ORM TIMBER FUND II, INC. (FUND II), ORM TIMBER FUND III (REIT) INC. (FUND III), AND ORM TIMBER FUND IV LLC. (FUND IV) (COLLECTIVELY, “THE FUNDS”)

The Funds were formed by ORMLLC for the purpose of attracting capital to purchase timberlands. The objective of these Funds is to generate a return on investments through the acquisition, management, value enhancement, and sale of timberland properties. Each Fund is organized to operate for a specified term from the end of its respective investment period; ten years for each of Fund II and Fund III, and fifteen years for Fund IV. Fund II is scheduled to terminate in March 2021, Fund III is scheduled to terminate in December 2025, and Fund IV is scheduled to terminate in December 2034.

Together, Pope Resources and ORMLLC own 20% of Fund II, 5% of Fund III, and 15% of Fund IV. The Funds are considered variable interest entities because their organizational and governance structures are the functional equivalent of a limited partnership. As the managing member of the Funds, the Partnership is the primary beneficiary of the Funds as it has the authority to direct the activities that most significantly impact their economic performance, as well as the right to receive benefits and obligation to absorb losses that could potentially be significant to the Funds. Accordingly, the Funds are consolidated into the Partnership’s financial statements. Additionally, the obligations of each of the Funds do not have any recourse to the Partnership.

The consolidated financial statements exclude management fees paid by the Funds to ORMLLC as they are eliminated in consolidation. See note 16 for a breakdown of operating results before and after such eliminations. The portion of these fees, among other items of income and expense, attributed to third-party investors is reflected as an adjustment to income in the Partnership’s Consolidated Statement of Comprehensive Income (Loss) under the caption “Net (income) loss attributable to noncontrolling interests - ORM Timber Funds.”

In January 2017, Fund II closed on the sale of one of its tree farms, located in northwestern Oregon, for $26.5 million. The Partnership’s share of the pretax profit or loss generated by this tree farm was a gain of $12.5 million for the year ended December 31, 2017.

In January 2018, Fund IV closed on the acquisition of two tree farms, one in southwestern Oregon and one in south Puget Sound, Washington, for $33.6 million and $80.4 million, respectively. The partnership’s share of the combined purchase price was $17.1 million. The combined purchase price was allocated $100.7 million to timber and roads, and $13.3 million to the underlying land. In October 2018, Fund IV closed on the acquisition of a tree farm in south Puget Sound, Washington for $32.3 million, of which the Partnership’s share was $4.8 million. The purchase price was allocated $27.1 million to timber and roads, and $5.2 million to the underlying land.

In January 2019, Fund IV closed on the acquisition of 7,100 acres of timberland in south central Washington for $20.3 million, of which the Partnership’s share was $3.0 million. The purchase price was allocated $17.5 million to timber and roads, and $2.8 million to the underlying land. At December 31, 2018, Fund IV had paid deposits of $1.0 million, which is included in other assets.

The Partnership’s consolidated balance sheets include Fund II, Fund III, and Fund IV assets and liabilities at December 31, 2019, and 2018, which were as follows:



(in thousands)	2019		2018
Cash	$	6,197	$	3,330
Other current assets	5,192		4,931
Total current assets	11,389		8,261
Properties and equipment, net of accumulated depreciation	355,162		360,163
Other long-term assets	—		1,962
Total assets	$	366,551	$	370,386

Current liabilities	$	28,737	$	3,237
Long-term debt	32,345		57,313
Other long-term liabilities	—		300
Funds’ equity	305,469		309,536
Total liabilities and equity	$	366,551	$	370,386

The table above includes management fees and other expenses payable to the Partnership of $1.1 million and $1.0 million as of December 31, 2019 and 2018, respectively. These amounts are eliminated in the Partnership’s consolidated balance sheets.