SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) May 12, 2009
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Pope Resources, A Delaware Limited Partnership
(Exact name of registrant as specified in its charter)
Delaware 91-1313292
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19245 Tenth Avenue NE, Poulsbo, Washington 98370
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(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (360) 697-6626
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NOT APPLICABLE
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(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
INFORMATION TO BE INCLUDED IN THE REPORT
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Item 8.01 OTHER EVENTS
The registrant began mailing to current unit holders its December 31, 2008
Annual Report on May 12, 2009. The Annual Report includes the President's Letter
that is furnished herewith as Exhibit 99.1, together with other information
required under Rule 14a-3 and Nasdaq Rule 4360(b)(1).
Item 9.01. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit No. Description
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99.1 President's Letter furnished with the December 31, 2008 Annual
Report
SIGNATURES
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Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
DATE: May 12, 2009 BY: /s/Thomas M. Ringo
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Thomas M. Ringo
Vice President and Chief Financial Officer,
Pope Resources, A Delaware Limited
Partnership, and Pope MGP, Inc.,
General Partner
Exhibit 99.1
President's Letter from the Partnership's December 31, 2008 Annual Report
Dear fellow unitholders,
There is no sugar coating the fact that we are in the middle of the worst
recession in a generation. Our 2008 results reflect the impact of this recession
on our current operations and expectations for the future. This letter will
explain what management is doing to conserve the strong balance sheet that we
have built up over the past several years and our efforts to capitalize on the
opportunities that this crisis will inevitably create.
The markets for logs and land are currently experiencing a "perfect storm"
of constrained credit markets, weak employment, rattled consumer confidence, and
declining home and real estate values that have produced the lowest housing
starts since economists began compiling that data 50 years ago. We knew 2008 was
going to be a tough year as housing starts began to slow early in the year, but
the severity of the housing downturn and the resulting impact on our own markets
for logs and land has gone beyond our expectations.
Our financial performance declined dramatically this past year, with revenue
down 46% from 2007 to a total of $28 million, the lowest level since 2003. Net
income for the year, at $1.2 million, or $0.25 per diluted ownership unit, was
down significantly from the levels we've enjoyed the prior four years and was
the lowest since the partnership suffered losses in 2000-2001 associated with
the sale of the Port Ludlow resort operations.
It is important to note while digesting all these grim numbers, that a good
portion of the decline in our financial performance stemmed from our decision in
late 2007 to reduce our 2008 harvest volume to well below our long-term
sustainable harvest level. Our total 2008 log harvest volume, which includes the
consolidated results of ORM Timber Fund I, LP, totaled 38 million board feet
(MMBF). This was 32% below the 55 MMBF we harvested in 2007 and almost 30% below
our current estimate of the long-term sustainable harvest level of 52 MMBF. Our
ability to defer harvest volume is based on a belief that, from a net present
value standpoint, we are adding value to our timberland portfolio through
allowing the deferred volume to grow in quantity and quality until the point
when log prices recover.
As we move into 2009, we have decided again to defer harvest volume,
announcing a similar level of harvest reduction as we did in 2008. The ability
to defer harvest volume is a function, in part, of the unique attributes
associated with timber to continue to grow in volume and value when it is not
harvested. It is also due to our operational structure with no mills to feed, a
conservative balance sheet with modest debt in relation to the value of our
assets, a healthy cash balance, ample borrowing capacity, and a focus on
long-term value-adding activities.
Given the near certainty of weak product markets for 2009 and the
possibility that the current recession will last well into next year, the main
thrust of this year's letter will focus on how we will not just preserve, but
add to, the company's value during this cyclical downturn. We will examine our
approach to capital allocation as well as take a closer look at the strategies
of each of our three business segments. I want to provide fellow unitholders
with a sense of how we are managing through this recession as well as how we are
prepared for the possibility of it lasting much longer than anticipated.
Capital allocation strategies
Pope Resources was well positioned during the most recent cyclic upturn to
generate significant free cash flow. This was done through a concerted effort
during the early part of this decade to invest in our real estate portfolio to
create a "pipeline" of readily salable lots. We were also fortunate to make
three small timberland acquisitions which had significant volumes of
merchantable timber ready to be harvested. Along with strong pricing in both
logs and land, these actions allowed us to generate, excluding capital used to
acquire timberlands either outright or through co-investment in our timber fund,
$65 million of free cash flow over the four years from 2004 to 2007. This
"harvest" of free cash flow afforded us the luxury of simultaneously growing our
asset base, buying back 3% of our units on the open market, and returning more
capital to unitholders in the form of higher distributions.
While much of this capital was readily put to good use, some was set aside
for what we saw as an inevitable downturn in our primary markets. Unfortunately,
much of our "excess" capital was invested in student loan auction rate
securities (SLARS). These financial instruments were essentially bundles of
federally backed student loans that were re-priced each month in short-term
auctions. As such, they behaved as short-term investments with long-term yields.
This all changed in early 2008 when the short-term auctions failed to attract
enough buyers and holders of these securities suddenly found themselves holding
essentially illiquid assets as auctions failed. Pope Resources, like many other
companies holding such securities, spent considerable time over the past year
trying to extricate itself from this situation. When the recurring auction
system failed in early 2008, we held nearly $17 million of these securities. A
combination of redemptions and a settlement between one of our banks and state
regulators allowed management to recover $13 million of our SLARS balance at
par, leaving us with a $4 million par value balance. We hope to completely exit
our SLARS position by mid-year following the resolution of an arbitration case.
Notwithstanding the requirement during 2008 to reclassify our SLARS
portfolio as a long-term asset, Pope Resources has maintained significant cash
reserves throughout the past year. By year-end 2008, our total cash position,
excluding cash balances of the two timber funds, stood at $16 million. However,
with the closing of our second timber fund in March 2009, we have a capital
co-investment commitment of just under $17 million. We expect this co-investment
commitment to be spread out over the next two years, and we are largely in
control of the timing of that obligation, but it still represents a substantial
capital obligation both in absolute terms and relative to our cash position. For
this reason, as well as to create a cushion in the event that the current
recession lasts considerably longer than expected, we entered into a $40 million
revolving line of credit in 2008. We believe this revolver, which remains
untapped, will provide us with both operational flexibility as well as the
opportunity to capitalize on potential investment opportunities.
Having addressed the supply of capital, let's turn our attention to the
deployment of that capital. The five primary uses of capital for Pope Resources
include timber fund co-investment, purchasing timberland properties directly,
investing in our real estate portfolio, returning capital to our unitholders
through quarterly distributions, and repurchasing units. I will address each of
these areas in more detail.
TIMBER FUND CO-INVESTMENT - This continues to be our primary vehicle for growing
the partnership's timberland base over the long term. Assuming the second timber
fund becomes fully invested during its two-year drawdown period, Pope Resources'
co-investment capital will total nearly $29 million between our first two funds.
Our co-investment was 20% for both of our first two funds, but may not
necessarily stay at this level for future funds. If we are not generating
sufficient free cash flow in the future, we will consider lowering our
co-investment percentage on future timber funds.
I will also caution readers that having a closed fund does not guarantee
that we will fully deploy our co-investment capital. The current timberland
market remains fully priced in our view and does not reflect either lower
current log prices or changes in perceived risks going forward. We believe that
prices for timberland should fall over the next few years, and are positioning
our second fund to be able to take advantage of this expectation.
PURCHASING TIMBERLAND DIRECTLY - While the timber funds are our primary
timberland investment vehicle, we are permitted under the funds' governing
agreements to acquire small tracts that are adjacent to our existing tree farms.
We have been successful, over the past five years, in acquiring nearly 6,000
acres near our Hood Canal and Columbia tree farms. We generally pursue such
transactions on an opportunistic basis.
INVESTING IN REAL ESTATE PORTFOLIO - Strategically, we view our real estate
portfolio as more of a supplier than consumer of capital. However, in order to
"harvest" this value, we also have to make investments in entitlements and, in
some cases, project infrastructure such as roads, sewer and water lines, and
access to utilities. These investments in our larger projects in Gig Harbor and
Bremerton can be seen in our balance sheet under the "land held for development"
line item, which has grown significantly over the past five years. We expect
that our ongoing efforts to complete the entitlements on these projects will
help "unlock" the value of these investments made in recent years and deliver
significant "harvests" of free cash flow in the future.
Notwithstanding the current downturn in the housing market, we remain
committed to investing in our real estate portfolio. As we did during the last
recession in 2001-2002, we are trying to position ourselves for the next cyclic
upturn by having product ready to sell. Given the current depressed market
conditions, many competing developers and homebuilders in our region are cutting
back on their lot entitlement and permitting efforts. We believe that when
credit markets turn around and excess home inventories are drawn down, many of
these players will not have product ready to sell. We are positioning ourselves
to take advantage of that situation by making investments today to complete two
large residential plats that are in the permitting pipeline in Gig Harbor and
Kingston. These efforts will take at least another year to complete, but we
believe they will position us well for the point in time when markets improve.
QUARTERLY UNIT DISTRIBUTIONS - We have made a concerted effort over the past six
years to increase our quarterly distribution, both to remain competitive with
other publicly traded timber equities and to pay out a proportion of the free
cash flow generated by our timber and real estate activities. Historically, we
have not paid out all of our free cash flow generated from our fee timber and
real estate holdings, but instead have used a portion to fund growth in our
timberland ownership, real estate entitlement efforts, and start-up costs and
co-investment commitments for our timber fund business.
We have recently announced a significant reduction in our quarterly
distribution from 40 cents per unit in the fourth quarter of 2008 to 20 cents in
the first quarter of 2009. The current economic environment for our log and raw
land markets is severely depressed. If we expected these markets to rebound
quickly, then it might make sense to continue distributions at recent levels.
But the Board and management believe that we may be looking at a protracted
housing downturn and, as such, wanted to act quickly and prudently to conserve
cash. This was the primary driver behind the decision to reduce the distribution
level. We recognize that part of our lower cash flow is a function of the
decision to reduce our harvest level below our long-term sustainable level, but
we do not believe it is prudent to continue selling large volumes of logs into
depressed log markets in order to maintain cash flows just to support our
quarterly distribution.
Even at this reduced quarterly distribution level, we are not "earning our
distribution" and this burns through cash balances in an unsustainable fashion.
The level of future quarterly distributions will be subject to an ongoing review
of the overall economy, cash flow generated by our operations, and the assumed
prospects for resuming more "normal" log harvest volumes.
REPURCHASING UNITS - Based on the belief that our units were trading at values
considerably below the underlying value of our assets, we announced a $5 million
open-market unit repurchase program in November 2007. That repurchase program
was completed ahead of schedule in April 2008 following exceptionally heavy
trading volumes in the first quarter of last year. The timing of our repurchase
program coincided with decisions in early 2008 by our two largest institutional
unitholders, for different reasons, to sell significant portions of their
holdings in Pope Resources. We repurchased approximately 2.7% of the total units
outstanding with this program at an average cost of $38.90 per unit. Given the
current unit price, one might argue that this was a destruction of unitholder
value, but we feel that it nevertheless represents a significant discount to the
intrinsic value of our units.
As we watched the unit value erode through the balance of 2008, we
considered an additional $5 million open-market unit repurchase program. Our
interest in another repurchase program intensified in early December with a
spike in trading volume and a new 52-week low of $15 per unit. However, for the
same reasons we cut our unit distribution level in half, namely to conserve
cash, we also cut the size of this second unit repurchase program to $2.5
million. That unit repurchase program was announced in December 2008 and has
been driven, in part, by our view that the unit price had been
disproportionately influenced by the continued selling by our largest
institutional unitholder.
Trading levels in recent months have not been as robust as a year ago, so we
have made more modest progress in our most recent unit repurchase program.
Through the end of the first quarter of 2009, we have completed roughly half the
approved repurchase, buying back approximately 1.3% of total units outstanding
at an average cost of $18.72 per unit. Notwithstanding this more modest
progress, we believe the current unit price represents a significant buying
opportunity and feel this justifies the use of our capital even in these
turbulent economic times.
With the current recession translating to significantly reduced levels of
free cash flow, we have been forced to prioritize among these discretionary
capital investment alternatives. As described earlier, we have cut in half the
size of our quarterly distribution and significantly scaled back the current
unit repurchase program compared to the prior one. While we would like to
increase the capital allocated to both these avenues, we are being cautious and
waiting for signs of economic recovery. We have also greatly reduced our real
estate capital expenditures, with entitlement efforts being the primary focus of
our current capital deployment. We view our timber fund co-investment commitment
as our primary long-term growth initiative. While we are not backing away from
this commitment, we are also remaining firm in our conviction that timberland
asset prices need to come down in order for us to meet our return threshold. As
buyers for the timber fund, we continue to be disciplined in our underwriting
standards and expect that it may take a year or more for prices to come down to
the level we find attractive. With less free cash flow to invest, we are also
taking a decidedly opportunistic approach to investing directly in timberlands
adjacent to our existing tree farms. These capital allocation priorities are
reviewed periodically and will be reassessed as we start to see signs of
improved fundamentals in our timber and land markets.
Business segment strategies
Fee Timber
In past editions of this letter I have discussed the positive investment
attributes of the timber asset class:
o As world economies grow in size and/or in per capita wealth, they use more
forest products, which provide a strong basis to support current as well as
future investments in timberland.
o Over the long term, the timber asset class has delivered compelling
risk-adjusted returns with attractive diversification attributes.
o Timberland returns have historically been well correlated with inflation.
Notwithstanding the current economic down-turn, our properties are poised to
benefit from these value levers because they are located in one of the world's
most highly productive timberland growing regions with a broad mix of
competitive mills in the nation's top two lumber-producing states. The Pacific
Northwest forest products industry is also well-situated to serve markets in the
Pacific Rim such as Japan, Korea, and China and domestic markets both locally
and throughout the western United States.
Owning timberland through a publicly traded partnership remains a highly tax
efficient vehicle because profits associated with timber harvesting are treated
as capital gains income, taxable today at 15%, while all other costs associated
with managing the lands and the partnership are treated as ordinary expense and
thus taxed at a unitholder's higher marginal tax rate. While the bottom line may
indicate a profit, the interplay between the two tax rates applied to capital
gain on the one hand and ordinary loss on the other can create a net tax
benefit. The "tax yield" embodied in this net tax benefit is somewhat
differential for each unitholder based on when their units were purchased but is
nonetheless meaningful to investors.
While the long-term attributes of timber remain positive, all signs point to
the current industry downturn as being one of the most severe in decades. Mills
are curtailing or closing operations and we have, accordingly, already seen even
weaker log prices in 2009 relative to 2008. In 2008 the average realized log
price we earned was just over $500 per thousand board feet (MBF), 17% lower than
2007's average realization. While we expect further deterioration in log prices
in 2009, we anticipate a less dramatic price decline than what was experienced
last year. As described earlier, we plan to continue in 2009 with our reduced
harvest program begun in 2008. We plan to harvest 37 MMBF of logs in 2009, a
level that is almost 30% below our long-term sustainable harvest level of 52
MMBF. It is worth re-emphasizing that our strong balance sheet has afforded us
this "luxury" of being able to "bank" value on-the-stump by allowing biological
growth to add both volume and value to our timber while we wait for markets to
improve.
In the meantime, we are not sitting idly by waiting for trees to grow and
markets to rebound. We have a lean cost structure throughout our organization
and while log harvest activity is throttled back, we are deploying freed-up
forester time to get out in front of harvest unit permitting for future years,
making further updates to our timber inventory database, and performing due
diligence on timberland acquisition opportunities. In 2008 we closed on three
acquisitions consisting in the aggregate of four small tracts for Pope
Resources' account totaling 1,180 acres for $1.5 million ($1,266/acre). Three of
the tracts are in-holdings, or purchases of lands adjacent to our existing
properties, which we believe provide some incremental enhancement to the value
of the partnership's surrounding land. The fourth tract represents a
hold-and-sell opportunity sometime down the road.
Another effort that was made possible by freed-up timberland management
resources was to pursue a land exchange with the Washington State Department of
Natural Resources (DNR). In August 2008 we entered into a letter of intent with
the DNR to explore a potential land exchange involving approximately 4,000 acres
of our ownership in east Jefferson County. An exchange with the DNR, which is
based on balancing values as determined by a third-party appraisal, allows both
parties to gain management efficiencies by blocking up their respective
ownerships. This exchange, if completed, will close in mid-2009.
Timberland Management & Consulting
Our third-party services business platform, originated 12 years ago with the
launch of the Olympic Resource Management (ORM) brand, has generated significant
revenue for the partnership over that span. Our ability to attract and retain
outstanding talent to meet the service demands of this third-party business has
been as significant in its own way as the revenue generated. Neither our own
assets nor those of our clients could alone justify the retention of this staff.
We continue to explore other opportunities to build on this platform of
management success and extend the ORM brand.
In part as a way of maximizing the efficient use of this talent pool, as
well as allowing us to deploy our own capital more efficiently, we have
established a timber fund strategy in which we co-invest alongside third-party
investors to acquire and manage timberlands in our market area. We are now
seeking to actively deploy capital from our second fund, with an initial closing
of $46 million in August 2008 and an additional closing of $38 million in March
2009 for a total of $84 million in committed capital. This committed capital
balance includes our 20% co-investment of $17 million. Over time, as we are able
to grow the size of this business, we expect that our unitholders will enjoy
increased economies of scale, fee income from managing both the properties and
the funds, and future carried interest participation fees if a particular fund
delivers returns to investors above a pre-determined threshold. This stream of
fee income helps to augment the return from our co-investment capital and makes
our participation in the fund business all the more attractive from an overall
company perspective. We believe the timing of this second timber fund could not
be better as opportunities to acquire timberland are expected to increase
dramatically while log and lumber markets continue to weaken.
As with our first timber fund, we will have a two-year drawdown period with
which to invest the committed capital from this fund. While we are pleased to
have closed this fund in the current private equity climate, we also recognize
the challenges we will face in placing this capital at our target rate of
return. For a number of years, there has been far more capital chasing
timberland as an investment alternative than there have been quality timberland
acquisition opportunities. We are seeing early signs that constrained access to
debt financing combined with a weakening supply of investment capital may be
leading to more attractive acquisition pricing. We continue to be a patient
buyer, recognizing that our own capital is at stake along with that of our
third-party investors. We also continue to place a premium on strong local
knowledge and thorough due diligence in order to not only make good investments,
but also to avoid paying too much for properties.
Real Estate
The lengthy time associated with both conversion of lands from timberland to
real estate and securing development entitlements necessitates a long-term
focus. So while current markets for land have slowed considerably, our focus is
more squarely on the next business cycle. Looking beyond current real estate
markets, we still have property with tremendous upside for producing sales
revenue and profits in the future. We have thousands of acres of property
located within a 30-mile radius of the growing Seattle-Tacoma metropolitan area.
We are working to maximize the value of our properties in this geography and
over the coming decades expect to gradually reduce our footprint in the west
Puget Sound region and increase our footprint in outlying areas that are more
purely timber and resource-based lands.
While approximately 75% of our 2,500-acre Real Estate portfolio is zoned for
5- to 80-acre lots and fits into a category of rural residential HBU properties,
this is not the most valuable portion of our portfolio. The remaining 25% of our
portfolio lies within urban growth boundaries as defined by Washington State's
Growth Management Act (GMA). The GMA, which was enacted in 1990 and designed to
prevent suburban sprawl, greatly increased residential densities for lands
located within urban growth boundaries. Our projects in Gig Harbor, Bremerton,
and Kingston all enjoy the higher density residential zoning associated with
this GMA classification and collectively represent a pipeline of valuable
residential, business park, and commercial parcels located within these urban
growth areas.
We have 251 acres remaining in our Gig Harbor project that consists of a mix
of 16 acres of commercial property, 32 acres of business park land, and 203
acres of residential land that ultimately can support 823 residential lots. We
submitted a preliminary plat for the residential portion of this project in late
2008. The approval process is expected to take a few years to complete. We are
currently marketing portions of the commercial and business park land to further
enhance the "amenities" that will bring a return of value to the downstream
residential portion of the project. Since we can not say with certainty what the
duration of the current downturn will be, we have taken steps to realign our
project-related expenditures to be consistent with an assumed stretching out of
timelines and market readiness for lot absorption.
Our Bremerton project represents the inverse of our Gig Harbor project in
that we sold out of the residential component first. We sold the 200-acre
residential portion of the 264-acre mixed use project in 2006, and then
completed infrastructure investments on the first phase of the 64-acre
industrial park land and closed on two of 24 industrial lots during 2007. It was
a sign of the falloff in commercial real estate that we did not sell any of
these industrial lots in 2008. We have modest expectations for sales activity
from this project in 2009. It is also worth noting that we are deferring
infrastructure investments for the second phase of the industrial park until
most of the nine lots in the first phase have been sold.
I reported in this letter last year that we submitted a preliminary plat
application for our entire 751-lot project in Kingston as well as the detailed
engineering drawings for the first two phases of construction totaling 245
residential lots. Kitsap County's review and processing of our application is
proceeding on schedule for approval during 2009. We continue to believe this
project will be well positioned when markets begin to improve.
PLAYING DEFENSE WITH 20-ACRE LOT SEGREGATIONS - Sometimes our most significant
value-enhancing work involves playing defense. Two years ago, we caught wind
that a county in southwest Washington was about to downzone 24,000 acres of our
ownership from maximum lot sizes of 20 acres to 1,000 acres, essentially wiping
out any future real estate value. In a defensive mode, we mobilized to submit a
lot segregation of the entire 24,000 acres that we call our Swift Reservoir
block into 1,183 20-acre lots just ahead of the anticipated downzone. We did not
have specific development plans for this property, which is 40 miles as the crow
flies from downtown Portland, Oregon. But when it comes to land, a long-term
perspective is important and we knew that losing the 20-acre potential density
would be a loss in value that would be difficult to reverse.
We began a dialogue with local community leaders and conservation interests
about future uses for the 24,000-acre tract. In late 2008 we signed a letter of
intent with the Columbia Land Trust (CLT) to sell development rights, through a
conservation easement, covering 85% of our 24,000-acre ownership and preserving
15% for development of residential and recreation properties. The agreement with
CLT is non-binding and essentially only outlines our mutual goals and provides a
framework for a future financial transaction. It could take many years to
complete the work that Pope Resources and the CLT have embarked on together. We
believe this is an exciting opportunity and represents one of those proverbial
"win-win" situations for all involved.
We are working on a similar defensive strategy in Kitsap County where we own
18,000 acres within a 30-mile radius of downtown Seattle. Most of these lands
are currently used for timber production and will be used as such for many years
to come. In February 2009 we recorded a subdivision on approximately 14,500
acres that segregated the property into 716 20-acre parcels. The subdivision was
done in conformance with current zoning regulations that dictate a maximum
density of one residential lot per 20 acres. This move reduces the need to look
over our shoulders wondering when and if new rules will further downzone our
land. The segregation will increase the "as-is" value of the land by creating
saleable lots and enhance downstream opportunities to develop properties
utilizing proposed clustering legislation.
"STRING OF PEARLS" INITIATIVE - In north Kitsap County, on an 8,000-acre subset
of the aforementioned 18,000 acres, our real estate group has developed a
project concept we call the "String of Pearls," which attracted considerable
energy and support from State and local political leaders. The "pearls" are
seven small waterfront towns and villages on or adjacent to the north Kitsap
peninsula in west Puget Sound: Poulsbo, Hansville, Kingston, Indianola,
Suquamish, Bainbridge Island, and Port Gamble. The "string" is a trail system
that is partly in place to connect this collection of places but needs some work
to perfect. To this end, the North Kitsap Trails Association, a non-profit group
formed by the company to advance completion of the "string," has obtained a
$60,000 grant from the National Park Service.
Land values in North Kitsap have grown well beyond those that justify
continued "industrial" timber production. We have articulated three broad
options for the long-term disposition of our 8,000-acre holding in North Kitsap,
each with its own advantages and disadvantages for the company and the
community. By far, the most complicated and ambitious of these three broad
options is the "String of Pearls," which depends on a very real partnership
between Pope Resources and the affected communities. The community gets more
trails and open space while we get to develop portions of the property utilizing
Kitsap County's proposed rural lot clustering program. The 20-acre lot
segregation action mentioned above preserves an alternative for selling the land
should the "String of Pearls" concept prove economically or otherwise
infeasible. I encourage you to visit the String of Pearls website at
www.nkstringofpearls.com to learn more.
Looking Ahead
These are very trying and uncertain times for our company and our industry as
the nation's economy grapples with the housing crisis as well as a significant
recession. As profound as the uncertainty is around how and when things will
turn around, I am very confident that Pope Resources is well prepared to weather
the storm and emerge on the other side poised for great things. Our fortitude
and discipline as an organization will be tested, but I am confident that our
strategies will bear fruit in the not-too-distant future.
My optimism is due in part to our management team and the broader group of
employees that I am privileged to lead. I would also like to recognize the
considerable contributions of our Board of Directors, who have helped guide our
management team with the wisdom that comes from having been through many
challenging business cycles. I am proud of the dedication and vision
demonstrated by our employees, management, and Board. I hope this letter has
been helpful to you, our unitholders, in better understanding our strategies and
priorities for managing our way through these turbulent times. As always, I
welcome your feedback regarding how you think we are doing and thank you for
your continued interest in Pope Resources.
DAVID L. NUNES
President and Chief Executive Officer
April 14, 2009