The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and notes thereto. See also "Cautionary Note Regarding Forward-Looking Statements" preceding Part I of this report, as well as our consolidated financial statements and the notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Overview We acquire and own prime timberlands located in high-demandU.S. mill markets. We manage our operations to generate highly-predictable and stable cash flow from sustainable harvests, opportunistic land sales and asset management fees that comfortably covers our dividend throughout the business cycle. We actively manage our timberlands to achieve an optimum balance among biological timber growth, current harvest cash flow, and responsible environmental stewardship. During the first quarter of 2021, the strong housing market, robust repair and remodeling activity and continued demand for pulp-related products drove significant increases in pricing for both sawtimber and pulpwood, which generated an 11% increase in timber sales revenue. This increase was achieved despite a planned reduction in total harvest volume of 12% due to recent timberland sales and capital recycling dispositions, reflecting consistent productivity on a per-acre basis. During the quarter, we took advantage of favorable market conditions in thePacific Northwest and increased our timber sales revenue from that region by$3.0 million , or 161%, compared to the prior year quarter. Our stumpage prices in theU.S. South region maintained significant premiums over South-wide averages, a result of our micro-market advantages. We continuously assess potential alternative uses of our timberlands, as some of our properties may be more valuable for development, conservation, recreational or other rural purposes than for growing timber. In the first quarter of 2021, we sold 1,800 acres of timberland for$3.4 million , or$1,923 per acre, an 18% increase in average sales price per acre compared to the prior year quarter. When evaluating our land sale opportunities, we assess a full range of matters relating to the timberland property or properties, including, but not limited to inventory stocking below portfolio average, higher mix of hardwood inventory, sub-optimal productivity characteristics, geographical procurement and operating areas, and/or timber reservation opportunities. We also continue to evaluate our portfolio for potential large dispositions under our capital recycling program whereby we sell blocks of timberland properties to generate proceeds to fund capital allocation priorities, including, but not limited to redeployment into more desirable timberland investments, paying down outstanding debt or repurchasing shares of our common stock. We continue to leverage our scale and timberland management efficiencies through our investment management business which generates significant asset management fee revenue. We recognized asset management fee revenue of$3.1 million during the quarter, a 5% increase compared to the prior year period primarily as a result of the asset management agreement amendment with the Triple T Joint Venture during the second quarter of 2020. During the first quarter, we recognized$0.6 million of income and$0.7 million of Investment Management EBITDA from our Dawsonville Bluffs Joint Venture generated by mitigation credit sales. Subsequent to quarter-end, we received a distribution of$0.4 million from the joint venture, including$0.1 million of incentive-based promotes for exceeding investment hurdles. As ofMarch 31, 2021 , the Dawsonville Bluffs Joint Venture had a mitigation bank with a book basis of$2.1 million . We are continuing to evaluate additional strategic investment opportunities in our target markets, including direct acquisition of high-quality industrial timberland properties, with our average transaction size ranging from 2,500 to 25,000 acres. We continue to have ample liquidity for growth initiatives and other capital allocation priorities, including direct acquisitions and joint venture investments. Our active debt and interest rate management strategy provides us attractive borrowing costs, staggered long-term maturities and a favorable mix of fixed-to-floating rate debt. During the first quarter of 2021, we paid$6.6 million of distributions to our stockholders, which were fully covered by net cash provided by operating activities. We did not repurchase any shares of our common stock under our SRP during the quarter. 26 -------------------------------------------------------------------------------- Table of Contents Impact of COVID-19 On Our Business The COVID-19 outbreak is a widespread health crisis that has adversely affected the economies and financial markets of many countries, including theU.S. , resulting in an economic downturn that could affect demand for our products and impact our operating results. Economists expect the impact of the pandemic will continue to be significant during 2021. COVID-19 has had a limited impact on our physical operations to date. We have implemented new procedures to support the health and safety of our employees and we are following all federal, state and local health department guidelines. The costs associated with these safety procedures were not material. The COVID-19 pandemic has not had a significant impact on our overall results. We continued to manage our harvest operations effectively through the pandemic during the first quarter of 2021, increasing timber sales revenue and Harvest EBITDA by 11% and 4%, respectively, from the prior year period. The longer-term consequences of the COVID-19 pandemic to the economy and our customers continue to be unknown; however, the approval and distribution of vaccines create a belief that the economy will begin to return to normal over the course of 2021. Projections under these circumstances are necessarily guarded and subject to change, but demand for pulp-related products has remained strong and demand patterns for sawtimber products have improved from the early days of the pandemic as demand and pricing for lumber has been strong due to increased housing starts and robust repair and remodeling activity. However, given the ongoing and dynamic nature of the circumstances, it is not possible to predict how long the impact of the coronavirus outbreak on the economic environment and on our business will last or how significant it will ultimately be. Measures to try to contain the virus, such as quarantines and shelter in place orders, could adversely affect our business, results of operations and financial condition as well as the business, operations and financial conditions of our customers and contractors. A sustained decline in the economy as a result of the COVID-19 pandemic and the demand for timber could materially and adversely impact our business, results of operations and financial condition and our ability to make distributions to our stockholders. We are monitoring the progression of the pandemic and its potential effect on our financial position, results of operations, and cash flows, and we may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and stockholders. We are bolstered by our delivered wood model and fiber supply agreements, which provide a steady source of demand from reliable counterparties. With respect to liquidity, we believe we have access to adequate liquidity and capital resources, including cash flow generated from operations, cash on-hand and borrowing capacity, necessary to meet our current and future obligations that become due over the next 12 months. After our deleveraging initiatives and other balance sheet strengthening in 2019 and 2020, we believe we are well positioned to weather additional economic turmoil.
Timberland Portfolio
As ofMarch 31, 2021 , we wholly owned interests in 400,200 acres of high-quality industrial timberland in theU.S. South andPacific Northwest , consisting of 384,700 acres of fee timberlands and 15,500 acres of leased timberlands. Our wholly-owned timberlands are located within attractive fiber baskets encompassing a diverse group of pulp, paper and wood products manufacturing facilities. Our Southern timberlands consisted of 72% pine plantations by acreage and 54% sawtimber by volume. OurPacific Northwest timberlands consisted of 90% productive acres and 80% sawtimber by volume. Our leased timberlands include 15,500 acres under one long-term lease expiring in 2022, which we refer to as the LTC Lease. Wholly-owned timberland acreage by state is listed below: Acres by state as of March 31, 2021 (1) Fee Lease Total South Alabama 66,300 1,800 68,100 Florida 500 - 500 Georgia 230,100 13,700 243,800 South Carolina 69,700 - 69,700 366,600 15,500 382,100Pacific Northwest Oregon 18,100 - 18,100 Total 384,700 15,500 400,200 27
-------------------------------------------------------------------------------- Table of Contents (1) Represents wholly-owned acreage only; excludes ownership interest in acreage held by joint ventures. As ofMarch 31, 2021 , our wholly-owned timber inventory consisted of an estimated 16.0 million tons of merchantable inventory with the following components: (in millions) Tons Merchantable timber inventory (1) Fee Lease Total Pulpwood 6.9 0.3 7.2 Sawtimber (2) 8.5 0.3 8.8 Total 15.4 0.6 16.0 (1)Merchantable timber inventory does not include current year growth.Pacific Northwest merchantable timber inventory is converted from MBF to tons using a factor of eight. (2) Includes chip-n-saw and sawtimber. In addition to our wholly-owned timberlands, we had the following investments in joint ventures as ofMarch 31, 2021 (see Note 4 -Unconsolidated Joint Ventures to our accompanying consolidated financial statements for further details): As
of
Dawsonville Bluffs Joint Venture Triple T Joint Venture Ownership percentage 50.0% 22.0% (1) Acreage owned by the joint venture - 1,080,500 Merchantable timber inventory (million (2) tons) - 43.3 Location Georgia Texas
(1)Represents our share of total partner capital contributions. (2)Triple T considers inventory to be merchantable at age 12. Merchantable timber inventory does not include current year growth.
Segment Information
We have three reportable segments: Harvest, Real Estate and Investment
Management. Our Harvest segment includes wholly-owned timber assets and
associated timber sales, other revenues and related expenses. Our Real Estate
segment includes timberland sales, cost of timberland sales and large
dispositions. Our
Timber Agreements
A significant portion of our timber sales is derived from the Mahrt Timber Agreements under which we sell specified amounts of timber to WestRock subject to market pricing adjustments. For full year 2021, WestRock is required to purchase a minimum of 380,800 tons of timber under the Mahrt Timber Agreements. For the three months endedMarch 31, 2021 , WestRock purchased 80,200 tons under the Mahrt Timber Agreements, which represented 9% of our net timber sales revenue. WestRock has historically purchased tonnage that exceeded the minimum requirement under the Mahrt Timber Agreements. See Note 7 - Commitments and Contingencies to our accompanying consolidated financial statements for additional information regarding the material terms of the Mahrt Timber Agreements. We are party to a pulpwood supply agreement with IP (the "Carolinas Supply Agreement"). For full year 2021, IP is required to purchase a minimum of 88,600 tons of pulpwood under the Carolinas Supply Agreement. During the three months endedMarch 31, 2021 , we sold 27,300 tons under the Carolinas Supply Agreement, which represented 3% of our net timber sales revenue. 28 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources
Overview
Cash flows generated from our operations are primarily used to fund recurring expenditures and distributions to our stockholders. The amount of distributions to common stockholders is authorized by our board of directors and is dependent upon a number of factors, including funds deemed available for distribution based principally on our current and future projected operating cash flows, less capital requirements necessary to maintain our existing timberland portfolio. In determining the amount of distributions to common stockholders, we also consider our financial condition, our expectations of future sources of liquidity, current and future economic conditions, market demand for timber and timberlands, and tax considerations, including the annual distribution requirements necessary to maintain our status as a REIT under the Code. In determining how to allocate cash resources in the future, we will initially consider the source of the cash. We anticipate using a portion of cash generated from operations, after payments of periodic operating expenses and interest expense, to fund certain capital expenditures required for our timberlands. Any remaining cash generated from operations may be used to pay distributions to stockholders and partially fund timberland acquisitions. Therefore, to the extent that cash flows from operations are lower, timberland acquisitions and stockholder distributions are anticipated to be lower as well. Capital expenditures, including new timberland acquisitions, are generally funded with cash flow from operations or existing debt availability; however, proceeds from future debt financings, and equity and debt offerings may be used to fund capital expenditures, acquire new timberland properties, invest in joint ventures, and pay down existing and future borrowings. From time to time, we also sell certain large timberland properties in order to generate capital to fund capital allocation priorities, including but not limited to redeployment into more desirable timberland investments, pay down of outstanding debt or repurchase of shares of our common stock. Such large dispositions are typically larger in size and more infrequent than sales under our normal land sales program.
Shelf Registration Statement and Equity Offerings
OnFebruary 28, 2020 , we filed a shelf registration statement on Form S-3 (File No. 333-236793) with theSEC , which was declared effective onMay 7, 2020 . Our shelf registration statement provides us with future flexibility to offer, from time to time and in one or more offerings, up to$600 million in an undefined combination of debt securities, common stock, preferred stock, depositary shares, or warrants. The terms of any such future offerings would be established at the time of an offering. OnMay 7, 2020 , we entered into a distribution agreement with a group of sales agents relating to the sale from time to time of up to$75 million in shares of our common stock in at-the-market offerings or as otherwise agreed with the applicable sales agent, including in block transactions. These shares are registered with theSEC under our shelf registration statement. As ofMarch 31, 2021 , we have not sold any shares of common stock under the distribution agreement.
Credit Facilities
The table below presents the details of each credit facility under the Amended
Credit Agreement as of
(dollars in thousands) Outstanding Remaining Facility Name Maturity Date Interest Rate(1) Unused Commitment Fee (1) Total Capacity Balance Capacity Revolving Credit Facility 12/1/2022 LIBOR + 2.20% 0.35%$ 35,000 $ -$ 35,000 Multi-Draw Term Facility 12/1/2024 LIBOR + 2.20% 0.35% 150,000 34,086 115,914 Term Loan A-1 12/23/2024 LIBOR + 1.75% N/A 100,000 100,000 - Term Loan A-2 12/1/2026 LIBOR + 1.90% N/A 100,000 100,000 - Term Loan A-3 12/1/2027 LIBOR + 2.00% N/A 68,619 68,619 - Term Loan A-4 8/22/2025 LIBOR + 1.70% N/A 140,000 140,000 $ - Total$ 593,619 $ 442,705 $ 150,914 29
-------------------------------------------------------------------------------- Table of Contents (1)The applicable LIBOR margin on the Revolving Credit Facility and the Multi-Draw Term Facility ranges from a base rate plus between 0.50% to 1.20% or a LIBOR rate plus 1.50% to 2.20%, depending on the LTV ratio. The unused commitment fee rates also depend on the LTV ratio. Borrowings under the Revolving Credit Facility may be used for general working capital, to support letters of credit, to fund cash earnest money deposits, to fund acquisitions in an amount not to exceed$5.0 million , and for other general corporate purposes. The Multi-Draw Term Facility, which is interest only until its maturity date, may be used to finance timberland acquisitions and associated expenses, to fund investment in joint ventures, to fund the repurchase of our common stock, and to reimburse payments of drafts under letters of credit.
Patronage Dividends
We are eligible to receive annual patronage dividends from our lenders (the "Patronage Banks") under the Amended Credit Agreement. The annual patronage dividend depends on the weighted-average patronage-eligible debt balance with each participating lender during the respective fiscal year, as calculated by CoBank, as well as the financial performance of the Patronage Banks. InMarch 2021 , we received patronage dividends of$4.1 million , including$3.9 million of standard patronage dividends and a$0.2 million special patronage dividend. 75% of the standard patronage dividends was received in cash and the remaining 25% was received in equity of the Patronage Banks. The equity component of the patronage dividend is redeemable for cash only at the discretion of the Patronage Banks' board of directors. The special patronage dividend was received in cash. For the three months endedMarch 31, 2021 , we accrued$0.9 million of patronage dividends receivable for 2021, approximately 75% of which is expected to be received in cash inMarch 2022 .
Debt Covenants
As ofMarch 31, 2021 , the Amended Credit Agreement contains, among others, the following financial covenants which: •limit the LTV ratio to 50% at any time; •require maintenance of a FCCR of not less than 1.05:1.00 at any time; and •limit the aggregate capital expenditures to 1% of the value of the timberlands during any fiscal year.
We were in compliance with the financial covenants of the Amended Credit
Agreement as of
Interest Rate Swaps
As of
Share Repurchase Program
OnAugust 7, 2015 , our board of directors approved a share repurchase program for up to$30.0 million of our common stock at management's discretion (the "SRP"). The program has no set duration and the board may discontinue or suspend the program at any time. During the three months endedMarch 31, 2021 , we did not repurchase any share of our common stock under the SRP. As ofMarch 31, 2021 , we had 48.9 million shares of common stock outstanding and may repurchase up to an additional$13.7 million under the SRP. We can borrow up to$30.0 million under the Multi-Draw Term Facility to repurchase our common stock. Management believes that opportunistic repurchases of our common stock are a prudent use of capital resources.
Short-Term Liquidity and Capital Resources
Net cash provided by operating activities for the three months endedMarch 31, 2021 was$11.6 million ,$0.3 million higher than the prior year quarter. Cash provided by operating activities consisted primarily of receipts from customers for timber sales, timberland sales and asset management fees, reduced by payments for operating 30 -------------------------------------------------------------------------------- Table of Contents costs, general and administrative expenses, and interest expense. The increase in net cash provided by operating activities was primarily due to a$2.4 million decrease in general and administrative expenses, a$2.0 million decrease in cash paid for interest, and a$0.5 million increase in net timber sales, offset by a$3.1 million change in working capital due to timing of receipts and payments and a$1.4 million decrease in net proceeds from timberland sales. Net cash used in investing activities for the three months endedMarch 31, 2021 was$2.3 million as compared to$18.6 million provided by investing activities during the three months endedMarch 31, 2020 . We did not complete any large dispositions in the first quarter of 2021 as compared to receiving$20.9 million in gross proceeds from large dispositions in 2020. Net cash used in financing activities for the three months endedMarch 31, 2021 was$8.5 million as compared to$30.9 million for the three months endedMarch 31, 2020 . We paid cash distributions of$6.6 million to our stockholders in the first quarter of 2021, funded from net cash provided by operating activities. We used$0.6 million to repurchase shares of our common stock, primarily for tax withholding purposes, and paid$1.4 million in interest expense pursuant to the terms of our interest rate swaps during the three months endedMarch 31, 2021 . In the first quarter of 2020, we paid down$20.9 million of our outstanding debt balance on the Multi-Draw Term Facility with net proceeds received from large dispositions. We believe that we have access to adequate liquidity and capital resources, including cash flow generated from operations, cash on-hand and borrowing capacity, necessary to meet our current and future obligations that become due over the next 12 months. As ofMarch 31, 2021 , we had a cash balance of$12.7 million and had access to$150.9 million of additional borrowing capacity under the Amended Credit Agreement.
Long-Term Liquidity and Capital Resources
Over the long-term, we expect our primary sources of capital to include net cash flows from operations, including proceeds from timber sales, timberland sales, asset management fees, and distributions from unconsolidated joint ventures, and from other capital raising activities, including large dispositions, proceeds from secured or unsecured financings from banks and other lenders; and public offerings of equity or debt securities. Our principal demands for capital include operating expenses, interest expense on any outstanding indebtedness, repayment of debt, timberland acquisitions, certain other capital expenditures, and stockholder distributions.
Distributions
Our board of directors has authorized cash distributions quarterly. The amount of future distributions that we may pay will be determined by our board of directors as described in Overview section above. During the three months endedMarch 31, 2021 , we declared the following distribution: Declaration Date Record Date Payment Date Distribution Per Share February 11, 2021 February 26, 2021 March 15, 2021$0.135
For the three months ended
On
Results of Operations
Overview
For the three months endedMarch 31, 2021 , we generated total revenues of$27.7 million compared to$27.0 million for the three months endedMarch 31, 2020 . We improved our net loss by$3.7 million to$0.6 million due to a combination of higher revenues and lower expenses. We generated Adjusted EBITDA of$12.9 million . We generated these improvements in total revenues, net loss and Adjusted EBITDA on the strength of improved timber 31
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Table of Contents and timberland pricing and despite reducing our harvest volume by 12% and selling 40% fewer acres, each as compared to the prior year quarter.
Our results of operations are materially impacted by the fluctuating nature of timber prices, changes in the levels and mix of our harvest volumes and associated depletion expense, changes to associated depletion rates, the level of timberland sales, management fees earned, large dispositions, varying interest expense based on the amount and cost of outstanding borrowings, and performance of our unconsolidated joint ventures.
Selected operational results for the three months ended
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