CatchMark Timber Trust, Inc. Class A

Good morning and welcome to the review of Catchmark Timber Trust's results for third quarter 2021. All participants will be in listen-only mode. Should you need assistance, please signal a comfort specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ursula Godoy, Chief Financial Officer of Catchmark. Please go ahead.

Good morning and thank you for joining us for our review of Catchmark Timber Trust results for third quarter 2021. I am Ursula Godoy, Chief Financial Officer of Catchmark. Joining me today on the call are Chief Executive Officer Brian Davis and Chief Resources Officer Todd Rice. During this call, Catchmark management will make forward-looking statements. These forward-looking statements are based on management's current beliefs and the 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 their actual results to differ materially from expectations. For more information about the factors that could cause such differences, we refer you to our 2020 annual report on Form 10-K and subsequent reports that we filed with the SEC. Today's presentation includes certain non-GAAP financial measures. Reconciliations of these measurements are included in our third quarter 2021 earnings release and financial supplement, which are posted on our website. and our Form 10-Q filed with the SEC yesterday, November 4, 2021. After our presentation, Brian, Todd, and I will be pleased to answer any of your questions. Now I turn over the call to Chief Executive Officer Brian Davis.

Thanks, Ursula. Good morning, everyone, and thank you for joining us today for our third quarter review. A lot has happened since our last earnings call in the first week of August. The band and sale was finalized, concluding our capital recycling strategy for large dispositions for now, and the Triple T exit was executed. The proceeds from these transactions were used to pay down debt and further strengthen our capital position. We continued to concentrate on optimizing our harvest operations, dealing successfully with wet weather challenges while maintaining our pricing advantages, and we refocused on expanding our presence in the premier U.S. South mill markets. The key takeaways today are Catchmark remains solidly on track to generate 2021 adjusted EBITDA, the top end of full year guidance. We also expect to exceed full year net income guidance. And after simplifying Catchmark's business and further strengthening our balance sheet over the last 20 months, we are well positioned for growth. Our harvest operations during the third quarter, again, delivered significantly higher year-over-year timber sales. pricing for both pulpwood and salt timber. This is a direct result of our longstanding and ongoing strategy to concentrate our investments in prime timberlands in the nation's leading mill markets using a delivered wood model supplemented by opportunistic stumpage sales. The higher pricing we captured, which also was well above market averages in the U.S. South, helped make up for lower harvest volumes year over year in the region due to persistent wet conditions. The successful Bandon sale in the Pacific Northwest, which closed in August, registered a significant gain and was a primary driver in achieving record quarterly net income and earnings per share. It also marks the end of our capital recycling program of large dispositions for now and our renewed focus on expanding operations and increasing scale in and around the leading U.S. South Mill markets, where we have achieved so much success. Proceeds from Bandon and the Triple T exit have been used to pay down debt, and as a result of our capital position in credit facilities, provide ample liquidity to pursue acquisitions as well as revenue-producing environmental initiatives. Let me emphasize, we are in a growth mode. Our objective is to be disciplined and prudent in securing acquisitions which help sustain our industry-leading harvest EBITDA per acre in market pricing premiums, while also maintaining stable per acre merchantable inventory. The anticipated value realization of our environmental initiatives should capitalize on increasing market demand to meet climate challenges, and we are already pursuing opportunities involving carbon sequestration, mitigation bank credits, and solar energy. We have already demonstrated a successful track record with mitigation bank transactions in our Dawsonville Bluffs joint venture. We have acquired and created nearly 500,000 credits, and we have sold to date more than 50% of those credits for a total of $10 million. Buyers have included the Georgia Department of Transportation, Vulcan Materials, a publicly traded waste management service company, and various counties and city municipalities. From a go-forward operating perspective, economic and market fundamentals supporting our business growth remain strong, including housing, household formation, current product pricing and outlook, and demand for wood products. The dynamics we have discussed before are in place, but we need the housing recovery to be sustained. Our U.S. South strategy is based on leveraging regional mill expansion and greenfield projects, which reinforce the region's standing as the nation's leading timber basket, serving an ongoing robust regional population expansion, as well as other domestic and global markets. New mill capacity will create added demand for catchmark harvest, and our prime timberlands are positioned to continue to capture pricing premiums through optimizing delivered sales and stumpage sales. In the third quarter, Those pricing premiums for pulpwood and salt timber were 38% and 16%, respectively, above Timber Mart South's south-wide averages. Our stumpage prices were 8% and 11%, respectively, above the prior year quarter. Strong pricing in both pulpwood and salt timber in the U.S. South offset an 11% harvest reduction in the region due to wet weather conditions and resulted in a 1% increase in regional timber sales revenue year over year. Lower overall harvest volumes in the third quarter, down 15% year-over-year, and timber sales revenues, down 12% year-over-year, resulted primarily from the band and large disposition and the U.S. south weather conditions. But a strong first half of the year, as well as a pickup and harvest activity in the fourth quarter, keep us on target for achieving the midpoint of our full-year harvest plan. In the third quarter, we also sold 17% fewer acres year-over-year at comparable prices per acre. But those timberland sales, together with the sales completed in the first and second quarters, already have exceeded the lower range of our full-year guidance target, totaling $13.1 million as of September 30th. These sales, combined with just under $1 million in land sales anticipated for the fourth quarter, keeps us on track to achieve the midpoint of full-year land sales guidance. Investment management performance was also in line with guidance. Asset management fees were comparable year-over-year, including a promote from the Dawsonville Bluffs Joint Venture, for exceeding investment return hurdles as a result of strong mitigation bank credit sales. In connection with the recent Triple T Redemption Agreement, the Asset Management Agreement was terminated and replaced by Transition Services Agreement, effective September 1, 2021, through March 31, 2022. Under the agreement, Catchmark will provide transition services for a fee of $5 million. Taken all together, third quarter year-over-year results registered 10% lower revenue and 20% lower adjusted EBITDA. This, again, was primarily due to timing of harvest and timberland sales, which were weighted to an exceptionally strong first half of the year, as well as the abandoned large disposition. The recognized $23.4 million gain from the $100 million abandoned sale, 13% above the 2018 acquisition basis, drove third quarter net income to $23.3 million. a record, and earnings to $0.48 per share, also a record. During the quarter, we paid $6.5 million in distributions to stockholders, fully covered by net cash provided by operating activities, bringing the year-to-date distributions total to $19.7 million. Three weeks ago, we declared a $0.75 per share cash dividend for common stockholders of record as of November 30th, payable on December 15th. Following the Triple T redemption, the right sizing of Catchmark's annualized dividend rate prioritizes investing and growth to increase our earnings trajectory and net asset value over time. And we expect to maintain our historical payout ratio of 75% to 85% of cash available for distribution. As we invest in future growth, we remain determined to generate predictable, stable cash flow and deliver fully covered dividends, our ongoing primary objectives. we are determined to maintain our course of a simplified strategy utilizing our strengthened balance sheet to make solid and straightforward investments. Now, Ursula will cover third quarter results in some more detail and discuss our strengthened capital position in light of the abandoned and triple T transactions.