IPO Report: CatchMark Timber Trust, Inc. (CTT)

CatchMark Timber Trust, Inc. ($CTT) is a real estate company investing in timberlands that has elected to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes.

Eight other operating company IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

CTTscheduled a $150 million IPO with a market capitalization of $334 million at a price range midpoint of $14.25 for Tuesday, December 10, 2013,  on the NYSE

The Manager & Joint managers are Raymond James, Baird and Stifel.  The Co-Managers are Mitsubishi UFJ Securities, Janney Montgomery Scott.  SEC filings

Overview

 “If we are successful in the execution of our revised business strategy following this offering, we expect that our initial quarterly distribution to common stockholders will be between $0.11 per share and $0.12 per share, or an annual distribution rate of approximately 3.0% to 3.3%, based on an estimated public offering price of $14.25” page 47, S-1

Risk

Relies on a single customer:  “We expect that a significant portion of any increased harvest volume will likely be sold to MeadWestvaco pursuant to the timber agreements.”  Page 47, S-1                  

Valuation

Glossary

The rating on CTT is neutral to negative.

Business

CatchMark Timber Trust, Inc. is a real estate company investing in timberlands that has elected to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes.

CTTis self-administered and self-managed. CTT primarily engages in the ownership, management, acquisition and disposition of timberlands located in the United States.

Upon completion of this offering, CTT believes that it will be the only publicly traded REIT that is engaged exclusively in timberland ownership and management, without ownership of any forest products or other manufacturing operations.

The focus of CTT’s business is to invest in timberlands and to actively manage such assets to provide current income and attractive long-term returns to its stockholders. CTT generates recurring income and cash flow from the harvest and sale of timber, as well as from non-timber related revenue sources, such as recreational leases.

When and where CTT believes it is appropriate, it also periodically generates income and cash flow from the sale of HBU lands. HBU refers to timberland properties that have a higher-value use beyond growing timber, such as properties that can be sold for development, conservation, recreational or other rural purposes at prices in excess of traditional timberland values.

CTTalso expects to realize additional long-term returns from the potential appreciation in value of its timberlands as well as from the potential biological growth of its standing timber inventory in excess of CTT’s timber harvest.

As of September 30, 2013, CTT owned interests in 280,000 acres of timberland, consisting of 247,200 acres held in fee-simple interests, or CTT fee timberlands, and 32,800 acres held in leasehold interests, or CTT-leased timberlands.

CTTtimberlands are located on the Lower Piedmont and Upper Coastal Plains of East Central Alabama and West Central Georgia within an attractive and competitive fiber basket encompassing a numerous and diverse group of pulp, paper and wood products manufacturing facilities. CTT believes that its timberlands are high-quality industrial forestlands that have been intensively managed for sustainable commercial timber production.

Dividends

If CTT is successful in the execution of its revised business strategy following this offering, it expects that the initial quarterly distribution to common stockholders will be between $0.11 per share and $0.12 per share, or an annual distribution rate of 3.0% to 3.3%, based on a public offering price of $14.25, which is the midpoint of the price range.

Competition

CTTcompetes with various private and industrial timberland owners as well as governmental agencies that own or manage timberlands in the U.S. South.

Due to transportation and delivery costs, pulp, paper and wood products manufacturing facilities typically 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.

Factors affecting the level of competition in CTT’s industry include price, species, grade, quality, proximity to the mill customer, and CTT’s reliability and consistency as a supplier.

Use of proceeds

CTTexpects to net $136.5 million from its IPO. Proceeds are allocated as follows:

$48.9 million of net proceeds received from this offering to redeem the outstanding shares of CTT’s Series A and B preferred stock currently held by Wells REF, for a redemption price equal to $1,000 per share plus accrued but unpaid dividends. Dividends accrued on the shares of Series A and B preferred stock issued from 2007 to 2009 at a rate of 8.5% per annum until May 2011 and, as a result of a waiver provided by Wells REF, have accrued since May 2011 at a rate of 1.0% per annum.

$87.6 million (or $108.6 million if the underwriters exercise their overallotment option in full) of the net proceeds received from this offering to repay a portion of the amounts outstanding under CTT’s term loan with CoBank ACB, or the CoBank loan.

The CoBank loan bears interest at an adjustable rate based on the one-, two-, or three-month LIBOR plus an applicable margin ranging from 2.00% to 2.75%, or the LIBOR Rate, that varies based on the loan-to-value ratio, or CTT’s LTV ratio, at the time of determination. The weighted average interest rate on the CoBank loan, after consideration of an interest rate swap, was 2.62% as of September 30, 2013.