CatchMark Timber Trust, Inc. (NYSE:CTT) is a leading owner and operator of prime timberlands located in the United States South, a premier wood basket known for its high-quality fiber and strong mill demand. The company has strategically assembled a portfolio of 348,100 acres of industrial timberlands, positioning it as a key player in this attractive regional market.
Business Overview
CatchMark's core operations are centered around three key segments: Harvest, Real Estate, and Investment Management. The Harvest segment encompasses the company's wholly-owned timber assets and associated timber sales, generating the majority of its revenue. The Real Estate segment focuses on timberland sales and large dispositions, while the Investment Management segment includes income from unconsolidated joint ventures and asset management fees.CatchMark's timberlands are located within a diverse fiber basket, providing access to a wide range of pulp, paper, and wood products manufacturing facilities. The portfolio consists of 72% pine plantations by acreage and 55% sawtimber by volume, positioning the company to capitalize on strong demand for high-quality timber products.
Financial Performance
For the six months ended June 30, 2022, CatchMark reported total revenues of $51.5 million, a decrease of 13.6% compared to the prior year period. This decline was primarily driven by a $7.9 million decrease in timber sales revenue, which was partially offset by a $3.9 million increase in timberland sales revenue.The company's Harvest segment generated $32.4 million in timber sales revenue during the first half of 2022, a 3.0% increase compared to the same period in 2021. This was driven by a 26% increase in the average realized sawtimber price, which offset a 10% decrease in total timber sales volume. The Real Estate segment contributed $14.9 million in timberland sales revenue, a 35.4% increase year-over-year, as CatchMark sold 9,100 acres of timberland during the period.
CatchMark's Investment Management segment saw a significant decline in asset management fees, from $6.3 million in the first half of 2021 to $2.3 million in the current year period. This was due to the company's exit from the Triple T joint venture in 2021.
Despite the revenue decline, CatchMark maintained strong operational efficiency, with Adjusted EBITDA of $28.5 million for the six months ended June 30, 2022, only a 6.6% decrease from the prior year period. The company's Harvest and Real Estate segments both reported year-over-year increases in Adjusted EBITDA, while the Investment Management segment saw a decline due to the lower asset management fees.
Net loss for the first half of 2022 was $1.4 million, compared to net income of $1.2 million in the same period of 2021. This was primarily due to $4.6 million in merger-related costs incurred during the period.
Liquidity and Capital Resources
As of June 30, 2022, CatchMark had a cash balance of $33.7 million and $253.6 million in available borrowing capacity under its Amended Credit Agreement. The company's debt consists of $300.0 million in principal, with a weighted-average interest rate of 3.90% after consideration of its interest rate swaps.CatchMark's Amended Credit Agreement contains financial covenants that limit the loan-to-value ratio to 50% and require maintenance of a fixed charge coverage ratio of at least 1.05x. As of June 30, 2022, the company was in compliance with these covenants.
Recent Developments
Proposed Merger with PotlatchDeltic
On May 29, 2022, CatchMark announced that it had entered into a definitive merger agreement with PotlatchDeltic Corporation (NASDAQ:PCH). Under the terms of the agreement, CatchMark shareholders will receive 0.230 shares of PotlatchDeltic common stock for each share of CatchMark common stock they own. The transaction is expected to close in the third quarter of 2022, subject to CatchMark shareholder approval and other customary closing conditions.The merger will create a leading diversified forest products company with a combined 2.2 million acres of high-quality timberlands across the U.S. South and Northwest. CatchMark's shareholders are expected to own approximately 14% of the combined company upon completion of the transaction.
Outlook
CatchMark has provided guidance for the full year 2022, expecting Adjusted EBITDA to be above $88 million. This guidance reflects the company's confidence in the continued strength of its Harvest and Real Estate segments, as well as anticipated improvements in the performance of its Investment Management business.Risks and Challenges
CatchMark's business is subject to various risks, including fluctuations in timber prices, changes in harvest volumes and associated costs, the timing and volume of timberland sales, and the performance of its unconsolidated joint ventures. The company's operations are also influenced by macroeconomic conditions, regulatory changes, and competition within the timber industry.The proposed merger with PotlatchDeltic also introduces integration risks, as the combined company works to realize anticipated synergies and operational efficiencies. Shareholder litigation related to the merger, if any, could also pose a potential challenge.