CatchMark Timber Trust, Inc. - FORM 10-K - EX-99.1 - TRIPLE T JOINT VENTURE AUDITED FINANCIAL STATEMENTS

Attached files

file	filename
10-K - 2020 10-K - CatchMark Timber Trust, Inc.	ctt-20201231.htm
EX-32.1 - SECTION 906 CERT - CatchMark Timber Trust, Inc.	exhibit321section906cert_2.htm
EX-31.2 - SECTION 302 CERT-PFO - CatchMark Timber Trust, Inc.	exhibit312section302pfocer.htm
EX-31.1 - SECTION 302 CERT-PEO - CatchMark Timber Trust, Inc.	exhibit311section302certpe.htm
EX-23.2 - CONSENT OF DELOITTE & TOUCHE LLP - CatchMark Timber Trust, Inc.	exhibit232deloitteconsent2.htm
EX-23.1 - CONSENT OF DELOITTE & TOUCHE LLP - CatchMark Timber Trust, Inc.	exhibit231deloitteconsent2.htm
EX-21.1 - SUBSIDIARIES OF THE COMPANY - CatchMark Timber Trust, Inc.	exhibit211subsidiaries2020.htm

Exhibit 99.1

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




Financial Statements						Page

Independent Auditors’ Report						2

Consolidated Balance Sheets as of December 31, 2020 and 2019						3

Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 and the period from inception to December 31, 2018						4

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2020 and 2019 and the period from inception to December 31, 2018						5

Consolidated Statements of Partners’ Capital for the years ended December 31, 2020 and 2019 and the period from inception to December 31, 2018						6

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 and the period from inception to December 31, 2018						7

Notes to Consolidated Financial Statements						8

Exhibit 99.1

INDEPENDENT AUDITORS’ REPORT

To the Partners of TexMark Timber Treasury, L.P. and its Subsidiaries:

We have audited the accompanying consolidated financial statements of TexMark Timber Treasury, L.P. and its Subsidiaries (the "Partnership"), which comprise the consolidated balance sheets as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive loss, partners’ capital, and cash flows for the years ended December 31, 2020 and 2019, and for the period from July 6, 2018 (Inception) to December 31, 2018, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Partnership's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TexMark Timber Treasury, L.P. and its Subsidiaries as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the years ended December 31, 2020 and 2019, and for the period from July 6, 2018 (Inception) to December 31, 2018, in accordance with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Atlanta, GA

February 26, 2021

Exhibit 99.1

TEXMARK TIMBER TREASURY, L.P.

CONSOLIDATED BALANCE SHEETS


Assets:				December 31, 2020	December 31, 2019
	Cash and cash equivalents			$ 35,320,980	$ 39,613,658
	Accounts receivable			8,064,431	7,326,077
	Inventory			448,493	598,493
	Prepaid expenses and other assets			4,360,533	1,217,105
	Deferred financing costs, net of accumulated amortization			504,574	699,894
	Timber assets, at cost:
		Timber and timberlands, net		1,482,912,865	1,523,716,739
	Intangible contract asset, net of accumulated amortization			15,731,969	—
			Total assets	$ 1,547,343,845	$ 1,573,171,966

Liabilities:
	Accounts payable and accrued expenses			$ 4,253,825	$ 7,257,264
	Asset management fee payable			2,986,987	2,702,792
	Other liabilities			21,262,524	17,211,304
	Intangible contract liability, net of accumulated amortization			—	135,439,706
	Notes payable and line of credit, net of deferred financing costs			735,211,956	589,044,340
			Total liabilities	763,715,292	751,665,406

Partners' Capital:
	Common partner's capital			—	—
	Class A partners' capital			125,000	125,000
	Preferred partners' capital			783,503,553	821,391,560
			Total partners' capital	783,628,553	821,516,560

			Total liabilities and partners' capital	$ 1,547,343,845	$ 1,573,171,966

See accompanying notes.

Exhibit 99.1

TEXMARK TIMBER TREASURY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS


		Year Ended	Year Ended	Period from Inception to
		December 31, 2020	December 31, 2019	December 31, 2018
Revenues:
	Timber sales	$ 113,449,729	$ 110,115,604	$ 44,106,911
	Timber sales - intangible contract amortization	6,171,675	13,773,529	6,886,764
	Timberland sales	17,348,007	19,478,144	—
	Other revenue	15,072,107	15,471,430	6,151,021
		152,041,518	158,838,707	57,144,696
Expenses:
	Contract logging & hauling cost	74,466,663	71,578,870	31,625,754
	Depletion	32,878,540	33,118,536	15,846,279
	Cost of timberland sales	13,411,750	11,511,564	—
	Forestry management fees	11,907,010	11,806,215	5,456,138
	General and administrative expenses	2,244,355	1,426,095	1,860,215
	Asset management fee	11,401,419	10,811,168	5,258,693
	Other operating expenses	13,646,187	12,010,931	4,997,571
		159,955,923	152,263,379	65,044,650

Other income (expense):
	Gain on disposition of fixed assets	—	12,000	—
	Interest income	128,158	781,502	514,087
	Interest expense	(29,726,622)	(28,838,080)	(13,260,212)
		(29,598,464)	(28,044,578)	(12,746,125)

Net loss		$ (37,512,869)	$ (21,469,250)	$ (20,646,079)

See accompanying notes.

Exhibit 99.1

TEXMARK TIMBER TREASURY, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


	Year Ended	Year Ended	Period from Inception to
	December 31, 2020	December 31, 2019	December 31, 2018
Net loss	$ (37,512,869)	$ (21,469,250)	$ (20,646,079)
Other comprehensive loss:
Market value adjustment to interest rate swaps	(3,935,138)	(9,903,755)	(2,796,059)
Comprehensive loss	$ (41,448,007)	$ (31,373,005)	$ (23,442,138)

See accompanying notes.

Exhibit 99.1

TEXMARK TIMBER TREASURY, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL


		Common Partner		Class A Preferred Partners		Preferred Partners		Total Partners' Capital
Balance, July 6, 2018		$	—	$	—	$	—	$	—
	Contributions	200,000,000		—		725,866,142		925,866,142
	Offering costs	(49,621,084)		—		—		(49,621,084)
	Other comprehensive loss	(2,796,059)		—		—		(2,796,059)
	Preferred return	(36,487,203)		—		36,487,203		—
	Net loss	(20,646,079)		—		—		(20,646,079)
Balance, December 31, 2018		$	90,449,575	$	—	$	762,353,345	$	852,802,920
	Contributions	—		125,000		—		125,000
	Offering costs	(23,480)		—		—		(23,480)
	Other comprehensive loss	(9,903,755)		—		—		(9,903,755)
	Preferred return	(59,053,090)		14,875		59,038,215		—
	Distributions	—		(14,875)		—		(14,875)
	Net loss	(21,469,250)		—		—		(21,469,250)
Balance, December 31, 2019		$	—	$	125,000.00	$	821,391,560	$	821,516,560
	Contributions	5,000,000		—		—		5,000,000
	Offering costs	—		—		—		—
	Other comprehensive loss	—		—		(3,935,138)		(3,935,138)
	Preferred return	—		15,000		(15,000)		—
	Distributions	—		(15,000)		(1,425,000)		(1,440,000)
	Net loss	(5,000,000)		—		(32,512,869)		(37,512,869)
Balance, December 31, 2020		$	—	$	125,000	$	783,503,553	$	783,628,553

See accompanying notes.

Exhibit 99.1

TEXMARK TIMBER TREASURY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended		Year Ended		Period from Inception to
Cash Flows from Operating Activities:	December 31, 2020		December 31, 2019		December 31, 2018
Net loss	$	(37,512,869)	$	(21,469,250)	$	(20,646,079)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depletion	32,878,540		33,118,536		15,846,279
Noncash interest expense	2,244,210		2,157,324		1,075,618
Timber sales - intangible contract amortization	(6,171,675)		(13,773,529)		(6,886,764)
Other amortization	191,610		95,072		36,052
Basis of timberland sold and other removals	12,621,263		10,597,207		—
Casualty loss	2,454,576		47,310		—
Gain on disposition of fixed assets	—		(12,000)		—
Customer contract payment, including capitalized transaction costs	(147,200,000)		—		—
Changes in assets and liabilities:
Accounts receivable	(1,775,589)		(3,377,369)		(1,340,857)
Prepaid expenses and other assets	(40,259)		(158,054)		(602,120)
Inventory	—		609,225		(9,225)
Accounts payable and accrued expenses	(2,719,244)		(1,045,014)		7,863,842
Other liabilities	116,082		27,701		(4,319,303)
Net cash provided by (used in) operating activities	(144,913,355)		6,817,159		(8,982,557)

Cash Flows from Investing Activities:
Timberland acquisitions	—		—		(1,409,161,071)
Capital expenditures (excluding timberland acquisitions)	(7,208,048)		(6,746,158)		(3,920,429)
Proceeds from disposition of fixed assets	150,000		163,507		—
Net cash used in investing activities	(7,058,048)		(6,582,651)		(1,413,081,500)

Cash Flows from Financing Activities:
Proceeds from note payable	145,000,000		—		600,000,000
Capital contributions – Common Partner	5,000,000		—		200,000,000
Capital contributions – Preferred Class A Partners	—		125,000		—
Capital contributions – Preferred Partners	—		—		691,387,500
Distributions – Preferred Class A Partners	(15,000)		(14,875)		—
Distributions – Preferred Partners	(1,425,000)		—		—
Deferred financing costs paid	(881,275)		—		(14,888,495)
Offering costs	—		(30,788)		(15,135,135)
Net cash provided by financing activities	147,678,725		79,337		1,461,363,870
Net change in cash and cash equivalents	(4,292,678)		313,845		39,299,813
Cash and cash equivalents, beginning of period	39,613,658		39,299,813		—
Cash and cash equivalents, end of period	$	35,320,980	$	39,613,658	$	39,299,813

Supplemental Disclosures of Non-Cash Investing and Financing Activities
Fair value of intangible contract liability assumed upon timberland acquisition	—		—		$	156,100,000
Net liabilities assumed upon acquisition	—		—		$	7,438,747
Original issue discount for preferred partners	—		—		$	34,478,642

See accompanying notes.

Exhibit 99.1

TEXMARK TIMBER TREASURY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020



1.			Organization

TexMark Timber Treasury, L.P. (“Triple T”), a Delaware limited partnership, owns and operates timberlands located in East Texas. Triple T was formed in May 2018 and commenced operations on July 6, 2018. Triple T GP, LLC, a Delaware limited liability company and wholly-owned indirect subsidiary of CatchMark Timber Trust, Inc. (“CatchMark”), serves as Triple T’s general partner (the “General Partner”). Creek Pine Holdings, LLC, a Delaware limited liability and wholly-owned indirect subsidiary of CatchMark, holds the sole common limited partnership interest of Triple T (the “Common Partner”) and a consortium of institutional investors (the “Preferred Partners”) hold the preferred limited partnership interests of Triple T. At inception, the Common Partner invested $200.0 million in Triple T, equal to 21.6% of the total partnership contributions, and the Preferred Partners invested $725.9 million in Triple T, equal to 78.4% of the total partnership contributions. Each of the Preferred Partners received an original issue discount (“OID”) in the amount of 4.75% of their total partnership contribution, totaling $34.5 million.

On June 24, 2020, the Common Partner invested an additional $5.0 million of equity on the same terms and conditions as its existing investment in the Triple T in connection with amendments to Triple T’s limited partnership agreement, asset management agreement and a sawtimber supply agreement with Georgia-Pacific WFS LLC (“GP”).

Triple T owns its assets and conducts its operations through Creek Pine REIT, LLC (“CP REIT”) and its subsidiaries. CP REIT is a Delaware limited liability company that has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). Triple T owns all of the outstanding units of CP REIT, other than 125 Class A Preferred Units issued to individual investors in connection with CP REIT’s qualification as a REIT. CP REIT, through Creek Pine Intermediate, LLC and Creek Pine, LLC, both wholly-owned Delaware limited liability companies, owns all of the outstanding limited partnership interests of Crown Pine Timber 1, L.P. (“CPT1”), a Delaware limited partnership. CPT1 in turn owns all of the outstanding limited liability company interests of Crown Pine Leasing, LLC (“CP Leasing”) and all of the outstanding shares of common stock Crown Pine Realty 1, Inc. (“CP Realty 1”), a Delaware corporation. CP REIT treats CP Realty 1 as a taxable REIT subsidiary. Unless otherwise noted, references herein to Triple T shall include Triple T and all of its subsidiaries, including CP REIT, CPT1, CP Leasing and CP Realty 1.

Limited Partnership Agreement

The Triple T limited partnership agreement (the “LPA”) between the Common Partner and the Preferred Partners provides for a term of five years, which is extendable, subject to certain approvals, to seven and ten years.

The LPA provides for seven board members, three from the Common Partner and four from the Preferred Partners. The Common board members shall have one and two-third votes for each board seat while each of the Preferred Partners’ board members have one vote for each board seat. Subject to certain performance achievement thresholds set forth under the LPA, the Common Partner board member votes can be reduced from one and two-thirds votes to one-third vote for each board seat.

The LPA has liquidation rights and distribution priorities that are significantly different from the Common Partner and Preferred Partners’ stated ownership percentage based on total partnership contributions. From inception until June 24, 2020, the Preferred Partners were entitled to a minimum 10.25% cumulative return on their partnership contributions, plus a complete return of their partnership contributions before any distributions may be made to the Common Partner’s limited partnership interest. Effective June 24, 2020, the LPA was amended, which increased the 10.25% cumulative return on the preferred investors’ interests in CP REIT by 0.5% per quarter, subject to a maximum increase of 2.0% and subject to decreases in other circumstances.

Exhibit 99.1

If any cash remains for distribution after payment of each partner’s accrued return and return of their partnership contributions, there is participation by the Common Partner’s interest and the Preferred Partners in percentages equal to 30%/70%, respectively, until the Preferred Investors have received an internal rate of return of 12.5% and then 50%/50%.

Asset Acquisition

On July 6, 2018, Triple T completed an acquisition of 1.1 million acres of prime East Texas timberlands (the “Triple T Timberlands”) for approximately $1.39 billion (the “Acquisition Price”), exclusive of transaction costs. The Acquisition Price was funded with partnership contributions and a $600 million, seven-year term loan made pursuant to a credit agreement, dated July 6, 2018, between Triple T, its affiliates and the lenders.

Class A Preferred Unit Offering

On January 4, 2019, CP REIT issued 125 shares of Class A preferred membership units, with a par value of $1,000 per unit (“Class A Preferred Units”). The Class A Preferred Units earn a dividend of 12.00% per annum, payable semi-annually in arrears on June 30 and December 31 of each year. The Class A Preferred Units are senior to all other outstanding units of CP REIT, all of which are held by Triple T, with respect to distributions, redemptions and dissolution of CP REIT. The Class A Preferred Units do not have a board seat or voting rights.

Risks and Uncertainties

Triple T is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the future impact of the COVID-19 pandemic on Triple T’s business and that of its customers and contractors is uncertain and difficult to predict. The rapid spread of the outbreak caused significant disruptions in the U.S. and global economies and capital markets during 2020, and the impact is expected to continue to be significant during 2021. Such economic disruptions could have a material adverse effect on Triple T’s business due to declines in sawtimber harvest volumes resulting from a deterioration in the housing market; a decline in production level at Triple T’s customers' mills due to instances of COVID-19 among their employees or decreased demand for their products; the inability to complete timberland sales due to the inability of potential buyers to complete title searches and other customary due diligence, including as a result of state and local government office closures; effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating Triple T’s financial reporting and internal controls.

The severity of the impact of the COVID-19 pandemic on Triple T’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on Triple T’s customers, all of which are uncertain and cannot be predicted. Triple T’s future results of operations and liquidity could be adversely impacted by uncertain customer demand and the impact of any initiatives or programs that Triple T may undertake to address financial and operational challenges faced by its customers. As of the date of issuance of these consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact Triple T’s future financial condition, liquidity, or results of operations is uncertain. See Note 5 — Notes Payable and Line of Credit for additional information on Triple T’s outstanding indebtedness and debt covenants.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements of Triple T have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) and shall include the accounts of any VIE in which Triple T or its subsidiaries is deemed the primary beneficiary. With respect to entities that are not VIEs, Triple T’s consolidated financial statements shall also include the accounts of any entity in which Triple T or its subsidiaries owns a controlling financial interest and any limited partnership in which Triple T or its subsidiaries owns a controlling general partnership interest. In determining whether a controlling interest exists, Triple T considers, among other factors, the ownership of voting interests, protective rights, and participatory rights of the investors.

Exhibit 99.1

Triple T owns a controlling financial interest in CP REIT, CPT1, CP Realty 1 and CP Leasing, and, accordingly, includes the accounts of these entities in its consolidated financial statements. The financial statements of CP REIT, CPT1, CP Realty 1 and CP Leasing, are prepared using accounting policies consistent with those used by Triple T. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes. Actual results could differ from those estimates.

Fair Value Measurements

Triple T estimates the fair value of its assets and liabilities where currently required under GAAP consistent with the provisions of the accounting standard for fair value measurements and disclosures. Under this guidance, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. While various techniques and assumptions can be used to estimate fair value depending on the nature of the asset or liability, the accounting standard for fair value measurements and disclosures provides the following fair value technique parameters and hierarchy, depending upon availability:

Level 1 — Assets or liabilities for which the identical term is traded on an active exchange, such as publicly-traded instruments or futures contracts.

Level 2 — Assets and liabilities valued based on observable market data for similar instruments.

Level 3 — Assets or liabilities for which significant valuation assumptions are not readily observable in the market. Such assets or liabilities are valued based on the best available data, some of which may be internally developed. Significant assumptions may include risk premiums that a market participant would require.

Cash and Cash Equivalents

Triple T considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value and may consist of investments in money market accounts.

Accounts Receivable

Accounts receivable are recorded at the original amount earned, net of allowances for doubtful accounts, which approximates fair value. Accounts receivable are deemed past due based on their respective payment terms. Management assesses the realizability of accounts receivable on an ongoing basis and provides for allowances based on expected losses.

Inventory

Inventory is comprised of seed and seedling inventory at the Triple T tree orchard and nursery. Triple T currently grows seedlings needed for reforestation based on current and prior-year harvest levels. Any seedlings grown in excess of its internal reforestation needs are sold to outside third-party customers.

In accordance with Accounting Standards Codification (“ASC”) 905 – Agriculture, all direct and indirect costs of growing crops are accumulated into inventory until the time of harvest. Upon planting onto Triple T timberlands, amounts are reclassified at cost out of inventory and into timber assets. Upon a sale to third-party customers, amounts are reclassified at cost into cost of goods sold, which are recorded as Other operating expenses in the consolidated statements of operations.

Exhibit 99.1

Prepaid Expenses and Other Assets

Prepaid expenses and other assets are primarily comprised of prepaid insurance, prepaid rent, and fixed assets. Prepaid expenses are expensed over the applicable usage period or reclassified to other asset accounts upon being put into service in future periods. Balances without future economic benefit are written off as they are identified.

Deferred Financing Costs

Deferred financing costs are comprised of costs incurred in connection with securing financing from third-party lenders and are capitalized and amortized on a straight-line basis (which approximates the effective interest rate method) over the terms of the related financing arrangements. Deferred financing costs relating to term loans and delayed-draw term facility are presented as a direct deduction from the carrying amount of the related debt liability in the accompanying consolidated balance sheets and costs associated with revolving credit facilities are presented as an asset in the accompanying consolidated balance sheets.

For further information regarding Triple T’s credit agreements, outstanding balance of debt and associated deferred financing costs, please refer to Note 5 – Notes Payable and Line of Credit. For the years ended December 31, 2020 and 2019, Triple T recognized amortization of deferred financing costs of $2.2 million and $2.2 million, respectively, which is included in interest expense in the accompanying consolidated statements of operations. From inception through December 31, 2018, Triple T recognized amortization of deferred financing costs of approximately $1.1 million, which is included in interest expense in the accompanying consolidated statements of operations.

Timber Assets

Timber and timberlands, including logging roads, are stated at cost less accumulated depletion for timber harvested and accumulated road amortization. Triple T capitalizes timber and timberland purchases. Reforestation costs, including all costs associated with stand establishment, such as site preparation, cost of seedlings, fertilization, and herbicide application, are capitalized and tracked as premerchantable timber assets by vintage year.

Annually, capitalized reforestation costs for timber that has reached a merchantable age are reclassified into merchantable timber inventory and are depleted as harvested. Timber carrying costs, such as real estate taxes, insect control, wildlife control, leases of timberlands, and forestry management expenses, are expensed as incurred. Costs of major roads are capitalized and amortized over their estimated useful lives. Costs of roads built to access multiple logging sites over numerous years are capitalized and amortized over seven years. Costs of roads built to access a single logging site are expensed as incurred.

Depletion

Triple T recognizes depletion expense as timber is harvested using the straight-line method. Depletion rates are established at least annually for each product-type by dividing the merchantable timber inventory book value by the merchantable timber inventory volume, as measured in tons. Depletion expense is then determined by applying the applicable depletion rate to each ton of timber harvested during the period.

Evaluating the Recoverability of Timber Assets

Triple T continually monitors events and changes in circumstances that could indicate that the carrying amounts of its timber assets may not be recoverable. Examples of such circumstances include, but are not limited to, a significant decrease in market price of timber assets, a significant adverse change in the extent or manner in which timber assets are being used, or a significant adverse change in legal factors or in the business climate that could affect the value of the timber assets. When indicators of potential impairment are present, Triple T assesses the recoverability of its timber assets by determining whether their carrying value exceeds the sum of the undiscounted future operating cash flows expected from the use of these assets and their eventual dispositions (the "Recoverable Amount"). If the assets' carrying value exceeds the Recoverable Amount, impairment losses would be recognized as the difference between the assets' carrying values and the estimated fair values.

Exhibit 99.1

Estimated fair values are calculated based on the following information in order of preference, dependent upon availability: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the sum of discounted cash flows, including estimated salvage value, using data from one harvest cycle. Triple T has determined that there has been no impairment of its timber assets as of December 31, 2020.

Allocation of Purchase Price of Acquired Assets

Upon the acquisition of timberland properties, Triple T allocates the purchase price to tangible assets, consisting of timberland, timber, and buildings and equipment, and identified intangible assets and liabilities, which may include values associated with in-place leases or supply agreements, based in each case on management’s estimate of their fair values.

Intangible Contract Assets and Liabilities

In-place wood supply agreements with Triple T as the supplier of wood to third-party customers have value associated with the delivered product pricing rates that are above or below market rates. The value of such contracts is calculated by taking the difference between the fair value of the property with the in-place wood supply agreements and the fair market value of the property without the in-place wood supply agreements, and instead, using current market pricing data for cash flow assumptions. The value of the above-market or below-market in-place wood supply agreement is recorded as intangible contract asset or liability and is amortized to revenue over the remaining term of the respective supply agreement. See Note 4 – Intangible Contracts Asset and Liability for further information.

Evaluating the Recoverability of Intangible Contract Assets and Liabilities

The values of the intangible contract assets and liabilities are determined based on assumptions made at the time of acquisition and have defined useful lives, which correspond with the in-place wood supply agreements. There may be instances in which the intangible contract assets and liabilities becomes impaired, and Triple T is required to amortize the remaining intangible contract assets and liabilities immediately or over a shorter period of time. Contract modifications, including, but not limited to, contract amendments, contract terminations and contract extensions, may impact the value and useful life of in-place wood supply agreements. Such contract modifications will be evaluated for impairment if the original in-place wood supply agreement terms have been modified. In connection with an amendment to the sawtimber supply agreement with GP in June 2020, the intangible contract liability outstanding as of December 31, 2019 was settled and an intangible contract asset was recorded in June 2020. See Note 4 – Intangible Contracts Asset and Liability for further information.

Fair Value of Debt Instruments

Triple T applied the provisions of the accounting standard for fair value measurements and disclosures in estimations of fair value of its debt instruments based on Level 2 assumptions. The fair value of the outstanding notes payable was estimated based on discounted cash flow analysis using the current observable market borrowing rates for similar types of borrowing arrangements as of the measurement date. The discounted cash flow method of assessing fair value results in a general approximation of book value, and such value may never actually be realized.

Partners’ Capital

As indicated in Note 1 – Organization, the Triple T LPA has liquidation rights and priorities that are significantly different from the Common Partner’s and Preferred Partners’ stated ownership percentage based on total partnership contributions. As such, Triple T uses the hypothetical-liquidation-at-book-value method (“HLBV”) to allocate earnings between the Common Partner, Preferred Partners and Class A Preferred Units. The HLBV method is commonly applied to investments in real estate where cash distribution percentages vary at different points in time and are not directly linked to an investor's ownership percentage. For investments accounted for under the HLBV method, applying the percentage ownership interest to GAAP net income (loss) in order to determine earnings or losses would not accurately represent the income allocation and cash flow distributions that will ultimately be received by the investors.

Exhibit 99.1

Triple T applies HLBV using a balance sheet approach. A calculation is prepared at each balance sheet date to determine the amount that the Common Partner, Preferred Partners and Class A Preferred Units would receive if Triple T were to liquidate all of its assets (as valued in accordance with GAAP) on that date and distribute the cash to the partners based on the contractually defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is each partner’s share of income or loss from Triple T for the period.

Interest Rate Swaps

Triple T has entered into interest rate swaps to mitigate its exposure to changing interest rates on its variable rate debt instruments. Triple T does not enter into derivative or interest rate transactions for speculative purposes; however, certain of its derivatives may not qualify for hedge accounting treatment. The fair values of interest rate swaps are recorded as either prepaid expenses and other assets or other liabilities in the accompanying consolidated balance sheets. Changes in the fair value of interest rate swaps that are designated as hedges are recorded as other comprehensive income (loss). Changes in the fair value of interest rate swaps that do not qualify for hedge accounting treatment are recorded as gain (loss) on interest rate swap in the consolidated statements of operations. Amounts received or paid under interest rate swaps are recorded as interest expense for contracts that qualify for hedge accounting treatment and as gain (loss) on interest rate swaps for contracts that do not qualify for hedge accounting treatment.

Triple T applied the provisions of the accounting standard for fair value measurements and disclosures in recording its interest rate swaps at fair value. The fair value of the interest rate swaps, classified under Level 2, was determined using a third-party proprietary model that is based on prevailing market data for contracts with matching durations, current and anticipated LIBOR information, consideration of Triple T’s credit standing, credit risk of counterparties, and reasonable estimates about relevant future market conditions.

Revenue Recognition

Effective upon acquisition on July 6, 2018, Triple T has early adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606). In accordance with ASC 606 – Revenue from Contracts with Customers, revenue will be recognized when the following criteria are met: (i) persuasive evidence of a contract with customer exists, (ii) identifiable performance obligations under the contract exists, (iii) price and quantity are determinable for each performance obligation, (iv) transaction price is allocated to each performance obligation, and (v) legal ownership and the risk of loss are transferred to the purchaser for each performance obligation. Triple T derives a majority of its revenues from timber sales, timberland sales, recreational leases and surface use revenues, where the original expected contract duration is one year or less. Triple T has elected the disclosure exemption available under ASC 606 considering it satisfies its performance obligations generally within one year of entering into contracts and collects payments within a month of satisfying its performance obligation.

(a) Timber Sales Revenue

Triple T generates its timber sales revenue from delivered wood sales, stumpage sales, and lump-sum sales with retained economic interests. Revenue for timber sales is recognized when the risk of loss passes to the customer. Only one performance obligation is associated with timber sales and it is satisfied when timber is delivered to or severed by the customer in an amount that reflects the consideration expected to be received.

Contractual terms of each timber sale, including pricing and volume for the respective product, are negotiated and entered into by the field managers. In delivered wood sales, product pricing includes amount sufficient to cover costs of contracting third-party logging crews to harvest and haul timber to the customers. Revenue is recognized when timber is delivered to the customer and the sales volume/value is known when timber crosses the customers’ scale. Stumpage sales are typically executed using pay-as-cut contracts, where a purchaser acquires the right to harvest specified timber on a designated tract for a set period of time at agreed-upon unit prices. Revenue is recognized when timber is severed under pay-as-cut contracts. In a lump-sum sales contract with retained economic interests, Triple T receives

Exhibit 99.1

advance payments for the standing timber specified in the contract and the customer is responsible for cutting and hauling the timber. Triple T satisfies its performance obligation when timber is severed, at which time revenue is recognized. Contract payments are generally due within a month from the date timber is harvested and/or delivered. The transaction price for timber sales is determined using contractual rates applied to harvest volumes.

(b) Timberland Sales Revenue

Performance obligations associated with timberland sales are met when all conditions of closing have been satisfied. Revenue for timberland sales is recognized at closing when title passes, payments are received or full collectability is probable, and control is passed to the buyer. Triple T generally receives the entire contract consideration in cash at closing.

Recreational lease revenue is derived from the leasing of the right to use Triple T’s timberland. The agreed-upon transaction price of a lease is generally paid in full at the beginning of the lease term and recorded as deferred revenue. Performance obligations associated with a recreational lease are generally met over the period of the lease term. Revenue is recognized evenly over the lease term as Triple T has satisfied its performance obligation. Recreational lease revenue is recorded as Other revenues in the accompanying consolidated statements of operations. See Note 9 – Other Revenues for further information.

(d) Surface Use Revenue

Surface use revenue is derived from the granting of the right to access Triple T’s timberlands through a surface use agreement. The agreed-upon transaction price of the surface use agreement is generally paid in full upon execution of a signed agreement and recorded as other revenue. Performance obligations associated with a surface use agreement are generally met once the customer has received access to the timberland. Surface use revenue is recorded as Other revenues in the accompanying consolidated statements of operations. See Note 9 – Other Revenues for further information.

Income Taxes

Triple T itself is not subject to income taxes due to its formation as a limited partnership. Triple T owns a direct controlling financial interest in CP REIT and an indirect controlling interest in CPT1, CP Realty 1 and CP Leasing. The ownership structure and resulting tax reporting is as follows:

•Triple T will pass through all items of income and loss to its partners and is not itself subject to income taxes. This includes any distributions from CP REIT that are classified as dividends for federal income tax purposes.

•CP REIT elected to be taxed as a REIT under the Internal Revenue Code with the filing of its 2018 tax return and has operated as such since its formation. To qualify to be taxed as a REIT, CP REIT must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its ordinary taxable income to its stockholders. As a REIT, CP REIT generally is not subject to federal income tax on taxable income it distributes to stockholders. If CP REIT fails to qualify as a REIT in any taxable year, it will then be subject to federal and state income taxes on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the IRS grants CP REIT relief under certain statutory provisions.

•CPT1 is 100% owned by CP REIT and is, therefore, a disregarded entity for federal income tax purposes. As a disregarded entity, 100% of CPT1’s income or loss will be reported by CP REIT. CPT1 owns 100% of CP Leasing, also a disregarded entity for federal income tax purposes. Unless otherwise noted,

Exhibit 99.1

references herein to CP REIT shall include CP REIT and its direct and indirect wholly owned subsidiaries CPT1 and CP Leasing, respectively.

•CP Realty 1 is directly held 100% by CPT 1 and is indirectly held 100% by CP REIT. CP REIT has elected to treat CP Realty 1 as a taxable REIT subsidiary (“TRS”). CP REIT may perform certain non-customary services, including real estate or non-real estate related services, through CP Realty 1. Earnings from services performed through CP Realty 1 are subject to federal and state income taxes irrespective of the dividends paid deduction available to REITs for federal income tax purposes. In addition, for CP REIT to continue to qualify to be taxed as a REIT, CP REIT’s investment in CP Realty 1 and any other TRSs may not exceed 20% of the value of the total assets of CP REIT.

Deferred tax assets and liabilities represent temporary differences between the financial reporting basis and the tax basis of assets and liabilities based on the enacted rates expected to be in effect when the temporary differences reverse. Operating loss and tax credit carryforwards, if any, are also factored into the calculation of deferred tax assets and liabilities. Deferred tax expense or benefit is recognized in the financial statements according to the changes in deferred tax assets or liabilities between years. Valuation allowances are established to reduce deferred tax assets when it becomes more likely than not that such assets, or portions thereof, will not be realized. No provision for federal income taxes has been made in the accompanying consolidated financial statements, other than the provision relating to CP Realty 1, as Triple T and CP REIT did not generate taxable income for the periods presented. See Note 10 – Income Taxes for more information.

CP REIT and CP Realty 1 are also subject to certain state and local taxes related to the operations of timberland properties in certain locations, which have been provided for in the accompanying consolidated financial statements.

Triple T, CP REIT, and CP Realty 1 have no tax exposure items as of December 31, 2020 and 2019 where the entities’ tax position is not more likely than not to be sustained if challenged by the taxing authorities. Each entity recognizes interest expense related to unrecognized tax benefits or underpayment of income taxes in interest expense and recognizes penalties in operating expenses. There has been no interest expense or penalties incurred for the periods presented.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removed certain exceptions for intra-period tax allocation, recognition of deferred tax liabilities, and calculation of income taxes in interim periods. This ASU also added guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, and interim periods therein. Triple T is currently assessing the impact ASU 2019-12 will have on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, which provides clarifications on seven topics related to financial instruments in the ASC. In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which improves the consistency of the disclosure guidance and provides clarifications on application of various provisions. These updates became effective for Triple T upon issuance and the adoption did not have a material impact on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides entities with optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform if certain criteria are met. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which refines the scope of Topic 848 and clarifies some of its guidance to reduce diversity in practice related to accounting for (1) modifications to the terms of affected derivatives and (2) existing hedging relationships in which the affected derivatives are designated as hedging instruments. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31,

Exhibit 99.1

2022. Triple T has elected the optional expedients offered in this update, which will be applied to all eligible contracts and hedging relationships as reference rate replacement activities occur.


3.			Timber Assets

As of December 31, 2020, Triple T owned interests in 1.1 million acres of timberlands in East Texas. As of December 31, 2020 and 2019, timber and timberlands consisted of the following, respectively:


		As of December 31, 2020
	Gross		Accumulated Depletion or Amortization		Net


Timber	$	695,813,355	$	32,878,540	$	662,934,815
Timberlands	819,530,275		—		819,530,275
Mainline roads	531,576		83,801		447,775
Timber and timberlands	$	1,515,875,206	$	32,962,341	$	1,482,912,865


		As of December 31, 2019
	Gross		Accumulated Depletion or Amortization		Net


Timber	$	729,897,659	$	33,118,536	$	696,779,123
Timberlands	826,633,856		—		826,633,856
Mainline roads	330,018		26,258		303,760
Timber and timberlands	$	1,556,861,533	$	33,144,794	$	1,523,716,739

During the year ended December 31, 2020, Triple T recognized casualty losses related to hurricane damage of $2.5 million, which is included in other Operating expenses in the accompanying consolidated statements of operations.

4. Intangible Contract Asset and Liability

At the time of acquisition, under ASC 805, Triple T recorded an intangible contract liability of $156.1 million in connection with the sawtimber supply agreement acquired as part of its purchase of the Triple T Timberlands. Through June 23, 2020, the intangible contract liability was amortized over the term of the sawtimber supply agreement and the amortization was recorded as Timber sales – intangible contract amortization in the accompanying consolidated statements of operations.

In connection with an amendment to the sawtimber supply agreement (“Amended Sawtimber Supply Agreement”) on June 24, 2020, Triple T paid $145.0 million (“GP Amendment Fee”) to GP as consideration for amending its terms. Pursuant to ASC 606, Triple T applied the unamortized intangible contract liability of $128.6 million against the GP Amendment Fee and recorded an intangible contract asset for the difference of $16.4 million. The intangible contract asset is amortized over the term of the Amended Sawtimber Supply Agreement, or 11.5 years, and the amortization is recorded as Timber sales – intangible contract amortization in the accompanying consolidated statements of operations. See Note 7 – Commitments and Contingencies for more information regarding the Amended Sawtimber Supply Agreement.

As of December 31, 2020 and 2019, Triple T had the following gross intangible contract asset and liability:

Exhibit 99.1


	As of December 31,
	2020	2019
Gross	$ 16,447,059	$ 156,100,000
Accumulated Amortization	(715,090)	(20,660,294)
Net	$ 15,731,969	$ 135,439,706

Balance Sheet Classification	Intangible Contract Asset	Intangible Contract Liability

For the years ended December 31, 2020 and 2019, Triple T recognized $6.2 million and $13.8 million, respectively, of amortization of the intangible contracts as Timber sales – intangible contract amortization in the accompanying consolidated statements of operations. From inception through December 31, 2018, Triple T recognized $6.9 million of amortization of the intangible contract as Timber sales – intangible contract amortization in the accompanying consolidated statements of operations.

As of December 31, 2020, Triple T had no intangible contract liabilities. The remaining net intangible contract asset as of December 31, 2020 will be amortized as follows:



		Intangible Contract Asset
For the year ending December 31:
	2021		$ 1,430,179
	2022		1,430,179
	2023		1,430,179
	2024		1,430,179
	2025		1,430,179
	Thereafter		8,581,074
	Total		$ 15,731,969
	Remaining Amortization Period			11 years

5. Notes Payable and Line of Credit

As of December 31, 2020 and 2019, Triple T had the following debt balances outstanding:


	Maturity Date		Interest Rate (2)	Outstanding Balance As of December 31,
Credit Facility		Interest Rate (1)		2020		2019
Term Loan	7/6/2025	LIBOR + 2.60%	2.75%	$	600,000,000	$	600,000,000
Term A-2 Loan	7/6/2025	LIBOR + 2.60%	2.75%	45,000,000		—
Delayed-Draw Term Loan	7/6/2025	LIBOR + 2.60%	2.75%	100,000,000		—
Total Debt Outstanding				$	745,000,000	$	600,000,000
Less: Net Unamortized Deferred Financing Costs				$	(9,788,044)	$	(10,955,660)
Total				$	735,211,956	$	589,044,340

(1) The applicable LIBOR margin on the Term Loan, Term A-2 Loan and the Delayed Draw Term Loan ranges between 2.10% and 2.85%, depending on the loan-to-value (“LTV”) ratio.

(2) Represents the interest rate as of December 31, 2020. The interest rate excludes the impact of the interest rate swaps, (see Note 6 – Interest Rate Swaps), amortization of deferred financing costs, unused commitment fees and estimated patronage dividends.

Amended Credit Agreement

Exhibit 99.1

Triple T is party to a credit agreement dated as of July 6 2018, as amended on July 24, 2020 (the “Amended Credit Agreement”), with CoBank, ACB (“CoBank”), MetLife Investment Management (“MetLife”), and certain other financial institutions. The Amended Credit Agreement consists of the following:

•a $50.0 million five-year revolving credit facility (the “Revolving Credit Facility”)

•a $45.0 million five-year term loan facility (the ‘Term A-2 Loan”);

•a $100.0 million seven-year delayed-draw term loan facility (the “Delayed-Draw Term Loan”); and

•a $600.0 million seven-year term loan facility (the “Term Loan”).

As of December 31, 2020, $50.0 million remained available on the Revolving Credit Facility under the Amended Credit Agreement.

Proceeds from the Term Loan were used to partially fund the acquisition of the Triple T Timberlands (see Note 1 – Organization for further information).

Borrowings under the Revolving Credit Facility may be used for general working capital, to support letters of credit, to fund cash earnest money deposits, to fund acquisitions in an amount not to exceed $5.0 million, and other general corporate purposes. The Revolving Credit Facility will bear interest at an adjustable rate equal to a base rate plus between 1.00% and 1.75% or a LIBOR rate plus between 2.00% and 2.75%, in each case depending on Triple T’s LTV ratio, and will terminate and all amounts outstanding under the facility will be due and payable on July 6, 2023.

Proceeds from both the Delayed-Draw Term Loan and the Term A-2 Loan were used solely to finance the Amended Sawtimber Supply Agreement, including transaction costs (see Note 7 – Commitments and Contingencies for further information). Both the Delayed-Draw Term Loan and Term A-2 Loan, which are interest only until its maturity date, will bear interest at an adjustable rate equal to a base rate plus between 1.10% and 1.85% or a LIBOR rate plus between 2.10% and 2.85%, in each case depending on Triple T’s LTV Ratio, and will terminate and all amounts outstanding under the facility will be due and payable on July 6, 2025.

Triple T will pay the lenders an unused commitment fee on the unused portion of the Revolving Credit Facility, Delayed-Draw Term Loan and the Term A-2 Loan at an adjustable rate ranging from 0.15% to 0.35%, depending on the LTV Ratio.

Triple T’s obligations under the Amended Credit Agreement are collateralized by a first priority lien on the timberlands owned by Triple T’s subsidiaries and substantially all of Triple T’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, Triple T 's obligations under the Amended Credit Agreement are jointly and severally guaranteed by all of Triple T and its subsidiaries pursuant to the terms of the Amended Credit Agreement. Triple T has also agreed to guarantee certain losses caused by certain willful acts of Triple T or its subsidiaries.

Patronage Dividends

Triple T is eligible to receive annual patronage dividends from its lenders (the "Patronage Banks") under a profit-sharing program made available to borrowers of the Farm Credit System. Triple T has received a patronage dividend on its eligible patronage loans annually since 2019. Triple T accrues patronage dividends it expects to receive based on an estimated percentage of its weighted-average debt balance.

In March 2020 and 2019, Triple T received patronage dividends of $4.3 million and $2.0 million, respectively, on its patronage eligible borrowings. Of the total patronage dividends received in March 2020 and 2019, 75% was received in cash and 25% was received in equity of the Patronage Banks. Triple T expects to receive patronage dividends on its eligible patronage loans for 2020 during the first quarter of 2021. For the years ended December 31, 2020 and 2019, Triple T recorded $4.6 million and $3.7 million, respectively, of patronage dividends against interest expense in the consolidated statements of operations. From inception to December 31, 2018, Triple T

Exhibit 99.1

recorded $1.8 million of patronage dividends against interest expense on the consolidated statements of operations.

As of December 31, 2020 and 2019, the following balances related to the Patronage Dividends were included on Triple T’s consolidated balance sheets:


	As of December 31,
Patronage dividends classified as:	2020	2019
Accounts Receivable	$ 4,593,725	$ 3,715,179
Prepaid expenses and other assets (1)	1,524,934	487,700
Total	$ 6,118,659	$ 4,202,879

(1) Represents cumulative patronage refunds received as equity in the Patronage Banks.

Debt Covenants

The Amended Credit Agreement contains, among others, the following financial covenants:


•			limits the LTV Ratio to 50% at any time;
•			requires maintenance of a minimum liquidity balance of no less than $20.0 million at all times during the first two years; and
•			requires maintenance of a Fixed Charge Coverage Ratio of not less than 1.05:1 after the 2-year anniversary of the effective date of the Amended Credit Agreement;

Triple T believes it was in compliance with the financial covenants of the Amended Credit Agreement as of December 31, 2020.

Interests Paid and Fair Value of Outstanding Debt

For the years ended December 31, 2020 and 2019, Triple T paid $18.2 million and $27.1 million, respectively, of interest on its borrowings under the Amended Credit Agreement. From inception through December 31, 2018, Triple T paid $12.7 million of interest on its borrowings under the Amended Credit Agreement.

As of December 31, 2020, the fair value of Triple T’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

Triple T uses interest rate swaps to mitigate its exposure to changing interest rates on its variable rate debt instruments. On December 20, 2018, Triple T entered into four interest rate swaps with CoBank, which became effective January 17, 2019, with terms below:

Interest Rate Swap

Effective Date

Maturity Date

Pay Rate

Receive Rate

Notional Amount

Swap 1 - Term Loan

1/17/2019

1/17/2021

2.6330%

one-month LIBOR

216,000,000

Swap 2 - Term Loan

1/17/2019

1/17/2022

2.6000%

one-month LIBOR

108,000,000

Swap 3 - Term Loan

1/17/2019

1/17/2023

2.5875%

one-month LIBOR

108,000,000

Swap 4 - Term Loan

1/17/2019

1/17/2024

2.5885%

one-month LIBOR

108,000,000

Total

540,000,000

As of December 31, 2020, Triple T’s effectively fixed the interest rate on $540.0 million of its $745.0 million variable rate debt at 5.21% using interest rate swaps. All four interest rate swaps qualify for hedge accounting treatment.

Exhibit 99.1

Fair Value and Cash Paid for Interest Under Interest Rate Swaps

The following table presents information about Triple T’s interest rate swaps measured at fair value as of December 31, 2020 and 2019:



		Estimated Fair Value as of December 31,
Instrument Type	Balance Sheet Classification	2020	2019
Derivatives designated as hedging instruments:
Interest rate swaps	Other liabilities	$ (16,634,952)	$ (12,699,814)

For the years ended December 31, 2020 and 2019, Triple T recognized a change in fair value of its interest rate swaps of $3.9 million and $9.9 million, respectively, as other comprehensive loss. From inception through December 31, 2018, Triple T recognized a change in fair value of its interest rate swaps of $2.8 million as other comprehensive loss. There was no hedge ineffectiveness on the interest rate swaps required to be recognized in current earnings. For the years ended December 31, 2020 and 2019, Triple T paid $11.5 million and $2.1 million, respectively, of interest on its interest rate swaps. From inception through December 31, 2018, there were no interest payments under the interest rate swap agreements, as they were not effective until January 17, 2019.

As of December 31, 2020, Triple T estimated that $9.0 million will be reclassified from accumulated other comprehensive loss to interest expense over the next 12 months.

7. Commitments and Contingencies

Sawtimber Supply Agreement

In connection with its acquisition of the Triple T Timberlands, Triple T assumed a sawtimber supply agreement with GP. The sawtimber supply agreement provides that GP will purchase specified tonnage of timber at specified prices per ton, depending upon the type of timber product. From the period of inception until June 30, 2020, the prices for the timber purchased pursuant to the sawtimber supply agreement were determined quarterly based on GP’s actual weighted-average delivered price, as calculated and defined per the agreement.

On June 24, 2020, Triple T entered into an amended sawtimber supply agreement, or the Amended Sawtimber Supply Agreement, with GP in which pricing would be negotiated annually with quarterly price adjustments based on a pricing index published by TimberMart-South. The pricing mechanism became effective on July 1, 2020.

The Amended Sawtimber Supply Agreement is effective through December 31, 2031, subject to extension and early termination provisions. GP can terminate the agreement prior to the expiration of the term if there is an occurrence of a change event, which means the closing of a mill or operating line within the mill, a sale of the mill, or a material decrease of GP’s requirements for sawtimber occurs due to change in manufacturing process. In addition, the agreement provides for adjustments to both parties' obligations in the event of a force majeure, which is defined to include, among other things, lightning, fires, storms, floods, infestation and other acts of God or nature.

Pulpwood Supply Agreement

In connection with its acquisition of the Triple T Timberlands, Triple T assumed a pulpwood supply agreement. The pulpwood supply agreement provides that the customer will purchase specified tonnage of timber from Triple T at specified prices per ton, depending upon the type of timber product. The prices for the timber purchased pursuant to the pulpwood supply agreement is based on an index published by TimberMart-South. The term of the pulpwood supply agreement is effective through October 30, 2027, subject to extension and early termination provisions.

The customer can terminate the pulpwood supply agreement prior to the expiration of the term if there is an occurrence of a change event, which means the closing of a mill or operating line within the mill, a sale of the mill, or a material decrease of the customer’s requirements for pulpwood occurs due to change in manufacturing

Exhibit 99.1

process. In addition, the pulpwood supply agreement provides for adjustments to both parties' obligations in the event of a force majeure, which is defined to include, among other things, lightning, fires, storms, floods, infestation and other acts of God or nature.

Asset Management Agreement

Pursuant to the terms of the asset management agreement between Triple T and an indirect subsidiary of CatchMark (the “Asset Management Agreement”), CatchMark oversees the day-to-day operations of the joint venture and its properties, including accounting, reporting and other administrative services, subject to certain major decisions that require partner approval.

From the period of inception until June 23, 2020, CatchMark received a fee equal to 1% per annum of the Acquisition Price multiplied by 78.4%, which represents the original percentage of the total partnership contributions made to Triple T by the Preferred Investors.

On June 24, 2020, the Asset Management Agreement was amended (“Amended Asset Management Agreement”) in conjunction with amendments to both the LPA and the sawtimber supply agreement. Pursuant to terms of the Amended Asset Management Agreement, CatchMark receives a fee equal to 1% per annum of $1.524 billion multiplied by 78.4%, which represents the original percentage of the total partnership contributions made to Triple T by the Preferred Investors. In the event the Preferred Investors have not received a return of their capital contributions plus their preferred return, then the percentage decreases from 1% to 0.75% at October 1, 2021, and to 0.25% at July 1, 2022. The fee is also subject to deferment in certain circumstances. The Amended Asset Management Agreement is effective until termination provisions occur as defined by the agreement.

Timberland Operating Agreement

Pursuant to the terms of the timberland operating agreement between Triple T and Forest Resource Consultants, Inc. (the "FRC Timberland Operating Agreement"), Forest Resource Consultants, Inc. (“FRC”) manages and operates Triple T’s timberlands and related timber operations, including ensuring delivery of timber to its customers under the sawtimber and pulpwood supply agreements. In consideration for rendering the services described in the timberland operating agreement, Triple T 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 is effective through June 30, 2022 and is automatically extended for one-year periods unless written notice is provided by Triple T or FRC to the other party at least 180 days prior to the current expiration. The FRC Timberland Operating Agreement may be terminated by either party with mutual consent or by Triple T with or without cause upon providing 180 days’ prior written notice.

8. Litigation

From time to time, Triple T 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. Triple T 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, Triple T accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, Triple T accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, Triple T 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, Triple T discloses the nature and estimate of the possible loss of the litigation. Triple T does not disclose information with respect to litigation where an unfavorable outcome is considered to be remote.

Exhibit 99.1

Triple T is not currently involved in any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on the results of operations or financial condition of Triple T.

9. Other Revenues

Recreational leases

Triple T leases certain access rights to individuals and companies for recreational purposes. These operating leases generally have terms of one year with certain provisions to extend the lease agreements for another one-year term. Triple T retains substantially all of the risks and benefits of ownership of the timberland properties leased to tenants, and thus, the leases are accounted for under ASC 606. As of December 31, 2020, approximately 1.07 million acres, or 99.8%, of Triple T’s timberland available for hunting and recreational uses had been leased to tenants under operating leases that expire in June 2021. Under the terms of the recreational leases, tenants are required to pay the entire rent upon execution of the lease agreement. Such rental receipts are recorded as other liabilities until earned over the terms of the respective recreational leases and recognized as other revenue.

As of December 31, 2020 and 2019, approximately $4.6 million and $4.4 million of such rental receipts is recorded as other liabilities in the accompanying consolidated balance sheets, respectively. For the years ended December 31, 2020 and 2019, Triple T has recognized other revenues related to recreational leases of $9.3 million and $9.4 million, respectively. From inception through December 31, 2018, Triple T has recognized other revenues related to recreational leases of $4.4 million.

Surface Use Revenue

Surface use revenue is derived from the granting of the right to access Triple T’s timberlands through a surface use agreement. Triple T retains substantially all of the risks and benefits of ownership of the timberland properties under a surface use agreement, and thus, the surface use revenues are accounted for under ASC 606. For the years ended December 31, 2020 and 2019, Triple T has recognized other revenues related to surface use revenue of $5.6 million and $5.3 million, respectively. From inception through December 31, 2018, Triple T has recognized other revenues related to surface use revenue of $1.5 million.

10. Income Taxes

Triple T itself is not subject to income taxes. Instead, Triple T’s partners are taxed on their share of the partnership’s taxable income, whether or not cash distributions are paid. Triple T’s subsidiary, CP REIT, is generally not subject to federal income tax on taxable income it distributes to stockholders due to its election to be taxed as a REIT. Triple T’s other subsidiary, CP Realty 1, however, is subject to federal income taxes. Both CP REIT and CP Realty 1 are subject to an annual Texas Franchise tax. This tax is reported and paid on a combined basis via a single tax filing according to the requirements of the state of Texas.

On December 22, 2017, the Tax Cuts and Jobs Act tax reform legislation (the "Act") was signed into law. The Act made many significant changes to the U.S. tax law effective January 1, 2018, including, but not limited to, the following:

•A reduction in the corporate tax rates from 35% to 21%;

•A change to net operating loss carryforwards and carrybacks provisions to eliminate the option to carryback losses but allow for an indefinite carryforward of losses; the new provisions also limit the use of any net operating losses generated after January 1, 2018 to 80% of taxable income

•A repeal of the corporate alternative minimum tax; and

•The addition of IRC Section 163(j)

The provisions of the Act did not have a material impact to the accompanying consolidated financial statements of Triple T for the period from inception through December 31, 2020. Interest expense at CP Realty 1 was not

Exhibit 99.1

limited under IRC Section 163(j) for the year ended December 31, 2019. For the year ended December 31, 2020, 100% of CP Realty 1’s interest expense of $2.6 million was limited under IRC Section 163(j) and will be carried over and available for deduction, as permitted under IRC Section 163(j), in future years.

CP Realty 1 records deferred income taxes using enacted tax laws and rates for the years in which the taxes are expected to be paid. Deferred income tax assets and liabilities are recorded based on the differences between the financial reporting and income tax bases of assets and liabilities. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. CP Realty 1 has concluded that it is more likely than not that its deferred tax assets will not be realizable and thus a full valuation allowance has been recorded as of December 31, 2020 and 2019. This conclusion is based on anticipated future taxable income and the expected future reversals of existing taxable temporary differences. CP Realty 1 will continue to reassess the need for a valuation allowance during each future reporting period.

Components of the deferred tax assets and liabilities as of December 31, 2020 and 2019 were attributable to the operations of CP Realty 1 only and were as follows:


	As of December 31,
	2020		2019
Deferred tax assets:
Net operating loss carryforward	$	4,776,133	$	2,103,287
Intangible contract liability	—		29,244,819
Timber asset basis	8,396,335		—
163(j) interest expense limitation	566,218		—
Other	608,835		290,211
Total gross deferred tax asset	14,347,521		31,638,317

Valuation allowance	(12,247,262)		(29,431,823)
Total net deferred tax asset		2,100,259		2,206,494

Deferred tax liability:
Timber depletion	2,100,259		2,206,494
Total gross deferred tax liability		2,100,259		2,206,494

Deferred tax asset, net	$	—	$	—

The tax basis of Triple T’s timber assets increased due to the GP Amendment Fee paid by CP Realty 1 on June 24, 2020, resulting in a deferred tax asset of $8.4 million as of December 31, 2020.

Income taxes for financial reporting purposes differ from the amount computed by applying the statutory federal rate primarily due to the effect of state income taxes and valuation allowances (net of federal benefit). A reconciliation of the federal statutory income tax rate to CP Realty 1’s effective tax rate for the years ended December 31, 2020 and 2019 and from inception to December 31, 2018 is as follows:

Exhibit 99.1


	2020			2019		2018
Federal statutory income tax rate	21		%	21	%	21		%
State income taxes, net of federal benefit	(1.1)			1.7		—
Write-off of intangible contract liability	(353.2)			—		—
Other temporary differences	139.6			(138.1)		(0.1)
Other permanent differences	—			(5.7)		—
Valuation allowance	193.2			123.2		(20.9)
Effective tax rate (1)	(0.5)	%		2.1	%	$	—	%

(1) A total of $120,000 of Texas franchise tax expense is included in general and administrative expenses in the statements of operations.

As of December 31, 2020 and 2019, the tax basis carrying value of Triple T’s total timber assets was $1.34 billion and $1.37 billion, respectively.

11. Subsequent Event

Triple T has evaluated subsequent events through February 26, 2021, the date the consolidated financial statements were issued. Triple T is not aware of any significant events that have occurred subsequent to the balance sheet date, but prior to the issuance of this report that would require adjustment to, or disclosure in, the consolidated financial statements.

CatchMark Timber Trust, Inc. - FORM 10-K - EX-99.1 - TRIPLE T JOINT VENTURE AUDITED FINANCIAL STATEMENTS - February 26, 2021

Attached files

CatchMark Timber Trust, Inc. Reports