Press Release

POULSBO, Wash., April 30, 2015 /PRNewswire/ -- Pope Resources (NASDAQ:POPE) reported net income attributable to unitholders of $7.8 million, or $1.80 per ownership unit, on revenue of $26.9 million for the quarter ended March 31, 2015.  This compares to net income attributable to unitholders of $12.2 million, or $2.75 per ownership unit, on revenue of $37.8 million for the comparable period in 2014.

Cash provided by operations for the quarter ended March 31, 2015 was $9.1 million, compared to $20.2 million for the first quarter of 2014.

"While comparisons with last year's record first quarter make it look otherwise, results for Q1 2015 were  solid, thanks especially to some significant Real Estate segment sales," said Tom Ringo, President and CEO.  "As for the timber side of our business, mild winter weather conditions in the Pacific Northwest allowed for an expanded flow of log supply in an atypical seasonal pattern. Coupled with weak demand from Asia related to swollen port inventories, these factors exerted downward pressure on our log price realizations."

First quarter 2015 highlights

• Harvest volume was 25 million board feet (MMBF) in Q1 2015 compared to 30 MMBF in Q1 2014, a 17% decrease. These harvest volume figures do not include timber deed sales of 0.6 MMBF sold by ORM Timber Fund III in Q1 2015.  The harvest volume and log price realization metrics cited below also exclude these timber deed sales.
• Average realized log price per thousand board feet (MBF) was $609 in Q1 2015 compared to $701 per MBF in Q1 2014, a 13% decrease.
• Fund properties contributed 49% of Q1 2015 harvest volume, compared to 53% in Q1 2014.
• As a percentage of total harvest, volume sold to export markets in Q1 2015 decreased to 19% from 42% in Q1 2014, with a correspondingly larger increase in the mix of volume sold to domestic markets to 56% in Q1 2015 from 43% in Q1 2014. Pulpwood comprised 18% of the Q1 2015 harvest compared to 12% in Q1 2014.
• The percentage of total harvest comprised of Douglas-fir sawlogs dropped to 46% in Q1 2015 from 60% in Q1 2014, with an increase in the whitewood sawlog component to 24% in Q1 2015 from 22% in Q1 2014. Cedar and hardwood comprised 11% of the Q1 2015 harvest compared to 6% in Q1 2014.
• Timberland acquisitions during Q1 2015: the Partnership closed on a timberland purchase of $2.9 million, adding 578 acres to the Hood Canal tree farm portion of its timberland portfolio.
• Real Estate sales closed during Q1, 2015:
  • 42 lots from our Harbor Hill project in Gig Harbor, Washington for $5.6 million.
  • $4.9 million conservation easement and land sale on 3,607 acres in Jefferson County, Washington, of which 215 acres were sold outright and the balance subject to the easement that precludes development but allows continued timberland operations.

First quarter operating results

Fee Timber:

Fee Timber operating income for Q1 2015 was $4.9 million, compared to $9.2 million for Q1 2014.  This 47% decrease in segment operating income was due to the combination of an 17% decrease in harvest volume and a 13% decrease in log prices. Tightening credit conditions in China have resulted in a reduction in purchases of logs delivered there, causing a build-up of inventory. In addition, a strengthening US dollar and weakening Russian ruble have made Russian logs more attractive to Chinese importers. Supply in the domestic market has increased as relatively mild weather has allowed operations to continue on timberlands that normally are not accessible this time of year.  These supply and demand factors have combined to account for the decrease in pricing.

Timberland Management:

Our Timberland Management segment generates its revenue by managing three private equity timber funds, one of which is in the final stages of its wind-down. All three funds are consolidated into the Partnership's financial statements due to the Partnership's control of the Funds.  As such, all fees earned by the Timberland Management segment associated with managing the Funds are eliminated from revenue in the Partnership's consolidated financial statements, leaving an operating loss for this segment that consists entirely of operating expenses.  Conversely, this fee revenue is an expense to the Fee Timber segment and the expense is also eliminated when the Funds are consolidated into the Partnership's financial statements.  As a result of this consolidation for external reporting purposes, we eliminated $834,000 and $875,000 of timber fund management fee revenue for Q1 2015 and Q1 2014, respectively.  Operating losses incurred by this segment for Q1 2015 and Q1 2014 totaled $729,000 and $610,000, respectively, after eliminating revenue earned from managing the funds.

Following the sale of the Fund I assets in Q3 and Q4 2014 and the Q4 2014 acquisition by Fund III, our two remaining funds collectively own 80,000 acres representing $312 million in assets under management.  As of March 31, 2015 Fund III has $50.8 million of its original $180 million capital commitment remaining to invest with the Partnership's portion of this remaining capital commitment representing $2.5 million. 

Real Estate:

Our Real Estate segment posted operating income of $5.1 million in Q1 2015 compared to $7.0 million for Q1 2014.  The primary drivers of Q1 2015 results were sales of 42 lots from our Harbor Hill project in Gig Harbor, Washington for $5.6 million together with a $4.9 million conservation easement and land sale on 3,607 acres in Jefferson County, Washington.  Results for Q1 2014 included sales of 107 lots from our Harbor Hill project for $10.7 million plus a $4.6 million conservation land sale.

General & Administrative (G&A):

G&A expenses for Q1 2015 and Q1 2014 were $1.2 million and $1.3 million, respectively. The decrease between 2014 and 2015 in G&A expenses was due primarily to vacant positions that have since been filled.

Environmental Remediation Liability

Over a year after entering into a stipulated order and consent decree, we expect the project design for our Port Gamble, Washington environmental remediation project to be substantially complete by mid-2015. A handful of design issues remain to be resolved, however, and we continue to work with the regulatory agencies and other stakeholders on these issues. We anticipate resolving the project design substantially in either the second or third quarter of this year, though final approval may occur later, which could result in a change to our estimated liability. 

Outlook

We expect log prices to reach their lowest point for 2015 in the second quarter and then begin to recover late in the third quarter or early in the fourth quarter. Due to this weaker pricing environment, we are delaying a portion of our harvest and now expect total annual log harvest and stumpage sale volume of between 83 and 88 MMBF for 2015 compared to our previous estimate of approximately 100 MMBF. The majority of this reduction is attributable to tree farms owned by the Funds that are located in areas more strongly influenced by the export market. Good access to logging contractors in these regions provides us confidence that we will be able to increase our harvest when markets improve. We expect that log markets will continue to be volatile over the next several quarters and this will influence our harvest decisions as the year unfolds.

We expect additional land sales from our Real Estate segment over the remainder of 2015, although the timing of these transactions could be impacted by permitting or other delays.

The financial schedules attached to this earnings release provide detail on individual segment results and operating statistics.

About Pope Resources

Pope Resources, a publicly traded limited partnership, and its subsidiaries Olympic Resource Management and Olympic Property Group, own or manage 191,000 acres of timberland and development property in Washington, Oregon, and California.  We also manage, co-invest in, and consolidate three private equity timber funds, for which we earn management fees. These funds provide an efficient means of investing our own capital in Pacific Northwest timberland while earning fees from managing the funds for third-party investors. The company and its predecessor companies have owned and managed timberlands and development properties for over 160 years. Additional information on the company can be found at www.poperesources.com. The contents of our website are not incorporated into this release or into our filings with the Securities and Exchange Commission.

Forward Looking Statements

This press release contains a number of projections and statements about our expected financial condition, operating results, business plans and objectives. These statements reflect management's estimates based on current goals and its expectations about future developments. Because these statements describe our goals, objectives, and anticipated performance, they are inherently uncertain, and some or all of these statements may not come to pass. Accordingly, they should not be interpreted as promises of future management actions or financial performance. Our future actions and actual performance will vary from current expectations and under various circumstances the results of these variations may be material and adverse. Among those forward-looking statements contained in this report are statements about management's expectations for future log prices, harvest volumes and markets, and statements about our expectations for future sales in our Real Estate segment.  However, readers should note that all statements other than expressions of historical fact are forward-looking in nature.  Some of the factors that may cause actual operating results and financial condition to fall short of expectations include our ability to accurately estimate the cost of ongoing and changing environmental remediation obligations, and our ability to anticipate and address the political and regulatory climate that affects these obligations; our ability to consummate various real estate transactions on the terms management expects; our ability to manage our timber funds and their assets in a manner that our investors consider acceptable, and to raise additional capital or establish new funds on terms that are advantageous to the Partnership; conditions in the housing construction and wood-products markets, both domestically and globally, that affect demand for our products; the effects of competition, particularly by larger and better-financed competitors; factors that affect our ability to anticipate and respond adequately to fluctuations in the market prices for our products; fluctuations in foreign currency exchange rates that affect both competition for sales of our products and our customers' demand for them; environmental and land use regulations that limit our ability to harvest timber and develop property, including changes in those regulations; conditions affecting credit markets as they affect the availability of capital and costs of borrowing; labor, equipment and transportation costs that affect our net income; our ability to anticipate and mitigate potential impacts of our operations on adjacent properties; the impacts of natural disasters on our timberlands and on surrounding areas; and our ability to discover and to accurately estimate other liabilities associated with our assets. Other factors are set forth in that part of our Annual Report on Form 10-K entitled "Risk Factors."

Other issues that may have an adverse and material impact on our business, operating results, and financial condition include those risks and uncertainties discussed in our other filings with the Securities and Exchange Commission. Forward-looking statements in this release are made only as of the date shown above, and we cannot undertake to update these statements.

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SOURCE Pope Resources

John D. Lamb, Vice President and CFO, 360.697.6626, Fax 360.697.1156