HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS

9 Months Ended

Sep. 30, 2020

HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS

We continuously assess potential alternative uses of our timberlands, as some properties may become more valuable for development, residential, recreation or other purposes. We periodically transfer, via a sale or contribution from the real estate investment trust (“REIT”) entities to taxable REIT subsidiaries (“TRS”), higher and better use (“HBU”) timberlands to enable land-use entitlement, development or marketing activities. We also acquire HBU properties in connection with timberland acquisitions. These properties are managed as timberlands until sold or developed. While the majority of HBU sales involve rural and recreational land, we also selectively pursue various land-use entitlements on certain properties for residential, commercial and industrial development in order to enhance the long-term value of such properties. For selected development properties, we also invest in targeted infrastructure improvements, such as roadways and utilities, to accelerate the marketability and improve the value of such properties.

In the merger with Pope Resources, we acquired HBU properties with an estimated fair value of $27.7 million. This includes development properties in the town of Port Gamble, Washington, development projects in Gig Harbor, Kingston, and Bremerton, Washington and various other assets.

Changes in higher and better use timberlands and real estate development investments from December 31, 2019 to September 30, 2020 are shown below:


	Higher and Better Use Timberlands and Real Estate Development Investments
	Land and Timber	Development Investments	Total
Non-current portion at December 31, 2019	$58,091	$23,700	$81,791
Plus: Current portion (a)	274	12,389	12,663
Total Balance at December 31, 2019	58,365	36,089	94,454
Non-cash cost of land and improved development	(882)	(4,947)	(5,829)
Timber depletion from harvesting activities and basis of timber sold in real estate sales	(619)	—	(619)
Capitalized real estate development investments (b)	—	5,448	5,448
HBU properties acquired in merger with Pope Resources (c)	27,722	—	27,722
Capital expenditures (silviculture)	211	—	211

Intersegment transfers	(3,979)	—	(3,979)

Total Balance at September 30, 2020	80,818	36,590	117,408
Less: Current portion (a)	(326)	(8,796)	(9,122)
Non-current portion at September 30, 2020	$80,492	$27,794	$108,286

(a)The current portion of Higher and Better Use Timberlands and Real Estate Development Investments is recorded in Inventory. See Note 21 — Inventory for additional information.

(b)Capitalized real estate development investments include $0.4 million of capitalized interest.

(c)Based on preliminary estimates of fair value as of May 8, 2020. See Note 2 - Merger with Pope Resources for additional information