U.S. Markets open in 4 hrs 25 mins

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

Q3 2018 CatchMark Timber Trust Inc Earnings Call

Norcross Nov 16, 2018 (Thomson StreetEvents) -- Edited Transcript of CatchMark Timber Trust Inc earnings conference call or presentation Friday, November 2, 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

* Todd P. Reitz

CatchMark Timber Trust, Inc. - Senior VP of Forest Resources & Principal Operating Officer

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

Conference Call Participants

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

* Collin Philip Mings

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

* Paul C. Quinn

RBC Capital Markets, LLC, Research Division - Analyst

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

Presentation

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

Operator [1]

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

Good morning, and welcome to the CatchMark Timber Trust Third Quarter 2018 Earnings Call and Webcast. (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]

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

Thanks, Austin. Good morning, and thank you for joining us for a review of CatchMark Timber Trust results for the third quarter 2018, the 3-month period ended September 30. I'm Brian Davis, the Chief Financial Officer of CatchMark. Joining me today on the call are President and CEO, Jerry Barag; and Senior Vice President of Forest Resources Todd Reitz.

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 its 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 the SEC.

Today's our 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. Todd and I will join Jerry to answer any of your questions after this presentation. Now I'll turn over the call to Jerry Barag.

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

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

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

Good morning, and thank you for joining us this morning. The third quarter for CatchMark was extremely busy and especially productive. We sharply increased revenues year-over-year by 32%; boosted adjusted EBITDA by 60%; completed 2 major timberland transactions, investing a total of $290 million, which significantly expanded and diversified our nationwide operations; made substantial progress in integrating these acquisitions into operations; and we remain on course to meet our guidance for adjusted EBITDA for the year.

And yesterday, we also declared a cash dividend of $0.135 per share for stockholders payable on December 13, 2018.

Our strong third quarter performance resulted directly from our consistent and disciplined approach to invest our capital prudently in top-performing markets and in prime timberland assets, capable of outperforming in those markets.

These assets are poised not only for ongoing near-term growth, but will also continue to provide durable long-term earnings for our stockholders and importantly, will support our dividend.

In pursuit of aggregating the industry's highest quality timberlands portfolio, we are very pleased to close the Triple T joint venture, which added a managing interest in 1.1 million acres of prime Texas timberlands to our holdings, and we completed our first transaction in the Pacific Northwest, the Bandon acquisition. We moved quickly during the quarter to integrate both Triple T and Bandon into our operations and are meeting our operating targets for both.

We also acted to recycle assets by entering into a disposition contract to sell more than 56,000 acres of timberlands in Texas and Louisiana. This sale has the dual purpose of reducing our exposure in the Southwest region post Triple T and reducing outstanding leverage.

Triple T had an immediate positive impact on our third quarter results, providing $2.7 million in asset management fees. As has been the case with our first joint venture with the major pension fund, Dawsonville Bluffs, Triple T's immediate contribution shows the benefits of their investment management strategy in partnering with leading institutions by capturing these accretive and reliable management fees and diversifying our income streams.

At the same time, Bandon will begin making a meaningful contribution to overall timber sales revenue, help increase the sawtimber share of our harvest and begin to diversify CatchMark's holdings outside the U.S. South.

Third quarter results were also supported by meeting our targets for timberland sales. We sold 1,900 acres of timberland for $3.8 million during the quarter. That calculates to just under $2,000 per acre.

With all the activity during the last several months, we kept a relentless focus on timberland operations. Third quarter operating results were helped by daily tactical decisions and deliberate operating strategies.

Specifically, I want to emphasize 3 important points: first, the very positive impacts of our supply agreements; next, the decision earlier in the year to defer harvests; and finally, our delivered wood sales strategy.

Our focus remains on cash flow stability, predictability and low volatility, which has been extremely valuable in funding our business and supporting our dividends since CatchMark's inception.

Our extensive supply agreements continue to ensure ready access to mill markets -- mill market customers for our harvest to moderate volumes during periods of market volatility and to help ensure consistent cash flows. We decided earlier in the year to defer some harvests in anticipation of better pricing environment. While harvest volume declined year-over-year as a result of these tactical deferrals, our per ton gross timber sales revenue increased and helped offset the decline by capturing higher pulpwood pricing and continue to execute upon our delivered sales strategy.

Delivered wood sales have been an important component of our achieving higher pricing. Over nearly 36 months, we have strategically increased our percentage of delivered wood sales volume to solidify our standing as a preferred supplier to our customers, keep material control of our supply chain and secure stability and predictability of cash flows. Delivered sales volume as a percentage of total harvest increased from 65% in the third quarter of 2017 to 78% during the third quarter of 2018. While this is a more intensive operating strategy, we believe the benefits and results are apparent.

From a pricing perspective, we realized premium stumpage prices for all 5 product categories above south-wide averages due to the strength of the micro markets in which we operate. Our pulpwood stumpage price for the quarter increased 4% over the second quarter, helped particularly by strong performance in our Coastal Georgia property acquired late last year.

I understand that our pricing success may surprise both investors and analysts, given some of the recent published information about lumber market pricing trends. But understand, over the short term, lumber and timber prices are not necessarily correlated and negative volatility in lumber prices hasn't impacted timber prices in our micro markets where we see no fundamental evidence of reduced manufacturing or capital investment activity.

The best markets typically outperform and by design, we invest exclusively and consistently in those best markets in the U.S. South and now in the Pacific Northwest. The diversions in operating results in the U.S. South has been underway for some time and is likely to continue to become more obvious over the next several quarters as a result of significant excess timber inventories in some local markets, a trend that has been expanding since 2009.

This phenomenon will likely negatively impact operations, earnings and values in those specific markets as it becomes even more clear that broad-based recovery in U.S. South timber prices is not probable in the near term.

I reiterate my call for the industry to seek to provide thoughtful and transparent information that highlights market differentiators and provides participants better decision-making tools. I'm personally committed to working towards that goal.

As a result of our deliberate supply agreements and wood sales strategies and despite the planned decline in harvest volume year-over-year, we registered only a 2% decline in gross timber sales revenue for the quarter. At the same time, we preserved the opportunity to secure better pricing in the future for those deferred harvests.

We were gratified that our acreage and operations in the U.S. South were not material impacted by either Hurricane Michael or Hurricane Florence. Of our more than 364,000 acres located in Georgia and South Carolina, less than 400 acres suffered blowdown damage from heavy winds and we are currently in the process of completing salvage operations on those acres bringing that timber to market during the fourth quarter. As we said in the past, we consider both the location and management regime we employ to be a defense for our properties to protect against significant hurricane impact.

Taking all this into account, we remain very much on track to meet our guidance for expected annual harvest volume for 2018 at between 2 million and 2.3 million tons. Land sales targets are also very much on course for being met by year-end.

Now reviewing specific highlights of third quarter operating results compared to the third quarter of 2017. We increased revenues by $6 million to $24.6 million, a 32% gain. We increased adjusted EBITDA by $4.3 million to $11.5 million, a 60% gain. We generated gross timber sales revenue of $16.7 million, a 2% decrease from third quarter 2017, but as just discussed, that was primarily a result of our decision to defer harvest for better future pricing opportunities. And we paid a dividend of $0.135 per share.

As anticipated and signaled, when we entered into the Triple T joint venture, the transaction significantly increased our reported net loss for the quarter.

We incurred a net loss of $78.9 million on a GAAP basis compared to $4 million in the third quarter of 2017. This net loss for the quarter was below our initial estimates and we have further lowered our forecast for full year 2018 GAAP net loss into a range between $116 million and $122 million.

As a result of transaction costs and distribution preferences, CatchMark continues to expect to incur noncash GAAP losses from the unconsolidated Triple T joint venture equal to our investment in the near term.

The net loss from the Triple T investment is based on hypothetical liquidation at book value accounting, a method which determines an investor's equity in earnings based on book value, not fair value, per hypothetical liquidation as of the reporting date.

We covered the benefits associated with Triple T in past calls, the long-term potential from its superior productivity attributes and ace class distribution. Our expectations unlock further value through greater operating efficiencies and new tactical strategies and the asset management fee income stream, which we're already realizing.

I'm pleased to report that the integration of operations has been smooth and that we're on course to implement our operating plan.

Now I'd like to spend some more time, reviewing 2 other important transactions that we've not previously discussed on our calls: Bandon, which we completed in late August; and the Southwest region disposition which we entered into in late August.

Bandon is our first transaction in the Pacific Northwest. We acquired more than 18,000 acres of prime Oregon timberlands for $90 million. In keeping with our focus on premium quality and durable earnings potential, the acreage features quality stocking of 36 (sic) [37] tons per acre and merchantable inventory comprised of 87% commercial conifers, including 77% Douglas fir. More than 90% of Bandon's expected 5-year average harvest volume will be from sawtimber, helping increase the sawtimber share of our harvest mix.

The Bandon timberlands are located in or near excellent middle markets, experiencing tight supply-demand fundamentals approximately 150 miles southwest of Portland, Oregon. They are squarely within the desirable Douglas fir/western hemlock zone between Coos Bay markets and Roseburg mills.

Over time, we will seek to expand this regional foothold and further extend our reach beyond the U.S. South. And we're very pleased with this initial investment, which establishes a strong beachhead for us in the region.

The Southwest Region disposition is a key part of our capital recycling strategy, following the Triple T and Bandon transactions. Scheduled to close before year-end, the Southwest disposition involves selling 56,000 acres in Texas and Louisiana, and CatchMark will retain merchantable inventory for harvest on sold acreage over the next 18 to 24 months.

Since Triple T multiplied our acreage in the Southwest, supplying us higher quality property than our existing assets in the region, this sale will allow us to reduce our regional exposure and provide liquidity to repay debt.

Taken together, Triple T, Bandon and the Southwest disposition will optimize CatchMark's portfolio diversity, improve annual timber sales revenue by approximately $1.6 million and adjusted EBITDA excluding land sales by approximately $2.5 million annually over the next 5 years. It will also support the company's capital structure on a leverage neutral basis.

During the quarter, we did briefly study a possible offer for shares of the liquidating U.K. company Phaunos Timber Fund. The principal assets of Phaunos are extremely high-quality timberlands in New Zealand. After preliminary consideration and initial negotiations, we determined not to make a formal offer. As a result of our disciplined acquisition process, we concluded the deal could not be accomplished at a price that would be favorable to CatchMark shareholders. We confidentially evaluate many possible transactions that come to our pipeline on a daily basis. The Phaunos process was unusual in nature because of stringent U.K. takeover law requirements, compelled disclosure at a preliminary stage and limited the amount of information that could be provided to our shareholders.

At the end of the third quarter, CatchMark had $86 million of borrowing capacity under our credit facilities, consisting of $51 million in the multi-term -- Multi-Draw Term Facility, $35 million from the Revolving Credit Facility, plus $15.3 million of cash. This followed our funding of the Bandon acquisition through a combination of cash on hand and borrowing under the amended credit facility which closed during the quarter. The amended facility increased total capacity by $75 million, rightsized the company's multi-term -- multi-draw term loan to $200 million and added a new 7-year $140 million term loan to refinance existing debt under the multi-draw term loan.

Also during the quarter, we mitigated exposure to rising interest rates by converting $150 million of outstanding debt from floating to fixed rate by entering into 3 different interest rate swaps. That effectively fixed interest rates on $350 million of our $557 million of outstanding debt. Post the Southwest disposition, we expect to have 75% of interest rate exposure swapped to fixed rates.

During the 3 months ended September 30, 2018, CatchMark did not repurchase any shares under our share repurchase program and may purchase up to an additional $19.8 million under the program as of the end of the quarter.

Looking to our pulp and lumber markets, we see relatively little change from earlier in the year. Rising interest rates and tariff conflicts are contributing to a choppier background environment, but housing starts are not much below the original consensus forecast of 1.3 million units for the year. That's a good number.

It also represents more single-family homes under construction versus multi-family and doesn't take into account all the repair and remodeling activity underway. And the overall economy remains a big plus, extremely low unemployment and rising wages create further momentum for the next year.

Lumber mills in the U.S. South are running strong and making money, albeit at lower margins than earlier this year. Southern yellow pine lumber prices dropped from all-time highs in June but are at still very healthy price points compared to long-term trends and are still positive year-over-year. Mill raw material inventories in our operating markets are generally unchanged, and market pricing across all products is stable.

Despite the pullback in lumber pricing, CatchMark saw mill customers continue to run at near capacity levels with a robust production outlook for the quarter. Log exports, which were a small part of our business, have softened, but we expect to maintain favorable pricing and volumes from our domestic customers based on strong relationships in our key markets. Pulp mills in our markets appear well positioned for the fourth quarter to run at capacity, few to no quarters are projected.

For all product categories, CatchMark's pricing remains above timber markets south-wide averages. As discussed earlier, we are exclusively invested in top U.S. South markets which remain poised for near-term growth in demand for timber and prices based on capital investment patterns underway in those markets.

Mill capital improvement expansion programs and greenfield construction in these markets are still underway with no signs of slowing down, which bodes well for the future. Our focus on investments have concentrated in Georgia, the Carolinas and Texas, which gives us an edge in achieving better prices for our timber. We purposely have shied away from underperforming areas, primarily in the mid-gulf region, Arkansas, Mississippi and Western Alabama, and we are applying our same high-quality criteria to investments in the Pacific Northwest starting with Bandon.

In terms of current transactional activity in timberlands, we see a bifurcated U.S. South just as referenced. High-quality properties attract strong bidding, second-tier properties take longer to clear and possibly aren't even selling. Lower projected sawtimber pricing growth is weighing on valuations in the region. In the Pacific Northwest, the transaction market remains robust, supported by favorable underlying inventory and demand dynamics.

So to wrap up before we take your questions, CatchMark had an excellent quarter, registering substantially higher year-over-year revenues and adjusted EBITDA. We significantly expanded our timberland investments, and we are integrating new timberlands into operations expeditiously and efficiently to meet our performance goals.

We definitely manage harvest volumes through deferrals to optimize the value of future harvests. We use our supply agreements and increased delivered wood sales to our best advantage in driving timber sales revenue. We benefited from the high quality of our investments in securing superior market pricing. We began realizing significant asset management fees from Triple T and diversifying our revenue streams. We made important moves to strengthen our balance sheet after completing the Triple T and Bandon investments, increasing borrowing capacity, reducing interest rate exposure and entering into a major timberlands disposition to recycle capital and to pay down debt. And we're poised to meet our guidance for the year.

CatchMark's focus has and will remain on aggregating the highest quality timberland portfolio in the industry and managing this portfolio to deliver the best operating results. We believe we positioned the company to deliver the promised sustainable growth to our shareholders and support our dividend going forward.

And we look forward to continue to meet our objectives by maintaining this course. Thank you, again, for joining us on the call this morning. And now Brian, Todd and I are pleased to take your questions.

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

Questions and Answers

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

Operator [1]

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

(Operator Instructions) And our first question comes from Collin Mings with Raymond James.

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

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

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

To start, can we talk about the capital allocation priorities just given the pullback in the stock? You weren't active in 3Q as far as the share repurchase plan, but you still had again a little under $20 million on the authorization. Based on the 10-Q, it looks like, in the share count reference there, it looks like you might have been active, a little bit active here in 4Q, but just how are you -- how is the board approaching share repurchases just given where the stock has fallen and what you see is your runway for buying back stock just given where your leverage is?

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

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

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

Sure, Collin. We do have a $30 million program in place currently. We do have $10.2 million that we have purchased under that plan. We've done so at an average purchase price in the kind of low $10 range on historical basis, giving us another $19.8 million remaining. As Jerry noted, we didn't have any repurchase during Q3, and we'll report any activity for Q4 with our fiscal year 2018 results. You're really talking about runway and how we think about it. During the quarter, we really had a lot of strategic priorities to get through. One was the acquisition of the Bandon transaction, and we still need to complete the Southwest disposition, which Jerry alluded to, which we anticipate closing on during the fourth quarter. But share price persists upon the conclusion of Southwest disposition, utilization of the share repurchase plan may be a compelling use of available capital demonstrated as we have in the past.

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

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

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

Okay. So it doesn't sound like -- recognizing you kind of give us a full update when you guys report 4Q results, but it doesn't sound like you've been active here in the fourth quarter but pending the conclusion of the Southwest region. The stock is still at these levels and that's when you would look to maybe get more aggressive. Is that a fair summary?

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

Brian M. Davis, CatchMark Timber Trust, Inc. - Senior VP, CFO & Corporate Secretary [5]

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

It is. We'll look at the opportunity for opportunistic share repurchases, Collin.

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

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [6]

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

Okay. Switching to the hurricanes, you've noted kind of about 500 acres were directly impacted. But just beyond the salvage efforts though, what are you seeing in terms of volume and pricing over the next quarter or 2, just given the unexpected level of supply in some of your wood baskets?

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

Todd P. Reitz, CatchMark Timber Trust, Inc. - Senior VP of Forest Resources & Principal Operating Officer [7]

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

Collin, this is Todd. Yes, we were very fortunate, location played a huge part of that. Just as an update, as Jerry alluded to, we've been able to salvage or in the process of salvaging that product. Primarily, it was in the pulpwood stands that we had some early thinning -- not early but recent thinnings that occurred. Those were the ones that were impacted. As far as impacts from all of the damage that has occurred down there, and we have all read the reports and obviously very devastating to the micro markets where they exist, a little bit outside of the realm where we typically operate. So I think it is little early to see where is that product, how far is it going to move because some of the salvage is going to be really limited. We're talking with some of the folks that are directly impacted down there and just getting crews in there to start cleaning that up is going to be very slow. Some estimates have been maybe only 10% of it actually makes it to market, which is really low in the overall scheme of things. So if we're going to see an impact, it's probably going to be a quarter or 2 out. At what level, it's little bit difficult to say because, where it would impact us is would potentially be in our fiber supply group and that's formulaic pricing mechanism that's in place and so there'd be a lag to that. Currently, we're not seeing a lot of volume flow into the market. It's a haul distance issue. You think about the markets down on the coast, they already had 50% of procurements they're going to work with and now that procurement circle is 50 to 60 miles further away. So they're going to have to deal with a lot of different haul cost issues. The overall ability to source those mills is going to be different equation going forward. So haven't seen any impacts as of late, I mean, as it stands right now, anticipate as we move forward having to deal with those things, but I think, it's been very limited in our overall market space, to be honest with you.

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

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [8]

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

I mean, Collin, just as a result of geography, the major potential impact would hypothetically be coming to the legacy property that supports the mill in Alabama. And again, we'll just emphasize, we've got a big supply agreement there and it's take-or-pay, and we're going to deliver the same amount of volume. We'll see what impact that has on prices. But even the pricing mechanism there is made up in a way when you get to the specifics that it will insulate us against the impact of cheaper salvage wood that comes into the market.

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

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [9]

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

Okay. That's very helpful detail there guys. As far as deal flow, Jerry, going back to some of the comments in the prepared remarks, just can you maybe just update us given how active you were in 3Q? Do you have anything else under contract to acquire? Or maybe on the flip side of that given the Southwest region sales progressing, do you have any other notable disposition plans as we kind of round out the '18 and move into '19, just as you have at least shown some indications of increased stability to recycle some capital? Anything under contract basically to buy or sell at this point?

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

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [10]

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

There is nothing under contract other than the disposition of the 56,000 acres in Southwest. The combination of market backdrop plus the very busy pace that we had through the course of this year and especially Q3. We are making sure that we're very focused on closing out the year and delivering on all the initiatives and promises that we previously made. So it slowed down quite a bit and I think everybody might have expected that.

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

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [11]

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

Okay. One last one from me and I'll then turn over and jump back in the queue. But just stepping back to the company exploring potentially putting out a formal bid for Phaunos, just maybe update us, Jerry, how are you thinking about international opportunities recognizing there is some unique circumstances involving kind of the Phaunos situation and potential things that could have done from a capital structure standpoint. But just how is CatchMark thinking about going international at this juncture?

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

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [12]

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

Yes, I mean, let's put it this way. The Phaunos opportunity was unique and while they had some very good assets, they were all international assets. They were very good assets. The main attraction to us was not the asset from sales or the opportunity to go international. It was really capital driven and it was really an opportunity to merge together with a great shareholder base that they had. So it was capital-led opportunity, not a strategic property or timberland opportunity. And I think that some of that got misinterpreted along the way. And as we said, the U.K. takeover laws and the disclosure that we had to make about this made it all very preliminary and made it seem much more tangible than it ever was.

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

Operator [13]

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

(Operator Instructions) And our next question comes from Paul Quinn with RBC Capital Markets.

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

Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [14]

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

Thanks for the additional color on the effect of the hurricanes, but just curious as to what the timing of that salvage harvest is. I suspect, it's going to be done in a certain period of time and that probably limits the effect that, that salvage harvest could have in your market sheet. Do you any idea what that timing is?

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

Todd P. Reitz, CatchMark Timber Trust, Inc. - Senior VP of Forest Resources & Principal Operating Officer [15]

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

I'll give you a little insight or color around that, as we visited with other friends around the industry that operate more in that area. Part of the issue has been, it'll be a little bit slower coming to market I would think just because of the availability or the inability to get crews down there in a very quick manner, if you will. Not to mention, the way the salvage has to take place, it basically looks like a bunch of Lincoln Logs that were poured out on the ground, you're trying to pick through them, can be slow, can be dangerous at times. And you're going to have to move in with more of a track type operation and there is not as many of those around. For us, we were at more of the northern end of that, if you will. A lot of the trees were blown over. So we've been able to go in and you can get to those very easily with the traditional type setup. So we'd be able to salvage that, bring that market in an efficient and timely manner. In areas where trees are broken off, it's just going to be a slow go. It's all going to be pulpwood. There's very little sawtimber salvage ability coming out of the stands. So time will tell, a lot of it will just be piled up and have to be disposed of, which is very unfortunate, sad for the industry and for those landowners down there obviously. But there are crews moving in there, but it's not just -- you're not seeing a mass flow of logging equipment coming in the areas you would if you compare that to, say, the power companies coming in and fixing power and those kinds of things. A lot of people are cleaning up their own property first before they really start moving on to other private landowner type setups, if you will. Main focus is try and get power up to mills and those kind of things. So I wouldn't be surprised if this lingers out there definitely for the next probably 3 or 4 quarters just as it begins to move and come into the market.

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

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [16]

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

I mean, Paul, it appears that it's not going to be a homogenous kind of salvage strategy. Because the worst part of it where the storm came on shore and had the highest winds, the damage appears to be at about 4 feet up, the trees are snapped, and that salvage is really tough and that's where the most severe amount of damage was. As Todd was saying, the 400 acres that we had impacted was in kind of the secondary zones where the winds were still strong but obviously a lot less devastating than they were in other parts of it and that's where trees came down, got uprooted and would be a more normal salvage operation. So it's just hard right now and transportation is confounding everybody to get access just into there to figure out even how to start the salvage operation. So it's slow and that's part of the reason that the low estimates on the amount that's going to be salvaged have bubbled up.

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

Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [17]

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

Yes, 10% is pretty low. Maybe turning to -- during the quarter, we had export taxes or import taxes coming in U.S. logs and lumber from -- into China. I was just wondering what the effect of that has been on the market and whether that trade is normalized now.

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

Todd P. Reitz, CatchMark Timber Trust, Inc. - Senior VP of Forest Resources & Principal Operating Officer [18]

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

Yes, Paul, for us, that would primarily been in and around the Savannah market where we saw that. It's been an overall really a small impact because we didn't have a tremendous amount of volume going into there. In the overall scheme of things, we were looking maybe 2% to 3% of our overall total solid wood production that goes on into exports. While it disappointed to see the price drop, it has normalized with the domestic market, if you will. We didn't see any major pushback from the domestic customers. They've been able to absorb any of the volume that maybe shifted away from the export side. Good thing is, several -- couple of those customers are still running. So that maintains a little bit of a tension in the market. We are still producing to them, so -- at a reduced level from where we were, but no major drop in price, no major pushback on volumes or anything along those lines was experienced during this time.

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

Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [19]

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

All right, great. Maybe -- you had a record drop in lumber in the quarter, just wondering if you're seeing any kind of or heard of any changes in some of the potential capacity adds that are coming in the lumber space going forward in the U.S. South.

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

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [20]

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

Yes, I mean, as an industry, it's impacting different places differently and we know given the really strong prices for timber out in the west in the fall, particularly in fir prices in particular out in the west that it's gotten a little bit more dicey. As I noted in my comments, prices on southern yellow pine, while it come down from big highs, are still at -- on a trend line basis, are still pretty attractive. And so the people that we're supplying, which again by design are in some of the better lumber production markets and as a result some of the better timber markets, they have not pulled back at all. We have seen no real impact of lower lumber prices on their current operating rates and their future plans for expansion in the South.

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

Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [21]

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

Okay and just lastly on timberland values, I mean, you guys are pretty active, just wondering if you have seen any impact from rising interest rates, lower lumber and sort of this Chinese import tax issue on timberland values.

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

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [22]

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

Yes, the quick answer is no. It's still little early for that to have gone through. As I've noted on previous calls, the big impact and its challenge for the appraisal industry and for valuations in general is that the way the market operates is based on actual recorded sales. And it doesn't really take into account no sales. And there has been quite a bit no sales in weaker and weak timberland markets. And so those comps really never make it to those appraisers and it's an odd process and probably a flawed process because of that, but what you've seen is where properties have transacted have been in the more desirable markets, better operating markets and prices have remained very consistent.

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

Operator [23]

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

Our next question is a follow-up from Collin Mings with Raymond James.

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

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [24]

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

Just a few housekeeping questions for me here to follow up. Just as far as interest expense, it looks like that you guys are at the top of your pricing grid. Once the Southwest sale is complete, would you expect that to drop down a notch?

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

Brian M. Davis, CatchMark Timber Trust, Inc. - Senior VP, CFO & Corporate Secretary [25]

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

We do. We would anticipate that.

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

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [26]

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

Okay. And then, the $2.7 million of asset management fees in the quarter, is that a fair run rate going forward? Or was there anything just a little bit unique given the timing of the Triple T and anything else there to be mindful of?

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

Brian M. Davis, CatchMark Timber Trust, Inc. - Senior VP, CFO & Corporate Secretary [27]

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

No, that would be a going run rate Collin.

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

Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [28]

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

Okay. And then just on the -- following up on share account, again, just from the 10-Q, it looks like it kicked down modestly between the July 31 and the October number. Is that just to do with like the tax treatment of some of the award shares? Or just any color there would be helpful since it doesn't sound like you're buying back stock here.

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

Brian M. Davis, CatchMark Timber Trust, Inc. - Senior VP, CFO & Corporate Secretary [29]

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

That's right, Collin. So our directors receive annual awards at the time of our annual shareholder meeting and there is a withholding of those shares to support tax payments associated with them.

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

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

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

Okay. Very, very helpful. Just actually one other big picture question, Jerry, for you. Just as you think about future growth in the Pacific Northwest, I'm just curious, I mean, you made comments in response to Paul's question there about just hey, things are little bit more dicey in some of the markets there given how that -- the export picture there -- maybe a little bit more cloudy just given how important that export market is for the Pacific Northwest. Just how does that impact your thinking further expansion in the Pacific Northwest at this point?

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

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [31]

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

I would probably tell you we think about it exactly the same way that we thought about how we invested in the U.S. South, which again the Pacific Northwest market is not one big monolithic market, although because it's been -- because of dynamics there have strong over the last couple of years, it seems to appear that way. We have better markets there and worst markets there. The better markets tend to be organized around the best-in-class low-cost producers of lumber. And I think that trend is going to exhibit itself more apparently where you still have relatively high prices of timber and lumber prices have come off and so some of the second, third quartile producers of lumber out there are, I would guess, going to start to pull back on some of their production. And that will impact local timber markets. But I think in the better markets throughout the Pacific Northwest, they will get through this period of time, from a timber standpoint, unscathed.

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

Operator [32]

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

And this will conclude our question-and-answer session. I would like to turn the conference back over to Jerry Barag for any closing remarks.

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

Jerry Barag, CatchMark Timber Trust, Inc. - CEO, President & Director [33]

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

Thanks, everybody, again for joining us for the third quarter. We will talk to you early next year.

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

Operator [34]

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

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