CatchMark Timber Trust Inc (CTT) is a self-administered and self-managed real estate investment trust (REIT). From their inception in 2007 through October 24, 2013, CTT operated as an externally advised REIT under the guidance of Wells Timberland Management Organization, LLC ("Wells TIMO"), a subsidiary of Wells Real Estate Funds, Inc. ("Wells REF"). On October 25, 2013, CTT terminated their advisory agreement with Wells REF and became self-managed. At the same time they also entered into a transition service agreement with Wells REF and its subsidiaries which ended on June 30, 2014.
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CTT engages in the ownership, management, acquisition, and disposition of timberland properties located within the United States. The focus of their business is to invest in timberlands and then actively manage those assets to provide both current income and attractive long-term returns to their investors. They generate recurring income and cash flow from the harvest and sale of timber, as well as from non-timber related revenue sources, such as recreational leases. They also periodically generate income and cash flow from the sale of higher-and-better use, or HBU, properties.
HBU properties are timberland properties that have a higher-value use beyond growing timber, such as properties that can be sold for development, conservation, recreational or other rural purposes at prices in excess of traditional timberland values. They also expect to realize additional long-term returns from the potential appreciation in value of the timberlands as well as from the potential biological growth of the standing timber inventory in excess of their normal timber harvest. For each of the three years ended December 31, 2014, 2013 and 2012, revenues from timber sales, timberland sales, and non-timber related sources, as a percentage of total revenue, is listed in the table below:
On April 11, 2014, CTT purchased 36,320 acres of timberland located in Southeast Georgia and East Texas (the "Waycross-Panola Properties") for approximately $73.7 million. The acquisition of Waycross-Panola Properties added an estimated 1,202,000 tons of merchantable timber, comprising 81% pine plantations by acreage and 63% saw timber by tons, and increased the share of higher value chip-n-saw and saw timber in our product mix. In connection with the Waycross-Panola Acquisition, CTT assumed a pulpwood supply agreement which allows a third-party mill to harvest and purchase between 153,000 tons to 230,000 tons of pulpwood on the Waycross property over six years.
On October 2, 2014, CTT purchased 17,910 acres of timberland located in Southern Georgia and Northern Florida (the “Satilla River Timberlands”) for approximately $34.3 million. The Satilla River Timberlands contain an estimated 757,000 tons of merchantable timber, comprising 65% pine plantations by acreage and 52% sawtimber by tons.
Also on October 2, 2014, CTT purchased 37,660 acres of timberland located primarily in Middle Georgia (the “Oglethorpe Timberlands”) for approximately $76.4 million. The Oglethorpe Timberlands contain an estimated 1,691,000 tons of merchantable timber, comprising 77% pine plantations by acreage and 53% sawtimber by tons.
On October 30, 2014, CTT purchases 21,010 acres of timberland located in Southwest Louisiana (the “Beauregard Timberlands”) for approximately $38.0 million. The Beauregard Timberlands contain an estimated 825,000 tons of merchantable timber, comprising of 77% pine plantations by acreage and 72% sawtimber by tons.
As of December 31, 2014, CTT owned interests in approximately 393,300 acres of timberland, consisting of 364,700 acres held in fee-simple interests, or our fee timberlands, and 28,600 acres held in leasehold interests, or our leased timberlands.
"Agriculture is not crop production as popular belief holds - it's the production of food and fiber from the world's land and waters. Without agriculture it is not possible to have a city, stock market, banks, university, church or army. Agriculture is the foundation of civilization and any stable economy."
Business and Growth Strategies
CatchMark's purpose is to produce long-term cash flow and value growth from carefully managing their timberland, participating in the current ongoing timber product price recovery, acquiring additional land, and implementing the following business and growth strategies:
Actively Manage Their Timberlands for Long-Term Results. CTT actively manages their timberlands to maximize long-term returns to achieve an optimum balance among biological timber growth, current harvest cash flow, and responsible environmental stewardship. They also expect to continue making additional investments in forest technology, including improved seedlings, in order to increase the sustainable yield of their timberlands over the long-term.
Maximize Profitability on Timber Sales. CTT actively manages their log merchandising efforts and stumpage sales with the goal of achieving the highest available price for timber products. CTT competes with other timberland owners on the basis of the quality of the logs, the prices of the logs, their reputation as a reliable supplier and their ability to meet customer specifications.
Pursue Attractive Timberland Acquisitions. CTT expects to selectively pursue additional timberland acquisition opportunities and they have an expectation that over the next several years they expect there will be a robust supply of attractive timberlands available for sale in the U.S. South and U.S. Pacific Northwest. CTT has stated that they may also enter into additional fiber supply agreements with respect to any acquired properties in order to ensure a steady source of demand for their incremental timber production.
Opportunistically Sell HBU Lands. CTT continuously assesses any potential alternative uses of their timberlands for purposes that may be of more value for development, conservation, recreational or other rural purposes than for growing timber. CTT intends to capitalize on the value of their timberland by opportunistically monetizing HBU timberlands. Some of their existing timberlands are near several major population centers (Houston, Texas; Columbus, Georgia; Atlanta, Georgia; Montgomery, Alabama; Jacksonville, Florida; and Tallahassee, Florida) and that provides the company with opportunities to periodically sell parcels of our land at higher valuations. The company expects to sell 1% to 2% of their timberland acreage annually and to pursue other land entitlements on certain properties in order to realize higher long-term values on those properties.
Practice Sound Environmental Stewardship. CTT's timberlands are third-party audited and certified in accordance with the 2010-2014 SFI (sustainable forest initiative) standard. SFI standards promote sustainable forest management through recognized core principles, including measures to protect water quality, biodiversity, wildlife habitat and at-risk species. Their timberlands are further managed to meet or exceed all state regulations through the implementation of best management practices as well as internal policies designed to ensure compliance.
"Ultimately, the only wealth that can sustain any community, economy or nation is derived from the photosynthetic process - green plants growing on regenerating soil."
As of December 31, 2014, CatchMark Timberland Trust owned interests in approximately 393,300 acres of timberland, consisting of approximately 364,700 acres of fee timberlands, and approximately 28,600 acres of leased timberlands. The leased timberlands include approximately 20,500 acres under one long-term lease expiring in 2022, which is referred to as the long-term contract or LTC lease, and approximately 8,100 acres are under multiple, single-rotation leases expiring between 2015 and 2019, which is referred to as the private land management or PLM leases. As of December 31, 2014, CTT controlled timberlands contained acreage comprised of approximately 74% pine stands and 26% hardwood stands located in Alabama, Florida, Georgia, Louisiana, and Texas. Below is a list of acreage by state.
As of December 31, 2014, timber inventory consisted of an estimated 14.9 million tons of merchantable inventory with the following components:
Similar to the analysis and conclusion in the articles "Betting On The Farm", "Tree Farms are Farms Too", and "The Other Timber Companies", I am completely convinced that any investment in CatchMark Timberland Trust has to be entered into as a long term investment. And by long term I mean years, not months. Anyone with a shorter term horizon will most likely become disillusioned and/or disappointed in the short term. That said, this may just be one of the best investments of the decade if executed correctly (a big if!). Timberland traditionally increases in value at a rate similar to the inflation rate so it's a great preserver of purchasing power over time, much like gold is. In addition, as population encroaches on today's timberland, the value of the land increases almost exponentially as its use in converted into lots for homes, businesses, golf courses, etc. And while an investor waits for the value of the land (stock) to increase, CatchMark is throwing off a very generous dividend.
Based on the information above, I have already initiated a position in CatchMark Timberland Trust and will add to that position over the next few weeks. I will also monitor the stock in other timber companies with the intent to also start positions in those companies as appropriate. I intend to invest in many of these farm and timberland companies as excess funds become available and then simply hold these stocks for years. I'll also use the dividends distributed by these companies to reinvest back into additional shares of these companies and then let those positions grow naturally over time. In the years ahead I'm hoping to look back on these investments and smile. A lot!