PotlatchDeltic's Timber REIT Grows with Acquisition

PotlatchDeltic Corp. and CatchMark Timber Trust this week entered into a definitive agreement to combine in an all-stock transaction, maintaining the former’s hold on the timber-based REIT carrying the most leverage on lumber prices.

The combined company is expected to have a pro forma market capitalization over $4 billion and total enterprise value of more than $5 billion, including $557 million in net debt.

Timberland Assets a ‘Great Investment’

Victor Haley, co-head of Global Real Estate and Planning and who leads the Eversheds Sutherland (US) Timber and Forest Products group tells GlobeSt.com that the deal reflects a view that over the near and long term, timberland assets “continue to be a great investment.”

He added, “Markets for end products are strong and timberland is a great asset to hold in inflationary times. It also has a low correlation with the present volatility in the equities markets. The world is also increasingly recognizing timberlands as an important solution to offsetting the effects of climate change, both through the development of forest sequestration projects and the increasing use of mass timber as a construction material.”

Deal to Close this Year

Expected to close in the second half of the year, under the terms of the agreement, which has been unanimously approved by the Board of Directors of both companies, CatchMark stockholders will receive 0.23 common shares of PotlatchDeltic stock for each common share of CatchMark that they own. 

This reflects a price per share of $12.88 for each common share of CatchMark, and a 55% premium to CatchMark’s common share price as of the close of business on May 27. Once the deal closes, PotlatchDeltic stockholders will own approximately 86% of the combined company, and CatchMark stockholders will own approximately 14% on a fully diluted basis.

Lumber Demand ‘Coming Into Balance’

Walter Kunisch, Sr. Commodities Strategist, HTS Commodities, tells GlobeSt.com that he sees the supply and demand of North American lumber coming back into balance after a period of acute disequilibrium.

“With the prompt CME lumber futures contract down 62% from its March 2021 high we see further room for lower prices,” Kunisch said. “While the prompt CME lumber futures contract is 48% above the 2019 pre-COVID pandemic high, we see evolving supply and demand factors can help create a level of equilibrium which can cause price to decline.”

Kunisch said that while North American supply chain frictions remain, he sees the easing of cross border travel between the US and Canada along with Canadian lumber mills extending work schedules to relieve some of the backlog of raw timber as key catalysts that are helping to relieve some of supply side pressures and lowering prices.

“From the demand side, we find it difficult to look past the Federal Reserve bank’s pledge to help mitigate the acute domestic inflationary climate through active monetary policy,” he said. “We view the very realistic assumption that the Fed will raise rates by 50bps until September as headwinds for the future of US housing construction and domestic lumber demand.  If the yield on the US 10-year Treasury note is a loose proxy for US new residential housing demand, the steep ascent and spike in yields to 3.20% in April, resulted in a sharp reduction in housing starts and a soft rise in residential building permits.”

PotlatchDeltic Holdings Strengthened in the US South

With this acquisition, PotlatchDeltic now owns approximately 2.2 million acres of diversified timberlands including 626,000 acres in Idaho and over 1.5 million acres in strengthening markets in the US South, including 1.1 billion board feet of lumber capacity.

BofA Securities is serving as exclusive financial advisor and Perkins Coie LLP is serving as legal advisor to PotlatchDeltic. Stifel, Nicolaus & Company, Inc. is serving as exclusive financial advisor and King & Spalding LLP is serving as legal advisor to CatchMark.