REVENUE

Revenue is measured based on the consideration specified in a contract with a customer. The Partnership recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Partnership from a customer are excluded from revenue. Shipping costs associated with delivering products to customers are included in cost of sales.

Included in “Accounts receivable” are $2.2 million and $3.0 million of receivables from contracts with customers as of December 31, 2019, and 2018, respectively.

Significant changes in the contract asset balance during the period were as follows, and there were no contract liabilities as of December 31, 2019, and 2018:



	2019			2018

Contract assets, beginning of year	$	3,829		$	—
Revenue recognized from the satisfaction of performance obligations	2,488			11,381
Revenue recognized from changes in estimates of variable consideration	(85		)	151
Transferred to receivables from contract assets	(3,467		)	(7,703		)
Total contract assets, end of year	2,765			3,829
Less: noncurrent portion included in other assets	—			(957		)
Current portion of contract assets, end of year	$	2,765		$	2,872

The contract assets in the table above represent rights to consideration for timber deeds transferred to the customer and are related to the Partnership Timber and Funds Timber segments. These contracts provide the customer the legal right to harvest timber on the Partnership’s or Funds’ property. The value of a timber deed contract is determined based on the estimated timber volume by species multiplied by the contracted price. The contract consideration is considered variable because the timber volume is an estimate until the harvest is completed. The contract assets are transferred to receivables when the rights to consideration become due under the contract. Customers may harvest the timber at their discretion, within a time period and operational parameters stated in the contract.

The Partnership and Funds collect performance deposits from customers at the inception of the contract. These performance deposits are refunded to the customer at the conclusion of the contract or applied against final amounts owing from the customer, and are recorded in other current liabilities or environmental remediation and other long-term liabilities based on management’s estimate of the ultimate duration of each contract.

Included in “Other current liabilities” and “Environmental remediation and other long-term liabilities” are $905,000 and $0, respectively, of such performance deposits at December 31, 2019. There are $500,000 and $300,000, respectively, of such performance deposits at December 31, 2018.

The following is a description of principal activities, separated by reportable segments, from which the Partnership generates its revenue.

Partnership Timber and Funds Timber

These two segments consist of the harvest and sale of timber from the Partnership’s 119,000 acres of timberland and 3,500 acres of timber deeds (Partnership Timber) in Washington and the Funds’ 141,000 acres of timberland (Funds Timber) in Washington, Oregon and California. Revenue in these two segments is earned primarily from the harvest and sale of logs from the Partnership’s and Funds’ timberland. Log sale revenue in these two segments is recognized when control is transferred, and title and risk of loss passes to the customer, which typically occurs when logs are delivered to the customer. Other revenue in these segments is generated from the sale of rights to harvest timber (timber deed sales), commercial thinning, ground leases for cellular communication towers, royalties from gravel mines and quarries, and land use permits. Timber deed sales are generally structured so that the customer pays a contracted price per volume, measured in thousands of board feet (MBF), and revenue is recognized when control is transferred to the customer, which generally occurs on the effective date of the contract. The value of a timber deed contract is determined based on the estimated timber volume by tree species multiplied by the contracted price. Commercial thinning consists of the selective cutting of timber stands that have not yet reached optimal harvest age. However, this timber does have some commercial value and revenue is based on the volume harvested. Royalty revenue from gravel mines and quarries is recognized monthly based on the quantity of material extracted.

The following table presents revenue for the years ended December 31, as follows:



(in thousands)	2019		2018		2017
Partnership Timber
Log sale revenue - domestic	$	30,732	$	34,789	$	28,126
Log sale revenue - export brokers (indirect)	6,873		8,249		8,967
Timber deed sale revenue	25		92		422
Other revenue	2,357		2,292		2,157
Total revenue	$	39,987	$	45,422	$	39,672

Funds Timber
Log sale revenue - domestic	$	36,949	$	27,981	$	15,490
Log sale revenue - export brokers (indirect)	7,480		9,281		15,457
Timber deed sale revenue	2,378		11,440		2,337
Other revenue	1,839		1,117		558
Total revenue	$	48,646	$	49,819	$	33,842

Timberland Investment Management (TIM)

The TIM segment provides investment management, disposition, and technical forestry services in connection with the 141,000 acres owned by the Funds. Fee revenue generated by the TIM segment for managing the Funds includes fixed components related to invested capital and acres under management, and a variable component related to harvest volume from the Funds’ tree farms. These fees, which represent an operating expense in the Funds Timber segment, are eliminated in consolidation. This elimination is illustrated in note 16. The TIM segment occasionally earns revenue from providing timberland management-related consulting services to third-parties and recognizes such revenue as the related services are provided.

Real Estate

The Real Estate segment’s activities consist of managing a portfolio of 1,500 acres in Washington and investing in and later selling improved properties, holding properties for later development and sale, and managing commercial properties. Revenue is generated primarily from sales of land, sales of development rights known as conservation easements (CE’s), sales of unimproved land from the Partnership’s timberland portfolio, and residential and commercial rents. The Partnership considers the sale of land and CE’s to be part of its normal operations and therefore recognizes revenue from such sales and cost of sales for the Partnership’s basis in the property sold. CE sales allow us to retain harvesting and other timberland management rights, but bar any future subdivision of or real estate development on the property. Cash generated from these sales is included in cash flows from operations on the Partnership’s statements of cash flows.

Revenue on real estate sales is recorded on the date the sale closes. When a real estate transaction is closed with obligations to complete infrastructure or other construction, the portion of the total contract allocated to the post-closing obligations may be recognized over time as that work is performed, provided the customer either simultaneously receives and consumes the benefits as we perform under the contract, our performance creates or enhances the asset controlled by the customer, or we do not create an asset with an alternative use to the customer and we have an enforceable right to payment for the performance completed. Otherwise, revenue is recognized once the post-closing obligations are completed. Progress towards the satisfaction of our performance obligations is generally measured based on costs incurred relative to the total cost expected to be incurred for the performance obligations.

The following table breaks down revenue for the Real Estate segment for the years ended December 31, as follows:



	2019		2018		2017

Conservation land sale	$	—	$	—	$	5,056
Conservation easements	2,610		3,730		—
Gig Harbor residential	12,025		—		14,157
Gig Harbor commercial	—		—		3,500
Bremerton residential	—		1,375		—
Other residential	770		751		2,255
Other commercial	—		400		—
Unimproved land	4,383		205		—
Total land sales	19,788		6,461		24,968
Rentals and other	1,464		1,843		1,332
Total revenue	$	21,252	$	8,304	$	26,300