In December, CatchMark Timber Trust, a REIT, held an IPO and is now listed on the New York Stock Exchange under the symbol CTT. CatchMark's market cap is around $310 million, making it a micro-cap. CTT joins WY, PCL, PCH, RYN, POPE, OTC:ACAZF, and DEL in the publicly traded timber sector.
CatchMark originally began life in 2007 as Wells Timber REIT, a private REIT formed by Wells REF, a private investment firm. CTT owns approximately 280,000 acres of timberlands in Georgia and Alabama. Of the 280,000 acres, 32,800 acres are long-term leases. The lands were purchased from MeadWestvaco (NYSE:MWV), and are tributary to the MWV's mill near Columbus, Georgia.
Along with the purchase came a 20-year fiber supply agreement. The supply agreement covers a minimum of about 54% of CatchMark's timber harvest, although it could, and has gone higher. This puts CTT in a position of being heavily reliant on one customer, MWV. However, if the supply agreement is at market price, which I believe it is, it is not all bad. The pulpwood market in Alabama and Georgia is quite good and in a worst-case scenario, other pulpmills or some of the new pellet mills in the area would quickly absorb the wood now promised to MWV.
At the present time, CTT is suffering from the same problems faced by the other timber REITs who own Southern timberlands, that is mainly the low stumpage prices being paid for southern pine sawtimber. Even so CTT generated positive cash flow in 2012 and 2013 even through earnings were negative. Negative earnings are mainly the result of a high depletion rate due to the land being recently purchased. I have mentioned in previous articles how depletion makes earnings almost meaningless to a timber company. Free cash flow is much more meaningful. Depletion's only real relevance is in tax calculations, but since REITs do not pay taxes, it is even more irrelevant.
CTT is trading for around $13.50 per share and has seen a range of $12.50 to $14.40. They recently declared their first dividend of $0.11 per quarter yielding about 3.3%. This is in line with the other timber REITs. They also recently paid down $80 million of their long-term debt of $132 million with proceeds from the IPO. I estimate their timberlands to be worth $400 to $450 million so a debt load of $52 million should not be much of a problem.
At the present time, the shares outstanding are in flux due to the conversion of class B shares to class A over the next year or so. Until the dust settles from the IPO, I see no compelling reasons to buy CTT at this time. It does seem to be in relatively good shape both financially and operationally and poised to benefit whenever southern pine sawtimber prices recover. I will put it on my watchlist.