or existing debt availability; however, proceeds from future debt financings and equity offerings

22

may be used to fund capital expenditures, acquire new timberland properties and pay down existing and future borrowings.

Short-Term Liquidity and Capital Resources

Net cash provided by operating activities for the nine months ended September 30, 2017 was $25.7 million, a $1.5 million decrease from the nine months ended September 30, 2016. Net cash provided by operating activities decreased primarily due to a $3.7 million increase in cash paid for interest and a $0.6 million increase in prepaid expenses and other assets, offset by a $3.1 million increase in net cash received from timberland sales as a result of selling more acres.

Net cash used in investing activities for the nine months ended September 30, 2017 was $16.9 million, a $98.7 million decrease from the nine months ended September 30, 2016. We did not make any direct acquisition during the nine months ended September 30, 2017 as compared to acquiring 60,400 acres for $114.0 million during the nine months ended September 30 2016. We paid $2.7 million in earnest money for two acquisitions closed in October 2017 (see Subsequent Events for further details). We entered into the Dawsonville Bluffs Joint Venture on April 25, 2017 and invested $10.5 million for a 50% member interest (see Note 4 - Unconsolidated Joint Venture for further details).

Net cash used in financing activities for the nine months ended September 30, 2017 was $6.1 million. We borrowed $11.0 million under the 2014 Multi-Draw Term Facility to fund the investment in the Dawsonville Bluffs Joint Venture. During the nine months ended September 30, 2017, we paid total distributions to stockholders of $15.5 million, which were funded by net cash provided by operating activities. During the nine months ended September 30, 2017, we repurchased $1.0 million in shares of our common stock under our share repurchase program (see Share Repurchase Program below) and $0.3 million in shares of our common stock to satisfy minimum tax withholding requirements on granted and vested shares to employees and directors.

We believe that we have access to adequate liquidity and capital resources, including cash flow generated from operations, cash on-hand, and borrowing capacity, necessary to meet our current and future obligations that become due over the next 12 months. As of September 30, 2017, we had a cash balance of $11.8 million and $163.3 million of borrowing capacity remained under the 2014 Amended Credit Facilities (see 2014 Amended Credit Agreement below).

Long-Term Liquidity and Capital Resources

Over the long-term, we expect our primary sources of capital to include net cash flows from operations, including proceeds from timberland sales, proceeds from secured or unsecured financings from banks and other lenders, and public offerings of equity or debt securities. Our principal demands for capital include operating expenses, interest expense on any outstanding indebtedness, certain capital expenditures (other than timberland acquisitions), repayment of debt, timberland acquisitions, and stockholder distributions.

Shelf Registration Statement

On June 2, 2017, we filed a shelf registration statement on Form S-3 (File No. 333-218466) with the SEC (the "Shelf Registration Statement"), which was declared effective by the SEC on June 16, 2017. The Shelf Registration Statement provides us with future flexibility to offer, from time to time and in one or more offerings, debt securities, common stock, preferred stock, depositary shares, warrants, or any combination thereof. The terms of any such future offerings would be established at the time of an offering.

On October 17, 2017, under the Shelf Registration Statement, we raised gross offering proceeds of $56.8 million through a previously-announced underwritten public offering of 4.6 million shares of our Class A common stock at a price to the public of $12.35 per share (the “2017 Follow-On Offering”). We used the net proceeds from the 2017 Follow-On Offering to finance the two timberland acquisitions described in Subsequent Events - Timberland

23

Acquisitions. After the closing of the 2017 Follow-On Offering, we had approximately 43.4 million shares of our Class A common stock outstanding as of October 17, 2017.

Share Repurchase Program

On August 7, 2015, our board of directors approved a stock repurchase program for up to $30.0 million of our common stock at management's discretion. The program has no set duration and the board may discontinue or suspend the program at any time. During the nine months ended September 30, 2017, we repurchased 97,469 shares of our common stock at an average price of $10.60 per share for a total of approximately $1.0 million. All common stock purchases under the stock repurchase program were made in open-market transactions and were funded with cash on-hand. As of September 30, 2017, we had 38.8 million shares of common stock outstanding and may repurchase up to an additional $19.8 million under the program. The 2014 Amended Credit Facilities allow us to borrow up to $25.0 million under the 2014 Multi-Draw Term Facility to repurchase our common stock. Management believes that opportunistic repurchases of our common stock is a prudent use of capital resources.

Contractual Obligations and Commitments

As of September 30, 2017, our contractual obligations are as follows:

Contractual Obligations
 
Payments Due by Period
(in thousands)
 
Total
 
2017
 
2018-2019
 
2020-2021
 
Thereafter
Debt obligations (1)
 
$
336,656

 
$
—

 
$
—

 
$
236,656

 
$
100,000

Estimated interest on debt obligations (1) (2)
 
62,267

 
3,053

 
24,454

 
24,074

 
10,686

Operating lease obligations
 
3,282

 
61

 
1,602

 
1,185

 
434

Other liabilities (3)
 
694

 
6

 
280

 
280

 
128

Total
 
$
402,899

 
$
3,120

 
$
26,336


$
262,195

 
$
111,248

(1) 
Represents respective obligations under the 2014 Amended Credit Facilities as of September 30, 2017, $100.0 million of which was outstanding under the 2014 Term Loan Facility and $236.7 million of which was outstanding under the 2014 Multi-Draw Term Facility (see 2014 Amended Credit Agreement below).
(2) 
Amounts include the impact of interest rate swaps. See Note 6 – Interest Rate Swaps of our accompanying consolidated financial statements for additional information.
(3) 
Represents future payments to satisfy a liability assumed upon a timberland acquisition that expires in May 2022.

2014 Amended Credit Agreement

The 2014 Amended Credit Agreement provides for borrowing under credit facilities consisting of:
•
a $35.0 million revolving credit facility (the “2014 Revolving Credit Facility”);
•
a $365.0 million multi-draw term credit facility (the “2014 Multi-Draw Term Facility”); and
•
a $100.0 million term loan (the “2014 Term Loan Facility”, and together with the 2014 Revolving Credit Facility and the 2014 Multi-Draw Term Facility, the “2014 Amended Credit Facilities”).


24

The 2014 Amended Credit Facilities may be increased, upon the agreement of lenders willing to increase their loans, by an additional $110.0 million. The table below presents the details of our 2014 Amended Credit Facilities as of September 30, 2017:

(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Facility Name
 
Maturity Date
 
Interest Rate(1)
 
Unused Commitment Fee
 
Outstanding Balance
 
Total Availability
 
Remaining Availability
2014 Revolving Credit Facility
 
12/23/2019
 
LIBOR + 2.25%
 
0.30
%
 
$
—

 
$
35,000

 
$
35,000

2014 Multi-Draw Term Facility
 
12/23/2021
 
LIBOR + 2.25%
 
0.30
%
 
236,656

 
365,000

 
128,344

2014 Term Loan Facility
 
12/23/2024
 
LIBOR + 1.75%
 
N/A

 
100,000

 
100,000

 
—

Total
 
 
 
 
 
 
 
$
336,656

 
$
500,000

 
$
163,344

(1) 
The applicable LIBOR margin on the 2014 Revolving Credit Facility and the 2014 Multi-Draw Term Facility ranges from 1.75% to 2.75%, depending on the LTV ratio.

Patronage

We are eligible to receive annual patronage refunds from our lenders under the 2014 Amended Credit Agreement. The annual patronage refund is dependent on the weighted-average debt balance with each participating lender, as calculated by CoBank, for the respective fiscal year under the eligible patronage loans, as well as the financial performance of the Patronage Banks. In March 2017, we received a patronage refund of $2.1 million on our borrowings under the eligible patronage loans that were outstanding during 2016. Of the total amount received, 75% was received in cash and 25% was received in equity in Patronage Banks. The equity component of the patronage refund is redeemable for cash only at the discretion of the Patronage Banks' board of directors.

Debt Covenants

The 2014 Amended Credit Agreement contains, among others, the following financial covenants:
•
limits the LTV ratio to 45% at the end of each fiscal quarter and upon the sale or acquisition of any property;
•
requires us to maintain a FCCR of not less than 1.05:1.00; and
•
requires maintenance of a minimum liquidity balance of no less than $20.0 million at any time.

We were in compliance with the financial covenants of the 2014 Amended Credit Agreement as of September 30, 2017.

The terms of our credit agreement prohibit us from declaring, setting aside funds for, or paying any dividend, distribution, or other payment to our stockholders other than as required to maintain our REIT qualification if our LTV ratio is greater than or equal to 45% or we are otherwise in default as defined in the credit agreement. See Note 5 – Note Payable and Line of Credit of our accompanying consolidated financial statements for more information about our credit agreement.

Distributions

Our board of directors declares quarterly distributions based on a single record date. In determining the rate of stockholder distributions, our board considers a number of factors, including current and future levels of cash available to fund stockholder distributions, which is dependent upon the operations of our timberland properties, our current and future projected financial condition, our capital expenditure requirements, our expectations of future sources of liquidity, and the annual distribution requirements necessary to maintain our status as a REIT under the Code.


25

Our board of directors declared a cash dividend for stockholders of record as of February 28, 2017 in the amount of $0.135 per share. This distribution was paid in March 2017. On May 3, 2017, our board of directors declared a cash dividend of $0.135 per share for our common stockholders of record on May 31, 2017. This distribution was paid on June 16, 2017. On August 3, 2017, our board of directors declared a cash dividend of $0.135 per share for our common stockholders of record on August 30, 2017. This distribution was paid on September 15, 2017.

For the nine months ended September 30, 2017, we paid total distributions to stockholders of $15.5 million, which was funded from net cash provided by operating activities of $25.7 million.

Results of Operations

Overview

Our results of operations are materially impacted by the fluctuating nature of timber prices, changes in the levels and composition of our harvest volume, the level of timberland acquisitions and sales, changes to associated depletion rates, and varying interest expense based on the amount and cost of outstanding borrowings. Timber prices, harvest volume, and changes in the levels and composition of each for our timberlands for the three months and nine months ended September 30, 2017 and 2016 are shown in the following tables:
 
Three Months Ended
September 30,
 
Change
 
2017
 
2016
 
%
Timber sales volume (tons)
 
 
Pulpwood
387,329

 
362,887

 
7
 %
Sawtimber (1)
216,187

 
190,945

 
13
 %
 
603,516

 
553,832

 
9
 %
 
 
 
 
 
 
Harvest mix
 
 
 
 
 
Pulpwood
64
%
 
66
%
 
 
Sawtimber (1)
36
%
 
34
%
 
 
 
 
 
 
 
 
Net timber sales price (per ton) (2)
 
 
Pulpwood
$
13

 
$
13

 
(5
)%
Sawtimber (1)
$
24

 
$
24

 
—
 %
 
 
 
 
 
 
Timberland sales
 
 
 
 
 
Gross sales (000's)
$
342

 
$
1,199

 
 
Sales volume (acres)
233

 
794

 
 
Sales price (per acre)
$
1,468

 
$
1,510

 
 


26

 
Nine Months Ended
September 30,
 
Change
 
2017
 
2016
 
%
Timber sales volume (tons)
 
 
Pulpwood
1,030,750

 
995,686

 
4
 %
Sawtimber (1)
666,209

 
635,258

 
5
 %
 
1,696,959

 
1,630,944

 
4
 %
 
 
 
 
 
 
Harvest mix
 
 
 
 
 
Pulpwood
61
%
 
61
%
 
 
Sawtimber (1)
39
%
 
39
%
 
 
 
 
 
 
 
 
Net timber sales price (per ton) (2)
 
 
Pulpwood
$
13

 
$
14

 
(9
)%
Sawtimber (1)
$
24

 
$
24

 
—
 %
 
 
 
 
 
 
Timberland sales
 
 
 
 
 
Gross sales (000's)
$
13,745

 
$
10,708

 
 
Sales volume (acres)
7,047

 
6,276

 
 
Sales price (per acre)
$
1,950

 
$
1,706

 
 
(1)    Includes chip-n-saw and sawtimber.
(2)  
Prices per ton are rounded to the nearest dollar and shown on a stumpage basis (i.e., net of contract logging and hauling costs) and, as such, the sum of these prices multiplied by the tons sold does not equal timber sales in the accompanying consolidated statements of operations for the three months and nine months ended September 30, 2017 and 2016.

Despite severe weather experienced in each of our operating regions because of hurricanes Harvey and Irma, we incurred no significant loss of standing timber. Heavy winds and rain caused by the storms resulted in transportation-related challenges and downtime of some mill customers, which resulted in temporary slowdowns in our harvesting operations. Our harvest volume this quarter increased 9% from the prior year quarter primarily as a result of harvests from properties acquired in 2016. Although high raw material inventories and quotas continued to constrain market conditions, our timber agreements and well-established delivered capacity helped us offset some of the impact. During the three months ended September 30, 2017, we harvested 211,000 tons under our timber agreements, a 23% increase from the same quarter prior year. Delivered volume for the third quarter of 2017 increased by 11% from prior year quarter.
During the third quarter of 2017, average stumpage prices for all product categories in the Southern timber market declined ranging from 1% to 12% relative to the third quarter of 2016, as reported by TimberMart-South. Market pulpwood prices were higher in 2016 partially due to increases in demand as a result of significant wet weather experienced in the U.S. South. South-wide average stumpage prices for all product categories improved marginally from the second quarter 2017 by 1% to 2%, except for hardwood pulpwood, which declined by 1%. Our realized stumpage prices, while trending with the overall South-wide timber market, are generally higher than South-wide averages due to the strength of the micro-markets in which we operate. Our pulpwood stumpage price for the quarter decreased by 5% from the prior year quarter compared to an 8% decrease in the South-wide market average. Our pulpwood stumpage price improved from the second quarter 2017, in line with the increase in the South-wide market.
We expect to continue to build on market and business diversity and leverage our relationships in key markets to garner additional quota and delivery opportunities.


27

Comparison of the three months ended September 30, 2017 versus the three months ended September 30, 2016

Revenues. Revenues increased to $18.6 million for the three months ended September 30, 2017 from $18.3 million for the three months ended September 30, 2016 due to an increase in timber sales revenue of $1.1 million and an increase in other revenue of $0.1 million, offset by a $0.9 million decrease in timberland sales revenue. Gross timber sales revenue increased 7% primarily as a result of a 9% increase in harvest volume. The harvest volume increase was driven by harvest from properties acquired in 2016, which generated $0.8 million in timber sales revenue during the three months ended September 30, 2017.

Timber sales by product for the three months ended September 30, 2016 and 2017 are shown in the following table:
 
Three Months Ended
September 30, 2016
 
Changes attributable to:
 
Three Months Ended
September 30, 2017
(in thousands)
 
Price/Mix
 
Volume
 
Timber sales (1)
 
 
 
 
 
 
 
Pulpwood
$
9,328

 
$
(440
)
 
$
330

 
$
9,218

Sawtimber (2)
6,660

 
73

 
1,098

 
7,831

 
$
15,988

 
$
(367
)
 
$
1,428

 
$
17,049

(1) 
Timber sales are presented on a gross basis.
(2) 
Includes chip-n-saw and sawtimber.

Timberland sales revenue decreased to $0.3 million for the three months ended September 30, 2017 from $1.2 million for the three months ended September 30, 2016 as we sold fewer acres in 2017.

Operating Expenses. Contract logging and hauling costs increased 6% to $6.9 million for the three months ended September 30, 2017 from $6.5 million for the three months ended September 30, 2016 as a result of a 11% increase in delivered sales volume, offset by a 4% decrease in average per-ton logging and hauling cost. Delivered sales increased as we continued to implement our delivered wood sales strategy on properties acquired since our listing in 2013. Our average per-ton logging and hauling cost was lower in the third quarter of 2017 due to higher delivered volume from our South Carolina properties located closer to mill customers.

Depletion expense increased 3% to $7.3 million for the three months ended September 30, 2017 from $7.1 million for the three months ended September 30, 2016, due to a 9% increase in harvest volume offset by lower blended depletion rates. We calculate depletion rates annually by dividing the beginning merchantable inventory book value, after the write-off of accumulated depletion, by current standing timber inventory volume. Before the impact of any future acquisitions or significant land sales, the merchantable book value is expected to decrease over time due to depletion, while the standing timber inventory volume is expected to stay relatively stable due to our sustainable harvest management practices. Therefore, we generally expect depletion rates of our current portfolio to decrease over time.

Costs of timberland sales decreased to $0.2 million for the three months ended September 30, 2017 from $0.7 million for the three months ended September 30, 2016 due to selling fewer acres.

Forestry management fees increased to $1.7 million for the three months ended September 30, 2017 from $1.5 million for the three months ended September 30, 2016 primarily due to an increase in compensation costs of operational staff as a result of increased staffing.

Other operating expenses for the three months ended September 30, 2017 increased to $1.3 million for the three months ended September 30, 2017 from $1.2 million the three months ended September 30, 2016 primarily as a result of higher property taxes associated with owning more acre and higher severance taxes due to higher harvest volume.


28

Interest expense. Interest expense increased to $2.8 million for the three months ended September 30, 2017 from $1.9 million for the three months ended September 30, 2016 as a result of a higher average debt balance during the period, higher interest rates incurred on our effectively variable-rate debt, and a higher mix of effectively fixed-rate debt as compared to the same period last year.

Net loss. Our net loss increased to $4.0 million for the three months ended September 30, 2017 from $2.9 million for the three months ended September 30, 2016 due to a $0.9 million increase in interest expense and a $0.2 million increase in operating loss. Our net loss per share for the three months ended September 30, 2017 and 2016 was $0.10 and $0.07, respectively. We anticipate future net losses to fluctuate with timber prices, harvest volume and mix, depletion rates, timberland sales, and interest expense based on our level of current and future borrowings.

Comparison of the nine months ended September 30, 2017 versus the nine months ended September 30, 2016

Revenues. Revenues increased to $68.6 million for the nine months ended September 30, 2017 from $61.5 million for the nine months ended September 30, 2016 due to an increase in timber sales revenue of $3.3 million, an increase in timberland sales revenue of $3.0 million, and an increase in other revenue of $0.8 million. Gross timber sales revenue increased 7% due to a 4% increase in harvest volume as well as an increase in delivered sales as a percentage of total volume. 72% of our 2017 harvest volume came from delivered sales as compared to 63% for the nine months ended September 30, 2016. Gross timber sales revenue from delivered sales includes logging and hauling costs that customers pay for deliveries.

Timber sales by product for the nine months ended September 30, 2016 and 2017 are shown in the following table:
 
Nine Months Ended
September 30, 2016
 
Changes attributable to:
 
Nine Months Ended
September 30, 2017
(in thousands)
 
Price/Mix
 
Volume
 
Timber sales (1)
 
 
 
 
 
 
 
Pulpwood
$
25,709

 
$
(1,112
)
 
$
2,085

 
$
26,682

Sawtimber (2)
21,964

 
(59
)
 
2,341

 
24,246

 
$
47,673

 
$
(1,171
)
 
$
4,426

 
$
50,928

(1) 
Timber sales are presented on a gross basis.
(2) 
Includes chip-n-saw and sawtimber.

Timberland sales revenue increased to $13.7 million for the nine months ended September 30, 2017 from $10.7 million for the nine months ended September 30, 2016 as we sold more acres in 2017. Other revenues increased to $3.9 million for the nine months ended September 30, 2017 from $3.1 million for the nine months ended September 30, 2016 due to $0.4 million of lease termination revenue received for terminating 1,100 acres of long-term timber leases and higher hunting lease income as result of prior year acquisitions.

Operating Expenses. Contract logging and hauling costs increased to $21.9 million for the nine months ended September 30, 2017 from $18.6 million for the nine months ended September 30, 2016 as a result of a 20% increase in delivered sales volume. Delivered sales increased as we continued to implement our delivered wood sales strategy on properties acquired since our listing in 2013.

Depletion expense decreased to $20.5 million for the nine months ended September 30, 2017 from $20.8 million for the nine months ended September 30, 2016 due to lower blended depletion rates offset by a 4% increase in harvest volume. We calculate depletion rates annually by dividing the beginning merchantable inventory book value, after the write-off of accumulated depletion, by current standing timber inventory volume. Before the impact of any future acquisitions or significant land sales, the merchantable book value is expected to decrease over time due to depletion, while the standing timber inventory volume is expected to stay relatively stable due to our sustainable harvest management practices. Therefore, we generally expect our depletion rates of our current portfolio to decrease over time.


29

Costs of timberland sales increased to $9.7 million for the nine months ended September 30, 2017 from $9.1 million for the nine months ended September 30, 2016 due to selling more acres.

Other operating expenses increased to $4.0 million for the nine months ended September 30, 2017 from $3.2 million for the nine months ended September 30, 2016, primarily as a result of writing off $0.3 million of cost basis of timber remaining on terminated lease acres and $0.3 million higher property taxes associated with having more acres under management.

General and administrative expenses increased to $7.5 million for the nine months ended September 30, 2017 from $6.6 million for the nine months ended September 30, 2016, primarily due to a $1.1 million increase in employee compensation expense. Employee compensation increased due to increased staffing and incremental stock-based compensation costs from new restricted stock issuances in 2017 (see Note 8 – Stockholders' Equity to the accompanying consolidated financial statements).

Interest expense. Interest expense increased to $8.1 million for the nine months ended September 30, 2017 from $4.6 million for the nine months ended September 30, 2016 as a result of a higher average debt balance during the period, higher interest rates incurred on our effectively variable-rate debt, and a higher mix of effectively fixed-rate debt as compared to the same period last year.

Net loss. Our net loss increased to $8.5 million for the nine months ended September 30, 2017 from $6.1 million for the nine months ended September 30, 2016 because of a $3.5 million increase in our interest expense, offset by a $1.3 million improvement in operating loss. Our net loss per share for the nine months ended September 30, 2017 and 2016 was $0.22 and $0.16, respectively. We anticipate future net losses to fluctuate with timber prices, harvest volume and mix, depletion rates, timberland sales, and interest expense based on our level of current and future borrowings.

Adjusted EBITDA

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 measure of operating performance. EBITDA is defined by the SEC; however, we have excluded certain other expenses due to their non-cash nature, and we refer to this measure as Adjusted EBITDA. As such, our Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies and should not be viewed as an alternative to net income or cash from operations as measurements of our operating performance. Due to the significant amount of timber assets subject to depletion and the significant amount of financing subject to interest and amortization expense, management considers Adjusted EBITDA to be an important measure of our financial condition. 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.

For the three months ended September 30, 2017, Adjusted EBITDA was $7.1 million, comparable to the three months ended September 30, 2016, as a result of a $0.8 million decrease in net timberland sales, offset by a $0.7 million increase in net timber sales.

For the nine months ended September 30, 2017, Adjusted EBITDA was $32.1 million, a $2.8 million increase from the nine months ended September 30, 2016, primarily due to a $3.1 million increase in net timberland sales and a $0.8 million increase in other revenue, offset by a $1.0 million increase in other operating expenses, forestry management expenses, and general and administrative expenses.


30

Our reconciliation of net loss to Adjusted EBITDA for the three months and nine months ended September 30, 2017 and 2016 follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in thousands)
2017
 
2016
 
2017
 
2016
Net loss
$
(4,044
)
 
$
(2,897
)
 
$
(8,488
)
 
$
(6,129
)
Add:
 
 
 
 
 
 
 
Depletion
7,265

 
7,072

 
20,511

 
20,836

Basis of timberland sold, lease terminations and other (1)
247

 
663

 
9,647

 
8,591

Amortization (2)
308

 
287

 
961

 
797

Depletion, amortization, and basis of timberland and mitigation credits sold included in loss from unconsolidated joint venture (3)
125

 
—

 
128

 
—

Stock-based compensation expense
687

 
405

 
2,025

 
1,320

Interest expense (2)
2,553

 
1,635

 
7,266

 
3,868

Adjusted EBITDA
$
7,141

 
$
7,165

 
$
32,050

 
$
29,283

(1)
Includes non-cash basis of timber and timberland assets written-off related to timberland sold, terminations of timberland leases and casualty losses.
(2) 
For the purpose of the above reconciliation, amortization includes amortization of deferred financing costs, amortization of 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.
(3) 
Reflects our share of depletion, amortization, and basis of timberland and mitigation credits sold of the unconsolidated joint venture.

Subsequent Events

Timberland Acquisitions

On October 11, 2017, we acquired approximately 4,641 acres of timberland located in southeastern South Carolina (the “Carolina Midlands V Acquisition”) for approximately $10.9 million, exclusive of closing costs. Carolina Midlands V comprises high-quality, heavily-stocked southern pine timberlands close to strong coastal mill and export markets. Based on current estimates, the Carolina Midlands V tracts contain approximately 206,000 tons of merchantable timber, comprised of 94% pine plantations or convertible natural pine stands by acreage and 72% chip-n-saw or sawtimber by tons. We funded the Carolina Midlands V Acquisition with proceeds from the 2014 Multi-Draw Term Facility, which were subsequently repaid with net proceeds from the 2017 Follow-On Offering.

On October 31, 2017, we acquired approximately 14,923 acres of timberland located in coastal Georgia (the “Coastal Georgia Acquisition”) for approximately $43.3 million, exclusive of closing costs. The Coastal Georgia Acquisition, which increases our regional ownership by 36%, is located in a top-tier pine pulpwood market with excellent accessibility to a deep and diversified mill market. The Coastal Georgia Acquisition includes a favorable supply agreement with International Paper Company through 2031. Based on current estimates, the Coastal Georgia Acquisition contains approximately 1.2 million tons of merchantable timber, comprised of 72% pine plantations by acreage and 65% chip-n-saw or sawtimber by tons. We funded the Coastal Georgia Acquisition with net proceeds from the 2017 Follow-On Offering.

Dividend Declaration

On November 2, 2017, we declared a cash dividend of $0.135 per share for our common stockholders of record on November 30, 2017, payable on December 15, 2017.


31


ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

As a result of our debt facilities, we are exposed to interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we have entered into five interest rate swaps, and may enter into other interest rate swaps, caps, or other arrangements in order to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes; however, certain of our derivatives may not qualify for hedge accounting treatment. All of our debt was entered into for other than trading purposes. We manage our ratio of fixed-to-floating-rate debt with the objective of achieving a mix that we believe is appropriate in light of anticipated changes in interest rates. We closely monitor interest rates and will continue to consider the sources and terms of our borrowing facilities to determine whether we have appropriately guarded ourselves against the risk of increasing interest rates in future periods.

As of September 30, 2017, we had $336.7 million outstanding under the 2014 Amended Credit Facilities, of which $100.0 million matures on December 23, 2024 and $236.7 million matures on December 23, 2021. The 2014 Term Loan Facility bears interest at an adjustable rate based on one-month LIBOR Rate plus a margin of 1.75% and the 2014 Multi-Draw Term Facility bears interest at an adjustable rate based on one-month LIBOR Rate plus a margin ranging from 1.75% to 2.75%, depending on the LTV Ratio (see Note 5 – Note Payable and Line of Credit to the accompanying consolidated financial statements for the applicable margin and current interest rates as of September 30, 2017).

As of September 30, 2017, we were party to five interest rate swaps, with notional values totaling $100.0 million of the 2014 Term Loan Facility and $50.0 million of the 2014 Multi-Draw Term Facility (see Note 6 – Interest Rate Swaps to the accompanying consolidated financial statements for more information on our interest rate swaps).

As of September 30, 2017, after consideration of the interest rate swaps, $186.7 million of our total debt outstanding is subject to an effectively variable interest rate while the remaining $150.0 million is subject to an effectively fixed-interest rate. A change in the market interest rate impacts the net financial instrument position of our effectively fixed-rate debt portfolio; however, it has no impact on interest incurred or cash flows.

Details of our effectively variable-rate and effectively fixed-rate debt outstanding as of September 30, 2017, along with the corresponding average interest rates, are listed below:
 
 
Expected Maturity Date
 
 
(dollars in thousands)
 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
 
Total
Maturing debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable-rate debt
 
$
—

 
$
—

 
$
—

 
$
—

 
$
186,656

 
$
—

 
$
186,656

Effectively fixed-rate debt
 
$
—

 
$
—

 
$
—

 
$
—

 
$
50,000

 
$
100,000

 
$
150,000

Average interest rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable-rate debt
 
—
%
 
—
%
 
—
%
 
—
%
 
3.49
%
 
—
%
 
3.49
%
Effectively fixed-rate debt
 
—
%
 
—
%
 
—
%
 
—
%
 
4.15
%
 
3.63
%
 
3.80
%

As of September 30, 2017, the weighted-average interest rate of our outstanding debt, after consideration of the interest rate swaps, was 3.63%. A 1.0% change in interest rates would result in a change in interest expense of approximately $1.9 million per year. The amount of effectively variable-rate debt outstanding in the future will be largely dependent upon the level of cash from operations and the rate at which we are able to employ such proceeds toward repayment of the 2014 Amended Credit Facilities and acquisition of timberland properties.

32



ITEM 4.    CONTROLS AND PROCEDURES
Management’s Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
Management, with the participation of the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods in SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


33

PART II.
OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS

From time to time, we are party to legal proceedings, which arise in the ordinary course of our business. We are not currently involved in any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by governmental authorities.

ITEM 1A.     RISK FACTORS

There have been no material changes from the risk factors disclosed in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2016 and our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017.


ITEM 5.
OTHER INFORMATION

(a)
During the third quarter of 2017, there was no information that was required to be disclosed in a report on Form 8-K that was not disclosed in a report on Form 8-K.

(b)
There are no material changes to the procedures by which stockholders may recommend nominees to our board of directors since the filing of our Schedule 14A.


34

ITEM 6.    EXHIBITS
The exhibits required to be filed with this report are set forth below and incorporated by reference herein.
Exhibit
Number
 
Description
 
 
 
3.1
 
 
 
 
3.2
 
 
 
 
3.3
 
 
 
 
3.4
 
 
 
 
3.5
 
 
 
 
3.6
 
 
 
 
31.1*
 
 
 
 
31.2*
 
 
 
 
32.1*
 
 
 
 
101.INS*
 
XBRL Instance Document
 
 
 
101.SCH*
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
* Filed herewith


35

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
CATCHMARK TIMBER TRUST, INC.
(Registrant)
 
 
 
 
Date:
November 2, 2017
By:
 
/s/ Brian M. Davis
 
 
 
 
Brian M. Davis
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
 

36

CatchMark Timber Trust, Inc. Reports