U.S. Markets open in 8 hrs 46 mins

Edited Transcript of CTT earnings conference call or presentation 3-Aug-18 2:00pm GMT

Q2 2018 CatchMark Timber Trust Inc Earnings Call

Norcross Sep 5, 2018 (Thomson StreetEvents) -- Edited Transcript of CatchMark Timber Trust Inc earnings conference call or presentation Friday, August 3, 2018 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Brian M. Davis

CatchMark Timber Trust, Inc. - Senior VP, CFO & Corporate Secretary

* Jerry Barag

CatchMark Timber Trust, Inc. - CEO, President & Director

* John F. Rasor

CatchMark Timber Trust, Inc. - President of Triple T Timberlands

* Todd P. Reitz

CatchMark Timber Trust, Inc. - SVP of Forest Resources

================================================================================

Conference Call Participants

================================================================================

* Charan Sanghera

RBC Capital Markets, LLC, Research Division - Senior Associate

* Collin Philip Mings

Raymond James & Associates, Inc., Research Division - Analyst

* David Bryan Rodgers

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, and welcome to the CatchMark Timber Trust Second Quarter 2018 Earnings and Webcast Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Brian Davis, Chief Financial Officer. Please go ahead.

--------------------------------------------------------------------------------

Brian M. Davis, CatchMark Timber Trust, Inc. - Senior VP, CFO & Corporate Secretary [2]

--------------------------------------------------------------------------------

Thank you, Michelle. Good morning, and thank you for joining us for a review of CatchMark Timber Trust results for second quarter 2018, the 3-month period ending June 30. I am Brian Davis, the Chief Financial Officer of CatchMark.

Joining me today on the call are President and CEO, Jerry Barag; Senior Vice President of Forest Resources, Todd Reitz; and John Rasor; President of Triple T Timberlands, our significant new CatchMark-led joint venture with institutional partners.

During this call, CatchMark management will make forward-looking statements. These forward-looking statements are based on management's current beliefs and information currently available. CatchMark's actual results will be affected by certain risks and uncertainties that are beyond its control or ability to predict and could cause our actual results to differ materially from expectations. For more information about the factors that could cause such differences, we refer you to our 2017 annual report on Form 10-K and subsequent reports that we file with SEC, including our second quarter Form 10-Q filed yesterday, August 2, 2018.

Today's presentation includes certain non-GAAP financial measures. Reconciliations of these measurements are included in our earnings release, which is posted on our website and our Form 10-Q filed yesterday, Todd, John and I will join Jerry to answer any of your questions after this presentation.

Now I turn over the call to Jerry Barag.

--------------------------------------------------------------------------------

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [3]

--------------------------------------------------------------------------------

Thank you, Brian. Good morning, and thank you for joining us. The second quarter was a milestone for CatchMark, where we entered into an agreement for the Triple T Timberlands joint venture, dramatically increasing the prime Timberland's acreage under our management by 1.1 million acres for a $200 million investment.

That total $1.39 billion transaction was completed just after quarter's close on July 6. It also dramatically increased our fee-driven investment management business, as we led a consortium of major institutional partners in the joint venture.

The transition for integrating Triple T has been smooth. A large amount of credit is due to my colleagues, John Rasor, who has become President of Triple T; and Todd Wright, Senior Vice President of Forest Resources at CatchMark, who has ably assumed responsibility for overseeing the operations of our core business. John and Todd have worked in concert preparing for and executing a seamless handoff.

As a result, CatchMark did not skip a beat in the second quarter, meeting our business plan. We delivered strong results carefully managing our harvest to optimize performance over time. And last year's investment in Dawsonville Bluffs joint venture again provided solid income, providing flexibility with our overall harvest planning.

Following Triple T and the operating results, we are raising our full year forecast, now anticipating 2018 full year adjusted EBITDA of $47 million to $53 million in the range of 10% to 12% above original guidance for 2018.

Yesterday, we also declared a quarterly cash dividend of $0.135 per share payable on September 14.

In looking at our second quarter results, during the quarter, given the current environment for South-wide stumpage prices and in keeping with our 2018 management plan, we strategically delayed harvest from some of our core properties to future periods when we expect to capture better pricing. At the same time, we succeeded in targeting harvests in markets where we could take advantage of higher pricing. Harvests from strong local markets in which we operate helped generate pulpwood stumpage prices 8% above a year ago prices.

In particular, last year's Coastal Georgia acquisition made an important contribution to our capitalizing on its exceptional attributes, situated in an extremely robust wood basket near top tier pulp and sawmill markets and benefiting from a strong export log business through the Port of Savannah. As a result, the tactical harvest decisions and increased delivered sales as a percentage of total sales helped increase timber sales revenue despite the lowest -- the lower harvest volume.

Overall, CatchMark's realized stumpage prices continue to trend with the TimberMart-South index, and we are measurably higher than the overall South-wide average due to favorable characteristics of the micro markets in which we operate.

For sawtimber, we achieved pricing above $24 a ton compared to market pricing, which has been stuck below $24 for 6 consecutive quarters.

Also buttressing results and part of our operations plan were the favorable sales of mitigation bank credits in Dawsonville Bluffs. In distributing $5 million to CatchMark during the quarter and $7.2 million for the first 6 months of 2018, this joint venture, our first before Triple T, exemplifies the benefits the company can capture from our investment management strategy in garnering asset management fees and promotes through partnering with institutions in high-quality timberlands.

Lower timberland sales during the quarter were a matter of timing and in keeping with the management plan. We remain on course to meet our full year forecast for timberland sales, with additional transactions slated in third and fourth quarters.

Now reviewing specific highlights of the second quarter operating results. We generated revenues of $26.2 million compared to $26.8 million in the second quarter of 2017. We incurred a net loss of $1.5 million on a GAAP basis, an improvement of 39% year-over-year. We realized adjusted EBITDA of $14 million compared to $14.3 million in the second quarter of 2017. We increased gross timber sales revenue by approximately 2%, even though we purposely reduced harvest volume by 4%. That increase resulted primarily from a 6% increase in delivered sales and targeted local market harvest from outstanding properties like Coastal Georgia.

We sold approximately 3,100 acres of timberlands for $6.8 million compared to 4,000 acres for $7.9 million during the second quarter 2017.

We recognized a $700,000 of income from the Dawsonville Bluffs joint venture, generated primarily through the sales of mitigation bank credits. And we paid a dividend of $0.135 per share to stockholders on June 15, 2018.

The Triple T Timberlands transaction was the big news of the quarter, as we entered into an agreement to consummate one of the largest timberland acquisitions in the industry over the past decade with a group of premier institutional investors as our partners. In this transaction, which closed a month ago, CatchMark not only tripled the acres under management to 1.6 million in total, but we also significantly expanded our fees-based investment management business, building a significant brand profile among blue-chip institutional investors as an innovative asset manager partner capable of pulling off large-scale transactions.

These prime timberlands fit our ownership criteria in assembling the highest quality portfolio in the industry, and they should deliver outstanding long-term sustainable performance for our stockholders. With a highly productive site index, harvest volume is projected to grow from the current year 2.8 million ton forecast to more than 5 million tons within the next 10 years. And we're exploring various strategies to unlock additional value over time, including retaining long-term ownership and control of these assets.

The already highly successful Dawsonville Bluffs joint venture completed last year was a precursor for Triple T. Through these transactions, CatchMark gained scale and diversification benefits as well as the contracted asset management fees from the -- from investment management, including potentially significant performance-based fee income.

In advance of Triple T, our March equity raise of $72 million allowed us to support our acquisition efforts culminating in the Triple T investment. During the second quarter, we drew down $30 million on the 2017 multi-draw term facility to fund the earnest money deposit on the Triple T transaction. And on July 5, just after the close of the quarter, we borrowed $170 million under that same facility to fund the remainder of our $200 million investment in Triple T. As of July 31, 2018, we had a cash balance of $21.3 million and had access to $100 million of additional borrowing capacity under the 2017 amended credit facility.

To maintain this ongoing and critical growth strategy, we intend to support future acquisitions by adjusting our debt availability, managing debt maturities and reducing interest expense. This process is well underway, and we expect to close on a new term loan facility within 30 to 45 days.

While we expect our acquisition activity to slow, we remain in active pursuit of favorable transactions, including seeking opportunities to diversify and expand harvest operations into the Pacific Northwest. 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. Going forward, we intend to continue to focus on deals with prime acreage that meet our standards for providing durable performance.

We've also undertaken a portfolio review and assessment in light of all of our deliberate and very considerable growth since 2013. In addition to Triple T, CatchMark has otherwise doubled in size over the past 5 years. As a result of this assessment, we are strategically moving forward with a portfolio reallocation process, seeking to optimize portfolio diversity and support our capital structure for the long term. We will look to begin executing upon this strategy over the next 3 to 6 months.

For the remainder of the year, the outlook for our timber markets in the U.S. South Timber Basket, including export markets, suggest a steady environment in line with our expectations and full year plan. We continue to take advantage of opportunities for better pricing in some of our well-positioned micro markets. Our pulp markets in particular are solid with all the mills online and running well.

Going forward, mill expansions into the newer Southern mill markets should help reduce inventory supply. Lumbers prices are just off record recent highs, but remain well above trend line prices. A strong economic and pent-up demand for new housing, meanwhile, are keeping housing starts and repair and remodel activity at healthy levels which spurs growth.

Taking all this activity into account, we're updating company guidance. Based on our solid first half results, the strong performance of the Dawsonville Bluffs joint venture, asset management fees from the Triple T joint venture and our expectations for the balance of the year, we now anticipate 2018 full year adjusted EBITDA of $47 million to $53 million versus $42 million to $48 million previously.

We also anticipate a full year GAAP net loss of $208 million to $214 million as a result of loss allocations from the Triple T joint venture. In accordance with GAAP, these losses are expected to equal CatchMark's total investment in the joint venture based on a hypothetical liquidation scenario. They will have no impact on adjusted EBITDA, and they will have no impact on the company's liquidity or cash position. With respect to other guidance, we continue to expect harvest volumes, harvest mix and land sales in line with our prior forecast.

So to sum up, CatchMark is exceeding our original full year plan by executing on our operating strategy, by executing on our acquisition strategy and by executing on our investment management business strategy. We maintain our focus on delivering operational excellence through carefully managed and tailored harvest plans, which take advantage of the premium markets in which we operate and our delivered wood sales model.

We continue to expand our portfolio by acquiring the highest quality timberlands available to ensure long-term growth and sustainable returns for our stockholders, including supporting our dividend. And the investment management business allows us to scale up our operating platform and investments as well as provide additional fee-based revenues, including performance-based promotes. We continued to capitalize on this strategy during the quarter and registering the excellent Dawsonville Bluffs results. And we see additional promise in the much larger Triple T transaction.

The CatchMark team, led by Brian, Todd and John and me, is extremely excited by the progress of the company and particularly about how sound planning and strategy can provide immediate returns and set the foundation for ongoing future performance. We look forward to meeting our objectives in the months ahead.

Thank you everybody for being on the call. That's the end of my prepared comments. Brain, Todd, John and I are now going to take your questions. I will just tell you John is on the road. He's been spending quite a bit of time in Texas, integrating the Triple T transaction. And I know that at least someone will want to understand what's going on there. So John is going to answer all of the Triple T questions directly.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question comes from Collin Mings of Raymond James.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [2]

--------------------------------------------------------------------------------

To start just on the revised guidance, the adjusted EBITDA range was raised to a total of $5 million. $2 million of that was, again, directly attributable to Dawsonville. But just can you walk us through the additional $3 million? Where is that coming from? Is that just Triple T? Or is there some strength in core operations too that's leading to the guidance revision?

--------------------------------------------------------------------------------

Brian M. Davis, CatchMark Timber Trust, Inc. - Senior VP, CFO & Corporate Secretary [3]

--------------------------------------------------------------------------------

Yes. Guidance is a high-quality guidance revision up 10% to 12%. The guidance range is really being driven by Dawsonville Bluffs as well as the Triple T transaction, which will be receiving asset management fees. We're still on plan as it relates to our other guidance as it relates to harvest volumes and land sales.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [4]

--------------------------------------------------------------------------------

Okay. And then just starting, the first question on Triple T. Just as you think about your actual contribution to that JV, it's maybe a little less than you indicated was possible when it was first announced. Can you just discuss what kind of changed there?

--------------------------------------------------------------------------------

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [5]

--------------------------------------------------------------------------------

Brian, you want to take that?

--------------------------------------------------------------------------------

Brian M. Davis, CatchMark Timber Trust, Inc. - Senior VP, CFO & Corporate Secretary [6]

--------------------------------------------------------------------------------

Sure, certainly. So from a flex-down standpoint from $227.5 million to $200 million, it was really a reflection of the capital stack that came in. We ended up funding $600 million under a term loan -- 7-year term loan for the facility and raised $750 million in preferred equity. So that was just a -- the toggling that went in at the time of the closing.

--------------------------------------------------------------------------------

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [7]

--------------------------------------------------------------------------------

So we had additional interest, Collin, from other investors to invest. And we felt that it optimized CatchMark's position to bring down the investment to $200 million and take on additional investors, that capital.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [8]

--------------------------------------------------------------------------------

Okay. And then just maybe along those lines, with the Triple T closed, Brian, it sounds like liquidity sits between kind of the debt capacity and the cash on hand, maybe right around $120 million. But just what should we view as kind of your practical capacity for additional acquisition activity currently? And then it sounds like you're making some progress on a new term loan. So kind of where does that capacity sit currently, and where do you hope to bring that capacity for additional acquisitions or external growth to as a result of the new term loan?

--------------------------------------------------------------------------------

Brian M. Davis, CatchMark Timber Trust, Inc. - Senior VP, CFO & Corporate Secretary [9]

--------------------------------------------------------------------------------

So -- yes, so let me just answer that from the standpoint of what we're doing with our refinancing, and then we'll solve the other question for you. We currently have $200 million outstanding under our multi-draw term loan or acquisition facility, and that facility size is $265 million. As Jerry alluded to, we're going to be executing a $140 million 7-year term loan. The pricing on that is anticipated to be LIBOR plus 1.70%. That's about a 20 basis point savings relative to the current tier pricing under our multi-draw term loan. That will bring us to about $60 million outstanding under that $265 million facility. Ultimately, we'll rightsize that facility down to $200 million. So what you end up having is $60 million outstanding under a new $200 million multi-draw term loan, giving us $140 million availability under that facility plus $35 million available under our revolving line of credit. So in aggregate, we'll end up having $175 million of availability plus $21 million of cash on hand. From our standpoint of capital deployment, we would feel very comfortable deploying another $60 million to $80 million, especially given what our current blended interest expense is under our credit facilities. We would flux that up for the right opportunities.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [10]

--------------------------------------------------------------------------------

Okay. And then one last one, and I'll turn it over and jump back in the queue. But to that point, Jerry, obviously, it sounds like you're looking at some potential capital recycling opportunities you alluded to in the prepared remarks, still looking at kind of growing the portfolio. So just can you update us on where the pipeline sits and if you have anything else under LOI currently?

--------------------------------------------------------------------------------

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [11]

--------------------------------------------------------------------------------

Yes. So there is a lot going on. And I think your question -- your previous question to Brian is a lot of the focus of what's going on here. Obviously, as I said in the prepared remarks, there has been a lot of growth in addition to Triple T that we've had since the IPO, 5 years ago. And then Triple T in and of itself was a large transaction and a capital-intensive transaction for us. So when I said that we're planning on slowing down the pace of growth, that's not a hard bar to get over, because it has been so good for such a long time. But we also believe that it is the right time to sit down and assimilate everything that we've put together, take a look backwards and understand what the portfolio is today and how we would position that and what we want to do. We fundamentally feel that while we're very proud of all the acquisitions that we've done and they have performed very well, there are some that, on a go-forward basis, we think we can improve upon. And we're going to do that. We're going to recycle capital. We -- the pipeline -- and this is purposely, because if we wanted to, the pipeline could be a lot bigger than it is today. But we've brought the pipeline down to a very small number of deals, and likewise, a smaller number of potential capital -- or small capital spend. There is one transaction in particular that we have circled and that I think, given a bunch of variables and events, that we'll move forward with. And then that's it.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

The next question comes from Dave Rodgers of Baird.

--------------------------------------------------------------------------------

David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [13]

--------------------------------------------------------------------------------

Brian, I wanted to ask about the Triple T accretion. You talked about the contribution from Dawsonville and TTT to the EBITDA. But can you kind of give us an update on what the CAD accretion is now that you guys have been able to close the transaction and how that's all going to flow through?

--------------------------------------------------------------------------------

Brian M. Davis, CatchMark Timber Trust, Inc. - Senior VP, CFO & Corporate Secretary [14]

--------------------------------------------------------------------------------

Right. It's still in the same range, which we talked about, 2% to 3% CAD accretion relative to the performance. It's really going to be coming through the asset management fee, slightly offset by some additional G&A. But predominantly, because we're funding this with $200 million of funded debt, that CAD accretion is closer to 3% range, because we're funding it with less debt. I should note, we will be prefinancing of Triple T or we had 75% fixed, 25% floating. We'll execute $125 million to $150 million of fixed rate swaps by the end of the quarter. While rates have moved around a little bit, they're still within the target range, which we announced back in May. So closer to the 3% end range, because we're funding with less debt.

--------------------------------------------------------------------------------

David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [15]

--------------------------------------------------------------------------------

That's helpful. And then either maybe for Todd or Jerry, as you look at the core portfolio, you've done a good job of shifting production to where pricing is much more advantageous for you. How long can you do this? And if you looked at the portfolio on kind of just a weighted average basis, where is pricing for the portfolio on a both sawtimber and pulpwood basis maybe year-over-year?

--------------------------------------------------------------------------------

Todd P. Reitz, CatchMark Timber Trust, Inc. - SVP of Forest Resources [16]

--------------------------------------------------------------------------------

Sure, Dave, this is Todd. I appreciate the questions. When you're looking at the strengths of the markets we operate in, we've touched on a lot around our coastal operations are performing very well across the board. When you think about it from a total CatchMark perspective, we're performing well above south -- timber-wide south averages. So we're seeing opportunities in the coastal area to continue to be very active in that market where there's pulp, there's exports. All those products are moving very well. We're very encouraged by what we're seeing in the overall marketplace from capital placement. Recently this week, you had an announcement from GP, which is an additional facility coming in and nice proximity to our holdings. There'll be some additional announcements coming out during the week or early in the course of the month of some additional capital from other customers that's coming in place. And so it really gives us a nice backstop to our decision to have pulled back, and we're very thoughtful about our harvest planning going forward, that there are better days ahead. We're positioned to take advantage of that going forward. So we feel like we're in a good spot where we are and can maintain this harvest going forward. As markets improve, we will improve with that as well.

--------------------------------------------------------------------------------

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [17]

--------------------------------------------------------------------------------

Yes. So Dave -- I mean, probably with the exception of Triple T, we're large landowners in the places where we're doing business, but we're not overwhelmingly large. And so there is always opportunity for us to just expand the -- expand on the operations in the places that we're doing business today. And that opportunity is going to be available to us for a long time until we get significantly larger than we are today.

--------------------------------------------------------------------------------

David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [18]

--------------------------------------------------------------------------------

Thanks. And then, Jerry, on the portfolio, kind of strategy update. It sounds like you're early days on that. So without pushing too much, should we anticipate you potentially shrinking the size of the company through these activities? Or would it be mostly just capital recycling when the opportunities present?

--------------------------------------------------------------------------------

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [19]

--------------------------------------------------------------------------------

Yes. I mean, it's more than likely it'll be recycling. I mean, initially, it will presumably raise cash. And when that happens, we would likely pay down debt. But that will free up availability, and we'll continue forward with the acquisitions and growth trajectory of the company.

--------------------------------------------------------------------------------

David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [20]

--------------------------------------------------------------------------------

Okay. Last question, Jerry. Just in terms of kind of the overall tariff picture we've seen in other industries, do you guys have an update? Are there ongoing discussions that could negatively or positively impact you and your business, in particular in the Southeast that either has kind of come across the table or that you guys hear through your channels that could impact your business, and any of your thoughts on that?

--------------------------------------------------------------------------------

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [21]

--------------------------------------------------------------------------------

I mean, fundamentally, the big impact that's going on in the south is what Todd touched on just before, which is just the overall pace of lumber capacity in particular that is coming into the marketplace. And I know after a very long recovery period, which we've been in, it still feels not quite tangible, but it is very real. It's going to take a little bit of time to turn the switches on to all these facilities that are coming on. But it is going to have a measurable impact, especially in the right markets, and we think we're well positioned in those markets. Next question. Operator?

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

The next question comes from Charan Sanghera of RBC Capital Markets.

--------------------------------------------------------------------------------

Charan Sanghera, RBC Capital Markets, LLC, Research Division - Senior Associate [23]

--------------------------------------------------------------------------------

Just a question on the capital recycling in the portfolio reallocation. Just can you talk a little bit about which geographies in the U.S. South that you feel are more favorable versus less favorable and where you kind of might be shifting?

--------------------------------------------------------------------------------

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [24]

--------------------------------------------------------------------------------

Yes. I mean -- so we've been fairly consistent now for quite a period of time. Everybody kind of breaks the map of the U.S. South down a little bit differently, but not all that differently. We've identified 5 markets essentially out of what we calculate are 15 markets in the U.S. South that we think are desirable for investment. We're currently invested in 4 of those, which are Coastal Georgia, Southwestern Georgia, Mid-State South Carolina, Texas and Louisiana, Western Louisiana, Eastern, Texas, which probably is 2 markets. And then the fifth one, which we're not invested in, would be Coastal to Mid-State North Carolina. And so within -- with respect to all of that, I think there are different opportunities around recycling. The most obvious opportunity is the fact that we just acquired -- effectively acquired over 1 million acres in Texas that in different ways doesn't interact because of the financial structure with the acreage that we have in Texas and Louisiana today. And so that one is probably the first one up to take a look at. Again, good property, great market, but there may be an opportunity just because of the Triple T transaction and what we've done.

--------------------------------------------------------------------------------

Charan Sanghera, RBC Capital Markets, LLC, Research Division - Senior Associate [25]

--------------------------------------------------------------------------------

Understood. You had a competitor talk about U.S. South log exports increasing. Have you guys seen any benefit from that as well? Log activity in China -- yes, sorry.

--------------------------------------------------------------------------------

Todd P. Reitz, CatchMark Timber Trust, Inc. - SVP of Forest Resources [26]

--------------------------------------------------------------------------------

This is Todd. Right, right, no understood. And that's primarily where any of our volume is headed. And I can tell you that we've seen good growth into that Savannah basin there. We operate primarily with 2 key customers over there, and they've been able to expand more inland, which has been a really nice indicator that they're seeing the strength in the market as well. When you look at the overall takeaway numbers for China right now, they're very consistent month-over-month coming off of Chinese New Year. And so that tells you everybody got back to work, and now they're being very steady with their business. And so we're not seeing any major changes in pricing and the activity level has been good.

--------------------------------------------------------------------------------

Charan Sanghera, RBC Capital Markets, LLC, Research Division - Senior Associate [27]

--------------------------------------------------------------------------------

Okay. It's kind of a more of a high-level theoretical question. We saw some lumber capacity, especially -- lumber capacity expansion, especially in Georgia. Naturally, the lumber producers are taking the opposite view on saw and fiber costs. What gives you kind of more confidence that sawtimber prices should trend up with this capacity?

--------------------------------------------------------------------------------

Todd P. Reitz, CatchMark Timber Trust, Inc. - SVP of Forest Resources [28]

--------------------------------------------------------------------------------

Right. So as those mills begin to come online, that's going to be another, call it, 2-year turn as these mills begin to come on in '19 and they start the process there. Housing is still going to be steady. And moving forward, you see that as your biggest driver. And even with the capacity coming on, you're not going to be back at the levels where we were, call it, 6, 7 years ago. So there's still going to be some room for growth there, which will play right back into your fundamental supply and demand dynamics. And then we feel very confident that we'll be able to capitalize on that.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

(Operator Instructions) The next question comes from Collin Mings of Raymond James.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [30]

--------------------------------------------------------------------------------

Just a few follow-ups from me. I guess, first, I just want to go back to Dave's question and some of the commentary as far as the log pricing in the U.S. South. Maybe can you just update us, Todd, how internally you're thinking about upside in log pricing over the next 6 to 12 months? Just how would you quantify that for the U.S. South?

--------------------------------------------------------------------------------

Todd P. Reitz, CatchMark Timber Trust, Inc. - SVP of Forest Resources [31]

--------------------------------------------------------------------------------

Sure. I mean, we've got -- again, you're going to have fluctuations between various micro markets. And so you see your coastal market as some of those strongest opportunities is there. But really if you look at it on a wholesale basis or enterprise-wide, we really see it as a steady play forward. We're seeing opportunities. We're taking advantage of those. But on an overall basis, it's been a steady movement, no real hockey stick type jumps in pricing, if you will. We really feel like as the capacity comes on, it begins to feed into the housing market, which we truly believe will be steady going forward with consistent growth, those 2 things marry together. Where our ownership sits in proximity to these announcements, the capital being placed in the facilities, the relationships we have with these end users, we have a lot of confidence in the plan going forward. And it continues to give us an added confidence, a backstop, as I said earlier, behind our plan to back up a little bit and be prepared for that improvement as we go forward.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [32]

--------------------------------------------------------------------------------

So should we then be thinking about maybe a low -- how you guys are maybe thinking about it internally, kind of a low single-digit type of upside over the next 12 months or so? Is that fair?

--------------------------------------------------------------------------------

Todd P. Reitz, CatchMark Timber Trust, Inc. - SVP of Forest Resources [33]

--------------------------------------------------------------------------------

Yes, I mean, that'd be -- I would say that would be a good view on it. We -- everybody would love to see that 10% to 15% jump. But that is just not in the cards right now. The key is that mills are running well and being very consistent. So we're not being bombarded with quotas and those kind of issues. I mean, they're able to produce their volume and be steady on that end. And that provides value back to the landowner and to us to be able to manage our delivered wood program on a very consistent basis moving forward. The anticipation would be you get -- a couple of years out, we'll start to see some more steady improvement.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [34]

--------------------------------------------------------------------------------

Okay. And then I guess this is either for you, Todd, or John as well. Just in context of that broader outlook, just curious here, just given the decline in lumber pricing here over the last 1.5 months. Has that translated into any sort of near-term pushback from customers, either in terms of log volumes or pricing?

--------------------------------------------------------------------------------

Todd P. Reitz, CatchMark Timber Trust, Inc. - SVP of Forest Resources [35]

--------------------------------------------------------------------------------

No. We have not experienced any of that. Matter of fact, in talking with several of the producers we interact with, they're looking at it as just a normal seasonal drop as they're moving through inventories. There wasn't a heavy overhang of inventory with wholesalers. So they fully anticipate, while yes, we're at record highs, even if it -- we come off of that, you're still well above trend line. And they're running really well, and we're able to stay consistent in that market. So we feel good about it, as do they. And they're feeling the strength within their business in the housing market and everything else moving. While it was a 1 data point drop month-over-month, if you will, the belief is that, that will continue to end at that seasonal or annual number of around $1.3 million, which would be in line with expectations. And knowing that, you've got recent announcements of capital being placed, there's still a lot of confidence out there on their side, around the consumer base and all that. So we feel like we're in good spot right now, truly feel better days are ahead too.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [36]

--------------------------------------------------------------------------------

Okay. And then, Jerry, I do want to back up and I had 2, I guess, bigger picture questions for you. Just as you think about that pipeline and make comments in reference to the Pacific Northwest. You've obviously, talked for a while now about the potential opportunities in the Pacific Northwest. Just internally as we sit here now in the context of the broader review in terms of capital recycling and some of the -- again, the opportunities that might be coming to the market, just do you have a timeline that you guys and the team is kind of operating under as far as having a presence in the Pacific Northwest? Or Just how are you thinking about that internally at this juncture?

--------------------------------------------------------------------------------

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [37]

--------------------------------------------------------------------------------

Well, Collin, after 5 years, you've probably guessed that when we say something, we eventually get it done. And I'd probably say that, that's going to be the case. We have a long-term planning horizon for how we do these things. And the transactions themselves take the pace that they take. And for instance, Triple T took 18 months to pull it all together. But -- so those things are working through on the timeline that is really necessary for those transactions. But especially at this point in our growth cycle as a company, I think you can be fairly well assured that when we get it done and when we announce it, it's going to be something great.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [38]

--------------------------------------------------------------------------------

Okay. Maybe coming at this from a different angle, it sounds like there is a one transaction in particular that you have circled. Is it fair to think that there is a reasonable chance that might be in the Pacific Northwest?

--------------------------------------------------------------------------------

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [39]

--------------------------------------------------------------------------------

Yes, yes, will be definitive.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [40]

--------------------------------------------------------------------------------

All right. And then just a bigger picture, Jerry, as far as the industry, there's been kind of a off again, on again chatter as far as opening up more government land. And again, this kind of ties back to the west in particular for harvest activity. I just want your take just from an industry standpoint what are you hearing on that front, particularly as you contemplate moving more into that region?

--------------------------------------------------------------------------------

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [41]

--------------------------------------------------------------------------------

Yes. And John Rasor is on the phone, and I'm going to ask John to jump in as well, because I think he probably is uniquely qualified to give us much -- the best insight into this, because he was there doing it the last time when the government had a big timberland -- or timber sales program in the Pacific Northwest. But the feedback that we've heard -- and it's still -- a lot of it is conjecture is that the producers out there -- number one, it's really tight and it could use a little bit of slack. And I think that the government sales would provide some of that slack. But number two, they're all a little wary about getting overly dependent on government land sales again, because they have an institutional memory of what happened and how fickle the government land sale program could be. So executed properly, and I think there is a great opportunity for it to be executed properly, I think it could be a net positive for the Pacific Northwest and the whole western states timber industry as well as the lumber industry. John, do you have a opinion?

--------------------------------------------------------------------------------

John F. Rasor, CatchMark Timber Trust, Inc. - President of Triple T Timberlands [42]

--------------------------------------------------------------------------------

Yes, I would say that in addition to your comments, Jerry, that while, yes, there has been some activity around what you said on almost in every single case, the pushback from the environmental community has been loud and clear. And it would be my view that while there may be some, it's going to be pretty incremental.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [43]

--------------------------------------------------------------------------------

Okay. Got it. That sounds fair. So it sounds like again -- taking both of your comments together, it sounds like on the margin, if it was done in a measured way, could actually be a positive for the overall industry. But the reality is, there's not going to be any sort of flood of inventory of logs into that market from your perspective?

--------------------------------------------------------------------------------

John F. Rasor, CatchMark Timber Trust, Inc. - President of Triple T Timberlands [44]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [45]

--------------------------------------------------------------------------------

Yes, unlikely.

--------------------------------------------------------------------------------

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [46]

--------------------------------------------------------------------------------

Yes. And then, John, just -- and this is the last question from me. Just while you're on the line, just maybe update us on the Triple T integration process and just some of the near-term goals. I mean, obviously, there has been outlines of potential for supply agreement renegotiations. There's obviously just kind of the transfer of leadership as it relates to the entity. Maybe just update us on kind of what the near-term goals are and how that integration process is going.

--------------------------------------------------------------------------------

John F. Rasor, CatchMark Timber Trust, Inc. - President of Triple T Timberlands [47]

--------------------------------------------------------------------------------

Sure. Let me start with how it's going. It's going well. The -- both the transition and the operations, we were prepared to be in the business on day 1. And we're delivering logs to our customers on the first day of ownership. We're now ramping up to our run rate with logging contacted at capacity. Over 40-plus crews are working across the property. All of our IT accounting and business support systems are in place as well. Ahead of closing, we met with all of our key customers, all of our logging contractors and key property management service providers. It was a huge multi-week effort that really made a difference in terms of the transition going as well as it has. And I also want to recognize that FRC, Forest Resource Consultants, who, as you know, is our lead third-party property manager and is doing so here at Triple T. They've done a tremendous job, an outstanding job. And we're well positioned to go forward here. As to any of the supply agreement changes or potential for changes, we certainly have had discussions about that. But our first order of business is to be on our run rate, demonstrate that we're a responsible customer -- or supplier to our customers. And then at appropriate time, we'll be talking about where we could have some improvements that could benefit both sides of the agreement.

--------------------------------------------------------------------------------

Operator [48]

--------------------------------------------------------------------------------

This concludes our question-and-answer session. I would like to now turn the conference back over to Jerry Barag for any closing remarks.

--------------------------------------------------------------------------------

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [49]

--------------------------------------------------------------------------------

Thanks again, everybody, for being with us this morning. And we will visit with you in another 3 months.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.