CTT is a timber REIT trading 25-30% below NAV based on public transactions and comps.  CTT is somewhat of an orphaned stock due to its history. It is the offspring of a busted TIMO (Timber Investment Management Company) that restructured into a public REIT.  The basis of the original investors is probably around $25 / share.  New management (and well-regarded, from Timberstar) came in and helped to reorg the company.  For a while it was trading <10% from NAV, and then in July management decided to undertake an ill-fated secondary to fund acquisitions of more land.  The share price when they started the secondary process was $13.50, they sold shares for 11.75, and then it promptly fell to the $11 range.  We believe the acquisitions were around fair value (some may say a bit expensive, management will say that they land is well-stocked so has a good IRR), we assume around fair value was paid.  Given the size of CTT, there was a strategic rationale to 'bulk up' + the acquisitions will allow dividend increases (though the shareholders at the time paid the price for the bulking up, but now we benefit).  In September the CEO then bought 1,750 shares at $11.58 (on top of the 55.5k shares he bought in December at $13.55) and a board member bought 2k shares at 11.61.

The fairly straightforward math on NAV (we also note that PCH just paid $1,910 / acre for Southern timberland)

 

Southern Timberland: 347.4k acres

Leased Acres: 33k acres

 

Value of Southern Timberland / acre: $1900 * 347.4k acres = $660mm

Leased: 33k * $350 / acre: $11.5mm

Total Value: $671.5mm - $55mm net debt = $15.6 / share (71.5% discount to NAV) or 40% upside + 5% dividend yield (which we think will go higher)

 

The upside scenario is if housing rebounds.  There is the potential for lumber demand to increase another 40% + shrinking supply out of Canada (and potentially Pacific Northwest) due to the pine beetle, which would also lead to a rise in lumber pricing . The net takeaway is the the dividend could more than double, as would the share price.  CTT has some nice charts in their presentation describing the potential supply / demand & pricing upside.  Here is the link: http://www.catchmark.com/files/6114/1164/4749/CTT_Company_Update_9-25-14.pdf  (note: its pretty much similar to what the other public REITs / TIMOs say).  I discount it somewhat given they are pitching their book. But, there is maybe a 50% chance that housing does get back to 1.5mm homes in the 2017 timeframe (and we would need more lumber) leading to a price rebound. There is also a 50% chance that lumber prices stay anemic for a while.

 

So, our target price is 50% * $15 / share + 50%*$22 /share =$18.5 in 3 years, which is an 80% overall return (including dividends)

 

Given how much capital, both institutional and public equity, there is chasing timberland, we also think it is possible for the company to be acquired at fair value

 

We own shares and may buy or sell at anytime

Housing rebounds

 

Return to fair value by execution

 

Acquired by larger player

 

Dividend increases