CatchMark enters Pacific north-west, reduces south-west exposure

New York-listed timber REIT CatchMark Timber Trust has executed a pair of transactions with Forest Investment Associates that establish its presence on the West Coast while reducing its exposure to the south-west.

Atlanta-based CatchMark paid FIA $88.8 million for 18,063 acres of Oregon timberland located 150 miles south-west of the city of Portland. Referred to as the Brandon Property, the asset has averaged annual harvests of 79,000 tons over the past five years. CatchMark said its merchantable inventory of 87 percent commercial conifers compares favorably with the regional average of between 65 and 70 percent.

In a separate transaction, CatchMark sold 56,000 acres of Texas and Louisiana timberland to FIA, which is also headquartered in Atlanta, for $78.5 million. Under the terms of the agreement, CatchMark will retain 370,000 tons of merchantable inventory that will be harvested within the next 24 months.

In addition to diversifying its market exposure, the transactions will provide the company with additional harvest options, CatchMark president and chief executive Jerry Barag said.  The company noted that the deals would result in a $1.6 million increase in timber sales and an additional $2.5 million in adjusted EBITDA over the next five years.

“The Brandon investment is an attractive pure-play timber purchase, driven by long-term harvest yields in an exceptionally strong and dynamic market,” Barag said. “The south-west region sale follows our 1.1 million-acre Triple T joint venture investment in prime East Texas timberlands and will reduce our regional exposure while strengthening our capital position to enable further growth.”

In May, CatchMark teamed up with BTG Pactual, CoBank, Medley Management and an unnamed Canadian institution to purchase a timber portfolio managed by Campbell Global for $1.39 billion. The consortium billed the deal as the largest US timber transaction since 2007 and said they had created a new joint venture, called Tripe T Timberlands, to host the portfolio.

According to a presentation delivered by Wilshire Consulting to the California Public Employees’ Retirement System’s investment committee in June, one of the pension’s “main timber investments” had been sold shortly after the end of the second quarter, suggesting Campbell Global was managing that asset on behalf of the $357 billion pension. Campbell Global and CalPERS declined to comment.

Wilshire Consulting, which had previously urged CalPERS to invest so as to benefit from export lumber demand on the West Coast, highlighted that current staff had played no role in that transaction, which it labeled “a holdover from the pre-financial crisis era investment.”

“Challenges of this investment included onerous debt arrangements, unfavorable supply agreements and sawtimber market pricing below pro forma, causing an increasingly heavy drag on cashflow,” Wiltshire staff wrote. “Selling the investment better aligns the Real Assets program with its intended role.”

On Catchmark’s second-quarter earnings call this month, Barag acknowledged that the REIT’s acquisitions activity was likely to slow in the wake of the Triple T transaction. Regardless, he said the company continued to seek opportunities to expand into the Pacific north-west and stated that at least one deal in the region had already been sealed.

“TIMO investors appear to be pressing managers for liquidity, and that means selling properties, leading to what we expect will be a robust pipeline with quality offerings in the future.”