CatchMark Timber Trust (CTT), an REIT that owns and manages American timberlands, plans to raise $150 million in its upcoming IPO on Thursday December 12th.
The Norcross, Georgia-based firm will offer 10.5 million shares at an expected price range of $13.50-$15.00 per share. If the IPO can possibly hit the midpoint of that range at $14.25 per share, CTT will command a market value of $334 million. See S-11
CTT filed on September 23, 2013 with only second tier underwriters.
Lead Underwriters: Raymond James and Associates, Robert W. Baird, Stifel Nicolaus. Underwriters: Janney Montgomery Scott LLC, Mitsubishi UFJ Securities.
CTT is a self-managed, self-administrated REIT focused on the ownership, management, acquisition and disposition of United States timberlands. The firm generates revenues through the harvest and sale of timber and through some non-timber sources, such as recreational leases. As of September 2013, CTT owned interests in some 280,000 acres of timberland located in Alabama and Georgia, with approximately 75% pine stands and 25% hardwood stands.
CTT offers the following figures in its S-11 balance sheet for the nine months ending September 30, 2013:
Net Loss: ($7,078,560)
Total Assets: $344,197,545
Total Liabilities: $140,506,231
Stockholders' Equity: $203,691,314
CTT intends to offer its shareholders quarterly cash distribution between $0.11 and $0.12 per share, or between $0.44 and $0.48 annualized. Assuming shares sell at the midpoint of the expected price range, distributions would equal approximately a paltry 3.0%-3.3% annual return.
It must be noted that a huge percentage of CTT's revenue is derived from a single customer, MeadWestvaco, which has entered into long-term agreements with CTT to purchase wood fiber products.
Approximately 54% of CTT's net timber sales revenue was derived from these agreements in 2012; MeadWestvaco (MWV) purchased well above the minimum required amounts designated by the agreements in 2012, meaning that there is no guarantee that CTT will be able to continue to sell as much to MeadWestvaco in the future.
CTT competes with many private timberland owners as well as governmental agencies that maintain timberlands in the U.S. South. Wood products manufacturing facilities generally purchase wood fiber within a 100-mile radius of their location, which thereby limits, to some degree, the number of significant competitors in any specific regional market. CTT faces some larger and better-capitalized competitors.
The S-11 on pages 15 to 39 and on pages 102 to 105 detail many other risk factors and conflicts of interest between related parties that must be reviewed diligently by any prospective investor in this IPO.
Jerry Barag has served as President and CEO since October 2013. Mr. Barag has over 30 years of real estate, timberland and investment experience. He previously served as Managing Director of TimberStar, where he oversaw the acquisition of over $1.4 billion of timberlands in Arkansas, Louisiana, Maine and Texas. He also previously served as Chief Investment Officer of TimberVest, LLC. Mr. Barag holds a Bachelor of Science degree from The University of Pennsylvania, Wharton School.
We are negative on this IPO in the proposed $13.50 to $15.00 range. We believe that it will be hard for these junior underwriters to get this IPO launched successfully at that high price. We would review the deal again if it prices between $10.00 and $12.50.
The firm's revenue growth and earnings are not particularly strong to begin with, despite its significant assets, and it is very much dependent on a single customer to maintain those revenues (see "Business" above). The yield that CTT might offer is neither guaranteed nor especially attractive.
We're also concerned that the REIT, which must expand its timberlands in order to increase revenues, has a relatively unproven management team in terms of acquisition-the team has made only two significant timberland purchases thus far-although the firm's President and CEO, Jerry Barag, does have quite a bit of experience in acquisition.
Finally, this IPO has a huge amount of risk factors and conflicts which are detailed for prospective investors in the S-11.