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Pope Resources Reports Third Quarter Income Of $1.5 Million

November 4, 2014

POULSBO, Wash., Nov. 4, 2014 /PRNewswire/ -- Pope Resources (NASDAQ:POPE) reported net income attributable to unitholders of $1.5 million, or $0.34 per diluted ownership unit, on revenue of $13.8 million for the quarter ended September 30, 2014.  This compares to a net loss attributable to unitholders of $75,000, or a $0.03 loss per ownership unit, on revenue of $11.7 million for the comparable period in 2013.

Net income attributable to unitholders for the nine months ended September 30, 2014 totaled $15.6 million, or $3.52 per ownership unit, on revenue of $70.1 million. Net income for the corresponding period in 2013 totaled $9.5 million, or $2.09 per diluted ownership unit, on revenue of $51.6 million.

On September 30, 2014, ORM Timber Fund I LP sold its 15,000-acre Green River tree farm for $39.0 million, recognizing a gain on the sale of $9.2 million, with $1.8 million attributable to Pope Resources' unitholders based upon the Partnership's interest in Fund I.

Cash provided by operations for the quarter ended September 30, 2014 was $6.0 million, compared to cash used in operations of $3.7 million for the third quarter of 2013.  For the nine months ended September 30, 2014, cash provided by operations was $28.4 million, compared to $13.3 million for the corresponding 2013 results. 

"Export and domestic log markets softened in the third quarter with the former responding to elevated log inventories at Chinese ports and the latter reflecting the usual seasonal expansion of logging activity region-wide that boosts supply," said Thomas M. Ringo, President and CEO.  "The impact of this seasonal pattern of weaker log prices on fee timber income was masked this quarter by the first sale of property owned by one of our timber funds.  Our year-to-date results remain solid, driven primarily by strong early-2014 log price realizations, increased residential lot sales from our Gig Harbor project, and the gain resulting from the sale of that fund property." 

Third quarter and year-to-date highlights

  • Harvest volume was 19 million board feet (MMBF) in Q3 2014 compared to 16 MMBF in Q3 2013, an 18% increase.  Harvest volume for the first nine months of 2014 was 75 MMBF compared to 69 MMBF for the first nine months of 2013, an 8% increase. 
  • Average realized log price per thousand board feet (MBF) was $568 in Q3 2014 compared to $591 per MBF in Q3 2013, a 4% decrease.  For the first nine months of 2014, the average realized log price per MBF was $643 compared to $609 per MBF for the first nine months of 2013, a 6% increase.
  • Fund properties contributed 50% of Q3 2014 harvest volume, compared to 53% in Q3 2013.  For the first nine months of 2014, Fund properties contributed 52% of harvest volume, compared to 46% for the first nine months of 2013.
  • As a percentage of total harvest, softwood sawlog volume sold to export markets in Q3 2014 was 28%, down from 45% in Q3 2013, while the mix of softwood sawlog volume sold to domestic markets increased correspondingly to 56% in Q3 2014 from 36% in Q3 2013.  For the first nine months of the year, the relative percentages of softwood sawlog volume sold to export and domestic markets were 35% and 49%, respectively, compared to 33% and 49% in 2013.
  • The percentage of total harvest comprised of Douglas-fir sawlogs dropped to 37% in Q3 2014 from 50% in Q3 2013, with a corresponding increase in the whitewood component to 39% in Q3 2014 from 27% in Q3 2013.  Paralleling this species pattern shift, for the first nine months of 2014, the relative mix of Douglas-fir and whitewood was 48% and 32%, respectively, compared to 61% and 20% for the first nine months of 2013.
  • As noted above, our Fund I sold its Green River tree farm for $39.0 million, recognizing a gain on the sale of $9.2 million, with $1.8 million attributable to Pope Resources' unitholders.
  • We closed on 10 single-family residential lots in Gig Harbor for a total sales price of $900,000 during Q3 2014, while in Q3 2013 we had no closings but did recognize $1.0 million of previously deferred land sale revenue.

Third quarter and year-to-date operating results

Fee Timber:

Excluding the $9.2 million gain on sale of the Green River tree farm, Fee Timber operating income for the third quarter of 2014 was $2.1 million, compared to $1.5 million for the third quarter of 2013.  This 36% increase in segment operating income was due to the 18% increase in harvest volume and offsetting 4% decrease in log prices, as mentioned above.  Contributing further to the increase in operating income was additional revenue from a timber deed sale and commercial thinning activity compared to the prior year. 

For the first nine months of 2014, again excluding the $9.2 million gain on sale of the Green River tree farm, Fee Timber operating income was $16.4 million compared to $13.1 million in 2013.  This 25% increase was due to both an 8% increase in harvest volume and a 6% increase in log prices in 2014 compared to 2013.  An increase in timber deed sales and commercial thinning activity also contributed to the higher segment operating income in 2014.  These factors more than offset a heavier 2014 mix of harvest from Fund properties and a higher proportion of whitewood harvest volume in 2014. 

Timberland Management:

Our Timberland Management segment generates its revenue by managing three private equity timber funds, which are consolidated into the Partnership's financial statements due to the Partnership's role as general partner or managing member 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. Accordingly, operating loss consists entirely of operating expenses for this segment.  This fee revenue is an expense to the Fee Timber segment and is also eliminated when the Funds are consolidated into the Partnership's financial statements.   Following this consolidation for external reporting purposes, we eliminated $814,000 and $701,000 of timber fund management fee revenue for the quarters ended September 30, 2014 and 2013, respectively.  Operating expenses incurred by this segment for the quarters ended September 30, 2014 and 2013 totaled $541,000 and $475,000, respectively. 

Similarly, we eliminated $2.5 million and $2.1 million of timber fund management fee revenue for the nine months ended September 30, 2014 and 2013, respectively.  Operating expenses incurred by this segment for the nine months ended September 30, 2014 and 2013 totaled $1.7 million and $1.5 million, respectively.  For both the quarter and year-to-date periods, the increase in operating expenses for this segment are attributable to an increase in timber fund acres under management, prior to the sale of  the Green River tree farm, and increased costs associated with placing Fund III's remaining capital.  However, on a per acre basis expenses have declined as we benefit from economies of scale.

Following the Green River tree farm sale, our three funds collectively own 75,000 acres and have $264 million in assets under management.  As of September 30, 2014 Fund III has $108 million of its original $180 million capital commitment remaining to invest with our portion of this remaining capital commitment representing $5.0 million. 

Real Estate:

Due to timing of sales with limited closings to offset segment fixed costs, our Real Estate segment posted operating losses of $597,000 and $582,000 for the third quarters of 2014 and 2013, respectively.  

For the first nine months of 2014, the Real Estate segment earned operating income of $5.4 million compared to operating income of $1.9 million for the first nine months of 2013.  The year-to-date 2014 segment results reflect five closings totaling 125 single-family residential lots in our Gig Harbor project, plus a $4.6 million conservation land sale while the results for the comparable period in 2013 primarily reflected only a large conservation land sale.

General & Administrative (G&A):

G&A expenses for Q3 2014 were $941,000 compared to $1.0 million reported for Q3 2013.  For the first nine months of 2014, G&A expenses were $2.7 million compared to $3.4 million for the first nine months of 2013.  The decrease between 2013 and 2014 in G&A expenses for the year-to-date periods was primarily due to reversals of incentive compensation accruals related to the second quarter 2014 departure of our former President & CEO. 

Outlook

We expect our total harvest volume for the year to be between 95 and 98 MMBF, including timber deed sales, depending on log market conditions for the balance of the year.

Further, there are several land sales from our Real Estate segment currently in the pipeline to close in the fourth quarter of 2014, although some of these transaction may not occur until early 2015 due to 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 193,000 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 the 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; 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; 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 liabilities associated with our properties. 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.

Pope Resources, A Delaware Limited Partnership

Unaudited

                 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(all amounts in $000's, except per unit amounts)

                 
   

Three months ended September 30,

 

Nine months ended September 30,

   

2014

 

2013

 

2014

 

2013

                 

Revenue

$13,755

 

$11,724

 

$70,117

 

$51,639

Cost of sales

(9,125)

 

(7,769)

 

(39,426)

 

(28,718)

Operating expenses

(4,627)

 

(4,485)

 

(13,303)

 

(12,834)

Gain on sale of timberlands

9,188

 

-

 

9,188

 

-

 

Operating income (loss)

$9,191

 

($530)

 

$26,576

 

$10,087

Other expense

             
 

Interest expense, net

(659)

 

(385)

 

(1,862)

 

(1,083)

Income (loss) before income taxes 

8,532

 

(915)

 

24,714

 

9,004

Income tax benefit (expense)

(259)

 

202

 

(485)

 

218

Net income (loss)

8,273

 

(713)

 

24,229

 

9,222

 

Net income (loss) attributable to noncontrolling interests

(6,773)

 

638

 

(8,642)

 

315

Net income (loss) attributable to Pope Resources' unitholders

$1,500

 

($75)

 

$15,587

 

$9,537

                 

Basic and diluted weighted average units outstanding

4,350

 

4,371

 

4,376

 

4,369

                 

Basic and diluted earnings (loss) per unit

$0.34

 

($0.03)

 

$3.52

 

$2.09

 

CONDENSED CONSOLIDATING BALANCE SHEETS

(all amounts in $000's)

                     
   

September 30, 2014

 

December 31, 2013

                     

Assets:

Pope

 

ORM
Timber Funds

 

Consolidating Entries

 

 Consolidated 

   
 

Cash and cash equivalents

$3,658

 

$38,528

 

$-

 

$42,186

 

$6,960

 

Land and timber held for sale

4,358

 

16,196

     

20,554

 

10,258

 

Other current assets

8,625

 

4,520

 

(2,052)

 

11,093

 

3,161

 

  Total current assets

16,641

 

59,244

 

(2,052)

 

73,833

 

20,379

 

Timber and roads, net

29,276

 

134,477

     

163,753

 

211,946

 

Timberlands

14,680

 

25,638

     

40,318

 

44,946

 

Buildings and equipment, net

6,023

 

18

     

6,041

 

6,205

 

Land held for development

28,017

 

-

     

28,017

 

27,040

 

Investment in ORM Timber Funds

23,975

 

-

 

(23,975)

 

-

 

-

 

Other assets

168

 

112

     

280

 

392

 

    Total

$118,780

 

$219,489

 

($26,027)

 

$312,242

 

$310,908

Liabilities and equity:

                 
 

Current liabilities

4,173

 

$3,770

 

($2,052)

 

$5,891

 

$7,170

 

Current portion of long-term debt

5,108

 

-

     

5,108

 

109

 

Current portion of environmental remediation

2,060

 

-

     

2,060

 

700

 

  Total current liabilities

11,341

 

3,770

 

(2,052)

 

13,059

 

7,979

 

Long-term debt

27,520

 

42,980

     

70,500

 

75,581

 

Environmental remediation

10,488

 

-

     

10,488

 

12,541

 

Other long-term liabilities

168

 

-

     

168

 

193

 

  Total liabilities

49,517

 

46,750

 

(2,052)

 

94,215

 

96,294

 

Partners' capital

69,263

 

172,739

 

(172,057)

 

69,945

 

69,445

 

Noncontrolling interests

       

148,082

 

148,082

 

145,169

 

    Total

$118,780

 

$219,489

 

($26,027)

 

$312,242

 

$310,908

 

RECONCILIATION BETWEEN NET INCOME AND CASH FLOWS FROM OPERATIONS

(all amounts in $000's)

                 
   

Three months ended September 30,

 

Nine months ended September 30,

   

2014

 

2013

 

2014

 

2013

                 

Net income (loss)

$8,273

 

($713)

 

$24,229

 

$9,222

Added back:

             
 

Depletion

2,931

 

2,254

 

9,382

 

8,996

 

Depreciation and amortization

183

 

180

 

542

 

525

 

Equity-based compensation

177

 

225

 

698

 

988

 

Real estate project expenditures

(1,310)

 

(5,368)

 

(3,438)

 

(6,859)

 

Deferred taxes

113

 

(165)

 

207

 

(262)

 

Cost of land sold

760

 

589

 

8,378

 

1,529

 

Gain on disposal of timberland

(9,188)

 

-

 

(9,188)

 

-

 

(Gain) loss on disposal of property and equipment

-

 

-

 

(1)

 

57

 

Change in environmental remediation liability

(480)

 

(188)

 

(694)

 

(441)

 

Change in operating accounts

4,542

 

(549)

 

(1,724)

 

(480)

 

Cash provided by (used in) operations

$6,001

 

($3,735)

 

$28,391

 

$13,275

 

SEGMENT INFORMATION

(all amounts in $000's)

                 
   

Three months ended September 30,

 

Nine months ended September 30,

   

2014

 

2013

 

2014

 

2013

                 

Revenue:

             
 

Partnership Fee Timber

$6,062

 

$4,999

 

$25,929

 

$24,475

 

Funds Fee Timber

6,321

 

5,300

 

26,058

 

19,378

 

    Total Fee Timber

12,383

 

10,299

 

51,987

 

43,853

 

Timberland Management

-

 

-

 

-

 

-

 

Real Estate

1,372

 

1,425

 

18,130

 

7,786

 

    Total

$13,755

 

$11,724

 

$70,117

 

$51,639

Operating income (loss):

             
 

Fee Timber

$11,270

 

$1,529

 

$25,540

 

$13,091

 

Timberland Management

(541)

 

(475)

 

(1,661)

 

(1,484)

 

Real Estate

(597)

 

(582)

 

5,410

 

1,913

 

General & administrative

(941)

 

(1,002)

 

(2,713)

 

(3,433)

 

    Total

$9,191

 

($530)

 

$26,576

 

$10,087

 

SELECTED STATISTICS

                 
   

Three months ended September 30,

 

Nine months ended September 30,

   

2014

 

2013

 

2014

 

2013

Log sale volumes by species (million board feet):

             

 Sawlogs

             
 

Douglas-fir

7.0

 

8.1

 

35.9

 

42.0

 

Whitewood

7.5

 

4.4

 

23.8

 

14.1

 

Pine

1.3

 

-

 

1.8

 

-

 

Cedar

0.2

 

0.5

 

1.7

 

1.3

 

Hardwood

0.4

 

0.6

 

1.9

 

2.0

 Pulpwood

             
 

All species

2.6

 

2.5

 

9.9

 

10.0

Total

19.0

 

16.1

 

75.0

 

69.4

                 

Log sale volumes by destination (million board feet):

             
 

Export

5.3

 

7.2

 

26.3

 

23.1

 

Domestic

10.7

 

5.7

 

36.9

 

34.3

 

Hardwood

0.4

 

0.7

 

1.9

 

2.0

 

Pulpwood

2.6

 

2.5

 

9.9

 

10.0

Subtotal log sale volumes

19.0

 

16.1

 

75.0

 

69.4

 

Timber deed sale

1.9

 

1.0

 

1.9

 

2.0

Total

20.9

 

17.1

 

76.9

 

71.4

                 

Average price realizations by species (per thousand board feet):

             

Sawlogs

             
 

Douglas-fir

637

 

657

 

719

 

678

 

Whitewood

590

 

615

 

645

 

610

 

Pine

514

 

-

 

508

 

-

 

Cedar

1,004

 

1,087

 

1,295

 

1,152

 

Hardwood

613

 

555

 

602

 

531

Pulpwood

             
 

All species

302

 

252

 

282

 

269

Overall

568

 

591

 

643

 

609

                 

Average price realizations by destination (per thousand board feet):

           
 

Export 

654

 

684

 

742

 

696

 

Domestic

588

 

624

 

670

 

655

 

Hardwood

613

 

555

 

602

 

531

 

Pulpwood

302

 

252

 

282

 

269

Overall log sales

568

 

591

 

643

 

609

Timber deed sale

415

 

243

 

415

 

243

                 

Owned timber acres

110,000

 

111,000

 

110,000

 

111,000

Acres owned by Funds

75,000

 

80,000

 

75,000

 

80,000

Depletion per MBF -Partnership Tree Farms

48

 

56

 

48

 

56

Depletion per MBF -Fund Tree Farms

217

 

192

 

188

 

197

Capital and development expenditures ($000's)

2,201

 

5,935

 

5,555

 

8,463

 

QUARTER TO QUARTER COMPARISONS

(Amounts in $000's except per unit data)

         
   

Q3 2014 vs.

 

YTD Q3 2014 vs.

   

Q3 2013

 

YTD Q3 2013

Net income attributable to Pope Resources' unitholders:

     
 

3rd Quarter 2014

$1,500

 

$15,587

 

3rd Quarter 2013

(75)

 

9,537

 

   Variance

$1,575

 

$6,050

         

Detail of earnings variance:

     

Fee Timber

     
 

Log volumes (A)

$1,719

 

$3,372

 

Log price realizations (B)

(437)

 

2,548

 

Gain on sale of timberland

9,188

 

9,188

 

Timber deed sales

522

 

404

 

Production costs

(518)

 

(3,172)

 

Depletion

(677)

 

(682)

 

Other Fee Timber

(56)

 

791

Timberland Management

(66)

 

(177)

Real Estate

     
 

Land sales

584

 

3,894

 

Timber depletion on land sale

-

 

376

 

Other Real Estate

(599)

 

(773)

General & administrative costs

61

 

720

Net interest expense

(274)

 

(779)

Taxes

(461)

 

(703)

Noncontrolling interests

(7,411)

 

(8,957)

Total variance

$1,575

 

$6,050

   

(A)

Volume variance calculated by extending change in sales volume by the average log sales price for the comparison period.

(B)

Price variance calculated by extending the change in average realized price by current period volume.

 

SOURCE Pope Resources

Tom Ringo, 360.697.6626, or Fax, 360.697.1156

Contact

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