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Pope Resources Reports First Quarter 2018 Results

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Pope Resources Reports First Quarter 2018 Results

PR Newswire

POULSBO, Wash., May 7, 2018 /PRNewswire/ -- Pope Resources (NASDAQ:POPE) reported net income attributable to unitholders of $5.7 million, or $1.31 per ownership unit, on consolidated revenue of $25.0 million, and look-through1 revenue of $17.6 million, for Q1 2018. This compares to net income attributable to unitholders of $3.4 million, or $0.77 per ownership unit, on consolidated revenue of $17.3 million, and look-through revenue of $11.4 million, for Q1 2017.

Cash provided by operations during Q1 2018 was $10.7 million on a consolidated basis and $7.1 million on a look-through basis, compared to cash provided by operations of $2.7 million on a consolidated basis and cash used in operations of $26,000 on a look-through basis during Q1 2017.

"The confluence of strong log markets and favorable winter weather in 2018's first quarter enabled us to push up harvest volumes and realize significant increases in cash flow from operations compared to last year's first quarter," said Tom Ringo, President and CEO. "Log prices generally were strongest in early Q1-18. As the favorable markets and weather encouraged broad log production participation, however, realized prices slipped back 5 to 10% later in the quarter, still coming in at levels higher than recent quarters. Other items of note for this quarter include the previously announced January acquisitions by Fund IV of two timberland properties totaling nearly 37,000 acres.  In Q1-18 we began marketing timber deed sales on these two properties with good early success that augurs well for early cash yield on the Partnership's $17.1 million co-investment in these properties. Finally, our Real Estate activities in Q1-18 were focused on laying the groundwork for sales that are expected to close later in the year."

In conjunction with this earnings release, we are implementing three new reporting initiatives aimed at giving readers additional insight into understanding the financial benefits of owning Pope Resources units. The new initiatives include presenting our financial results on a "look-through" basis; splitting our former "Fee Timber" segment to create two segments, "Fee Timber - Partnership" and "Fee Timber - Funds"; and measuring the performance of each of our four segments based on adjusted EBITDDA2. Please refer to the "New Reporting Initiatives" section below for further detail on these changes, and to the GAAP reconciliation presented near the end of this release for additional information.

The following tables summarize key income, cash flow, and debt metrics for the quarters ended March 31, 2018, and 2017. Each metric is presented from the perspective of the Partnership on a stand-alone basis, excluding its share of the private equity timber funds, a Consolidated basis in accordance with GAAP, and on a look-through basis. The latter is the sum of the Partnership on a stand-alone basis plus the Partnership's share of its three private equity timber funds, based on the Partnership's ownership interest in each fund.

(in millions, except volume and price data)








Q1 2018


Q1 2017


Partnership


Consolidated


Look-through



Partnership


Consolidated


Look-through


Volume (MMBF)

18.8


31.9


20.5



14.1


27.6


15.8


Delivered log price ($/MBF)

$779


$758


$775



$615


$596


$611


Revenue

$15.5


$25.0


$17.6



$9.6


$17.3


$11.4


Net income

$5.7


$5.7


$5.7



$1.0


$11.6


$3.4


Cash flow from operations

$6.7


$10.7


$7.1



($0.6)


$2.7


$—


Debt

$88.4


$145.7


$95.5



$76.1


$133.4


$82.7


Fee Timber - Partnership

Fee Timber - Partnership operating income during Q1 2018 was $8.7 million, compared to $4.4 million in Q1 2017. Adjusted EBITDDA for this segment during Q1 2018 was $10.0 million, versus $5.4 million in Q1 2017. Driving both metrics were log prices in Q1 2018 that were 27% higher than Q1 2017, and we responded by increasing Partnership harvest volume by 33% compared to the same quarter of last year, taking advantage of favorable weather conditions and access to low-elevation timberland on the Partnership's properties.

Fee Timber - Funds

Fee Timber - Funds operating income during Q1 2018 was $1.8 million, compared to $12.2 million in Q1 2017. The Q1 2017 operating income included a $12.5 million gain on the sale of a tree farm by Fund II, without which the segment would have had an operating loss of $312,000. Adjusted EBITDDA for this segment during Q1 2018 was $4.2 million, versus $2.7 million in Q1 2017. The improvement for both measures, when factoring out the gain from the tree farm sale, resulted primarily from log prices in Q1 2018 that were 27% higher than Q1 2017. Harvest volume, including timber deed sales, for the Funds, however, was down 3% due to pulling ahead volume into Q4 2017 that was originally planned for Q1 2018 to take advantage of strong log prices. The Partnership's share of adjusted EBITDDA for Q1 2018 was $537,000, versus $324,000 during Q1 2017.

Timberland Investment Management (TIM)

During Q1 2018, ORM Timber Fund IV closed on two previously announced transactions totaling nearly 37,000 acres for $113.9 million. Both tree farms closed in January of 2018, resulting in a $17.1 million co-investment by the Partnership due to its 15% ownership in Fund IV. The two investments will generate $775,000 per year of third party asset management fees paid to the Partnership. Fund IV continues to pursue additional opportunities to place the remaining $273 million of committed capital.

TIM generated an operating loss of $947,000 during Q1 2018, compared to an operating loss of $966,000 in Q1 2017. Adjusted EBITDDA during Q1 2018 was negative $52,000 versus negative $225,000 in Q1 2017. The improvement in adjusted EBITDDA is due to increased revenue from asset management and timberland management fees following the Fund IV acquisitions in Q1 2018. Total revenue amounted to $1.0 million during Q1 2018 versus $848,000 in Q1 2017.

Real Estate

In preparation for sales later in the year, the Partnership spent $278,000 in development capital during Q1 2018, primarily on our final remaining residential and commercial lots at Harbor Hill in Gig Harbor, WA.  In Port Gamble, the Partnership paid $219,000 in Q1 2018 for previously accrued expenses related to the clean-up of Port Gamble Bay.

Real Estate generated an operating loss of $934,000 during Q1 2018, compared to an operating loss of $1.2 million in Q1 2017. Adjusted EBITDDA for the Real Estate segment was negative $767,000 during Q1 2018, versus negative $1.0 million in Q1 2017. The improvement in both metrics is due primarily to lower professional fees in connection with planning and development for a number of properties, as well as reduced personnel costs resulting from fewer personnel in the Real Estate segment in 2018 as the Harbor Hill project progresses towards completion.

General & Administrative (G&A)

G&A expenses during Q1 2018 totaled $1.6 million, versus $1.7 million during Q1 2017, with the decrease in expenses due primarily due to lower personnel costs, particularly incentive compensation.

Capital Allocation and Liquidity

The Partnership funded $16.2 million of its Fund IV co-investment during Q1 2018. In addition, the Partnership closed on four separate timberland purchases in western Washington totaling 892 acres for $5.4 million. In March, we paid a cash distribution to unitholders of $3.1 million. During the quarter, the Partnership repurchased 4,125 units at an average price of $70.66 per unit, totaling $292,000. As of the end of Q1 2018, we have $903,000 remaining on our current authorization that runs through December 2018. Capital expenditures for the Partnership totaled $1.2 million during Q1 2018.

These capital investments were financed with net borrowings on our revolving facilities of $18.3 million, cash generated by the Partnership from operations, excluding the Funds, of $6.7 million (that is net of Real Estate development capital expenditures and environmental remediation payments totaling $497,000), distributions received by the Partnership from Funds totaling $413,000, and the sale of 365 acres of non-strategic timberland for $214,000.

The Partnership closed the quarter with cash of $2.1 million and debt of $88.4 million. The Funds closed the quarter with cash of $1.5 million and debt of $57.3 million.

Outlook

We expect our total 2018 harvest volume to be approximately 66 MMBF for the Partnership, and approximately 76 MMBF for the Funds, including timber deed sales. The 66 MMBF for the Partnership include

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