TimberWest announces 2009 First Quarter results



    VANCOUVER, May 6 /CNW/ - The economic downturn continues to have negative
impacts on TimberWest. With its harvest level tracking at less than half of
historic average volume levels and lower real estate proceeds in the first
quarter of 2009, its distributable cash loss for the first quarter was $6.4
million, or $(0.08) per stapled unit excluding refinancing charges of $8.9
million. Continuing problems with the US housing market, combined with
increasing weakness in the company's domestic and Asian markets, resulted in
log sales volumes and realizations remaining at historically low levels. Local
real estate markets have also slowed with sales activity across Vancouver
Island down 53% in the first two months of 2009.
    TimberWest's President and CEO, Paul McElligott, noted that "While the US
housing market remains severely depressed, the positive news is that housing
affordability has greatly improved, 30 year mortgage rates are at record lows,
and the inventory of unsold homes is beginning to decline, all of which bode
well for the eventual recovery." He also noted that so far this year currency
is working in the Company's favour, helping to offset lower prices in the
company's export markets.
    The Company noted that costs are basically in line with prior year and
that TimberWest is busy implementing its new sub-divided contractor model on
the BC coast, moving harvesting operations to smaller, mid-sized logging
contractors. McElligott noted that cost savings of $10 million per year would
materialize from sub-division once it is fully implemented and harvest volumes
are back to normal levels.
    The Company expects the remainder of the year to be challenging and, in
this environment, it plans to take concerted action to minimize costs, reduce
production levels, and preserve value. The Company remains very bullish about
the mid and long term future of both its real estate and timberland
businesses. McElligott added, "With the superb asset base we own in a very
desirable part of the world, the looming log shortage coming with the mountain
pine beetle devastation in the interior of BC, uncertain Russian log supply,
the growing demand for wood in Asia, and the eventual housing recovery in the
US, the Company's prospects are very strong following this downturn."

    Quarterly Conference Call

    TimberWest will hold a conference call at 9:00am PT (12:00pm ET) on
Thursday, May 7, 2009, to discuss results of the first quarter. To access the
conference call, listeners should dial 1-800-735-5968. For those unable to
participate in the live call, a recording of the call will be available until
May 21, 2009, and can be accessed at 1-800-558-5253 using code 21420226. The
conference call will also be broadcast live over the internet via TimberWest's
website home page at http://www.timberwest.com. The webcast will be archived
and available for an additional 90 days.

    TO OUR UNITHOLDERS

    The economic downturn continued to have significant negative impacts on
TimberWest in the first quarter of 2009.
    Specifically, the continuing problems with the U.S. housing market,
combined with increasing weakness in our domestic and Asian markets resulted
in log sales realizations and sales volumes remaining at historically low
levels. Local real estate markets have also slowed with sales activity down
53% in the first two months of 2009.
    Faced with record low margins, TimberWest has continued with its harvest
deferral strategy, first implemented in Q4, 2007, to preserve unitholder
value. With the harvest tracking at less than half of historic average volume
levels and lower real estate proceeds, distributable cash loss for the quarter
ended March 31, 2009 was $15.3 million, or $(0.20) per stapled unit, compared
to a distributable cash loss of $3.9 million, or $(0.05) per stapled unit, for
the first quarter of 2008. Excluding the refinancing charges of $8.9 million,
distributable cash loss for the quarter was $6.4 million or $(0.08) per
stapled unit.
    EBITDA for purposes of the bank covenant calculation was negative $2.0
million, however, there was no minimum EBITDA test required to be met under
the credit agreement for the first quarter of 2009. The minimum bank EBITDA
for the period January 1, 2009 to June 30, 2009 is negative $16.0 million and
the minimum bank EBITDA for the period January 1, 2009 to December 31, 2009 is
negative $16.0 million. The key difference between EBITDA for financial
reporting purposes and for the covenant calculation is in the treatment of
real estate sales. The covenant calculation includes the proceeds from real
estate sales rather than the margin.

    Timberland Operational Results

    Some 57% of the company's log sales volume in Q1, 2009 were to the
coastal BC market, where sales realizations were 15% lower than in Q1, 2008.
The coastal BC sawmilling industry continues to struggle in today's market
environment. Sawmill production is estimated by TimberWest to be 36% lower
than in Q1, 2008, with mills operating at about 55% of capacity in Q1 2009.
Logging production on the coast is estimated to be down 44% from Q1, 2008.
    Log export volumes were 4% higher in Q1, 2009 than Q1, 2008 with
shortfalls into Japan (some 11,000 m(3)) made up by increases into China.
Housing starts in Japan declined 25% in February and 19% in January, 2009
relative to the same periods last year and, as a result, demand for logs in
Japan is slowing. Realizations in Japan were 14% higher in Q1, 2009 relative
to the same period last year due to a favourable foreign exchange variance.
    The US housing market remains severely depressed, with the number of home
foreclosures rising and a significant supply of new and existing homes still
on the market. US west coast sawmillers are curtailing production in light of
low housing starts and non-compensatory lumber prices in the country. Log
export volumes into that market by TimberWest were only 28,000 m(3) in Q1,
2009, less than what was shipped to Korea and China. Realizations were 6%
higher on a lower value end use sort mix due to a weaker Canadian dollar. The
positive news is that housing affordability in the US has greatly improved and
30 year mortgage rates are at record lows, both of which bode well for a
recovery.
    In total, log sales volumes were 382,000 m(3) this quarter and log sales
realizations were $77 per m(3) compared to 350,000 m(3) for the same quarter
last year when sales realizations were $81 per m(3).
    Logging cost of sales on a per m(3) basis was comparable to the same
period in 2008. While production costs were lower by $4 per m(3), this
favourable variance was offset by higher log purchase costs and the absorption
of fixed costs in the period due to unusually low harvest volumes.
    On a positive note, we made significant progress this quarter with the
implementation of our sub-divided contractor model. Numerous bids have been
received from contractors on the Coast, the Interior of BC and as far afield
as Alberta. We are in the process of awarding contracts in our private land
operations and I am pleased to confirm that the projected savings from moving
to a sub-divided contractor model are materializing. We will convert our South
Island operations to the sub-divided model in 2009 and convert North Island
operations at the start of 2010. Once fully implemented and harvest volumes
are back to normal levels, we will realize cost savings in excess of $10
million per year from what they would otherwise have been.
    The first quarter was also positive from a safety perspective. The
Timberlands MIR was 0.64, based on two reportable incidents. This compares to
a MIR of 0.93 for 2008.

    Real Estate Operational Results

    Real estate net proceeds for the quarter were low at $220,000, or $4,500
per acre compared to $2.4 million, or $73,000 per acre for the first quarter
of 2008. The sale in 2008 was for an industrial site. While interest in our
land sales program has been good, economic conditions are obviously affecting
this part of our business as well.
    We have closed on two sales totaling $3.85 million so far in the second
quarter, representing $3,162 per acre. This is a significant achievement in
these markets and indicates that there are buyers at good values for our
lands.
    On the entitlement side of the real estate business, discussion and
activity continued in a number of areas.
    We continue to be optimistic about the mid and long term prospects of our
real estate business. It will make a meaningful contribution to future cash
flows as we unlock the value of these properties.
    We successfully launched Couverdon as the new name of our real estate
business unit and appointed Bev Park as President and Chief Operating Officer
during the quarter. I expect her strong leadership will help us take best
advantage of what our outstanding landholdings have to offer on Vancouver
Island.

    Other First Quarter 2009 Updates

    During the quarter, TimberWest completed the refinancing initiative,
closing the $150 million convertible debenture offering, amending the credit
facility and appointing two new Board members, David Emerson and Maureen Howe,
nominees of the BC Investment Management Corporation (bcIMC).
    I would also like to recognize Bill Brown who is retiring from the
TimberWest Board after 16 years of Board service. Bill is the only director
who has served since the original formation of TimberWest Forest Limited, the
majority owned subsidiary of Fletcher Challenge Canada Limited. Bill has been
an invaluable member of our Board and has ably served the company as its Audit
Committee Chair. We wish Bill all the best and thank him for tremendous
contribution to our company.
    TimberWest is actively exploring whether we can list the convertible
debentures issued in February on the TSX and conditional approval has been
granted by the TSX.

    Outlook

    It is expected that the remainder of the year will continue to be very
challenging with economic conditions remaining much the same. The Company
continues to take concerted action to minimize costs in this environment,
reduce production levels, and preserve value. While this has had an impact on
our near term earnings, the long term benefits will be that our trees continue
to grow in size and value and our real estate initiatives will significantly
enhance the value of a meaningful portion of our land base.
    We remain very bullish about the mid- and long-term prospects for both
our timberlands and real estate businesses. With the superb asset base we own
in a very desirable part of the world, the looming log shortage coming with
the mountain pine beetle devastation in the interior of British Columbia,
uncertain Russian log supply, the growing demand for wood in Asia, and the
eventual housing recovery in the US, the Company's prospects are very strong
following this downturn.
    I want to thank unitholders once again for your support during these
difficult times and look forward to sharing much better results once we get
beyond this downturn.

    
    On behalf of the Board of Directors,

    Paul McElligott
    President and Chief Executive Officer
    Vancouver, British Columbia
    May 6, 2009
    


    MANAGEMENT'S DISCUSSION & ANALYSIS

    For the three months ended March 31, 2009 and 2008

    Management's Discussion and Analysis supplements, but does not form part
of, the unaudited interim consolidated financial statements of TimberWest
Forest Corp. ("TimberWest" or "the Company") and the notes thereto for the
first quarter of 2009 ("first quarter" or "Q1"). This discussion and analysis
provides an overview of significant developments that have affected
TimberWest's performance during the first quarter of 2009 relative to the
first quarter of 2008, and that have affected the Company's financial position
as at March 31, 2009, relative to December 31, 2008.
    Factors that could affect future operations are also discussed. These
factors may be affected by known and unknown risks and uncertainties that may
cause the actual future results of the Company to be materially different than
those expressed or implied in this discussion. These risks and uncertainties
are described herein and in the Management's Discussion and Analysis contained
in the Company's 2008 Annual Report.
    TimberWest's unaudited interim consolidated financial statements and the
accompanying notes included within this interim report include the accounts of
TimberWest Forest Corp. and its subsidiaries. The unaudited interim
consolidated financial statements and the accompanying notes are prepared in
accordance with Canadian generally accepted accounting principles (GAAP) and
are expressed in Canadian dollars.
    This Management's Discussion and Analysis has been prepared based on
information available as at May 6, 2009.
    Additional information relating to TimberWest, including the Company's
most recent Annual Information Form and other statutory reports, can be found
on the System for Electronic Document Analysis and Retrieval (SEDAR) at
http://www.sedar.com.

    Forward Looking Statements

    The statements which are not historical facts contained in this report
are forward-looking statements that involve risks and uncertainties.
TimberWest's actual results could differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to general
economic conditions, variations in TimberWest's product prices and changes in
commodity prices generally, changes in market conditions, variations in
harvest levels, changes in log transportation costs, actions of competitors,
interest rate and foreign currency fluctuations, regulatory, harvesting fee
and trade policy changes and other actions by governmental authorities
including real estate zoning approvals, the ability to implement business
strategies and pursue business opportunities, labour relations, weather
conditions, forest fires, insect infestation, disease and other natural
phenomena and other risks and uncertainties described in TimberWest's public
filings with securities regulatory authorities.


    
    1. Financial Highlights

    Selected financial information

                                                              2009      2008
    (in millions of dollars except where otherwise noted)       Q1        Q1
    -------------------------------------------------------------------------
    Sales                                                 $   30.4  $   32.0
    Operating loss from continuing operations                 (3.1)     (4.0)
    Operating loss from continuing operations -
     % of sales                                             (10.2)%   (12.5)%
    Net loss from continuing operations                       (7.6)    (22.9)
    EBITDA from continuing operations(1)                      (2.3)     (2.7)
    EBITDA(1)                                                 (2.4)     (3.1)
    EBITDA for covenant purposes(1)                           (2.0)     (1.2)
    Distributable cash from continuing operations(1)         (15.2)     (3.5)
    Distributable cash(1)                                    (15.3)     (3.9)
    -------------------------------------------------------------------------
    Per Stapled Units - basic and diluted (in dollars)
      EBITDA from continuing operations(1)                   (0.03)    (0.03)
      EBITDA(1)                                              (0.03)    (0.04)
      Distributable cash from continuing operations(1)       (0.20)    (0.04)
      Distributable cash(1)                                  (0.20)    (0.05)
    -------------------------------------------------------------------------
    Timberland sales                                          30.2      29.2
    Real estate sales                                          0.2       2.8
    -------------------------------------------------------------------------
    Stapled Units (thousands)
      At period-end                                         77,765    77,753
      Basic weighted average                                77,765    77,751
      Diluted weighted average                              77,766    77,789
    -------------------------------------------------------------------------
    (1) Distributable cash and earnings before interest, tax, depreciation
        and amortization ("EBITDA") do not have a standardized meaning
        prescribed by Canadian generally accepted accounting principles and
        may not be comparable to similar measures presented by other
        companies. Management believes that the presentation of these
        measures will enhance an investor's understanding of the Company's
        operating performance. EBITDA for covenant purposes differs from
        financial reporting EBITDA in its treatment of real estate sales and
        other items. For additional information the credit facility agreement
        can be found on the System for Electronic Document Analysis and
        Retrieval (SEDAR) at http://www.sedar.com.


    Sales decreased $1.6 million or 5% in Q1, 2009 compared to Q1, 2008
primarily due to a decrease in log sales realizations partially offset by
increased log sales volumes and a weaker Canadian dollar.

    Reconciliation of net loss from continuing operations to EBITDA

                                                          Three months ended
                                                                 March 31
    (in millions of dollars)                                  2009      2008
    -------------------------------------------------------------------------
    Net loss from continuing operations                   $   (7.6) $  (22.9)
    Add (deduct):
      Interest on Series A Subordinate Notes owned by
       unitholders                                             3.4      21.0
      Interest on convertible debentures                       1.7         -
      Interest on long-term debt                               2.1       2.5
      Interest on short-term debt                              0.5       0.1
      Income tax recovery                                     (8.8)     (4.7)
      Depreciation, depletion and amortization                 0.9       1.2
      Amortization of deferred financing costs                 0.5       0.1
      Change in fair value of financial instruments held
       for trading                                            (2.0)        -
      Financing transaction costs                              5.4         -
      Accretion on Series A Subordinate Notes                  1.6         -
    -------------------------------------------------------------------------
    EBITDA from continuing operations(1)                      (2.3)     (2.7)
    EBITDA from discontinued operations(1)(2)                 (0.1)     (0.4)
    -------------------------------------------------------------------------
    EBITDA(1)                                             $   (2.4) $   (3.1)
    -------------------------------------------------------------------------
    (1) EBITDA does not have a standardized meaning prescribed by Canadian
        generally accepted accounting principles and may not be comparable to
        similar measures presented by other companies. Management believes
        that the presentation of this measure will enhance an investor's
        understanding of the Company's operating performance.
    (2) The Company permanently closed its Elk Falls sawmill operations on
        May 9, 2008.


    2. Distributable Cash

    Reconciliation of net loss from continuing operations to distributable
    cash

                                                              2009      2008
    (in millions of dollars)                                    Q1        Q1
    -------------------------------------------------------------------------
    Net loss from continuing operations                   $   (7.6) $  (22.9)
    Interest on Series A Subordinate Notes owned
     by unitholders                                            3.4      21.0
    -------------------------------------------------------------------------
    Loss from continuing operations available for
     distribution                                             (4.2)     (1.9)
    Accretion on Series A Subordinate Notes                    1.6         -
    Change in fair value of financial instruments held
     for trading                                              (2.0)        -
    Income tax recovery                                       (8.8)     (4.7)
    -------------------------------------------------------------------------
    Loss from continuing operations available for
     distribution before accretion, changes in fair value
     of financial instruments held for trading, and
     provision for future income taxes                       (13.4)     (6.6)
    Add (deduct):
    Depreciation, depletion and amortization                   1.4       1.3
    Proceeds from sale of property, plant & equipment          0.2       2.4
    Loss (gain) on sale of property, plant and equipment       0.2      (0.5)
    Additions to property, plant and equipment                (0.3)     (0.5)
    Financing transaction costs                               (3.5)        -
    Other non-cash items                                       0.2       0.4
    -------------------------------------------------------------------------
                                                              (1.8)      3.1
    -------------------------------------------------------------------------
    Distributable cash from continuing operations            (15.2)     (3.5)
    -------------------------------------------------------------------------
    Distributable cash from discontinued operations(1)        (0.1)     (0.4)
    -------------------------------------------------------------------------
    Distributable cash                                    $  (15.3) $   (3.9)
    -------------------------------------------------------------------------
    (1) The Company permanently closed its Elk Falls sawmill operations on
        May 9, 2008.


    Calculation of distributable cash per Stapled Unit

    Per Stapled Units  - basic and diluted                    2009      2008
    (in dollars)                                                Q1        Q1
    -------------------------------------------------------------------------
    Loss from continuing operations available for
     distribution before accretion, changes in fair value
     of financial instruments held for trading, and
     provision for future income taxes                    $  (0.17) $  (0.08)

    Distributable cash from continuing operations            (0.20)    (0.04)
    Distributable cash from discontinued operations(1)           -     (0.01)
    -------------------------------------------------------------------------
    Distributable cash                                       (0.20)    (0.05)
    Cash distributions paid                               $      -  $   0.27
    -------------------------------------------------------------------------
    (1) The Company permanently closed its Elk Falls sawmill operations on
        May 9, 2008.


    Reconciliation of operating cash flow from operations to distributable
    cash

                                                              2009      2008
    (in millions of dollars)                                    Q1        Q1
    -------------------------------------------------------------------------
    Cash used in continuing operations                    $  (20.8) $  (20.9)
    Add (deduct):
      Change in non-cash working capital                       9.3      (5.3)
      Interest on Series A Subordinate Notes owned by
       unit holders                                            3.4      21.0
      Proceeds from sale of property, plant and
       equipment                                               0.2       2.4
      Additions to property, plant and equipment              (0.3)     (0.5)
      Financing transaction costs                             (3.5)        -
      Change in deferred distribution payable                 (3.4)        -
      Other non-cash items                                    (0.1)     (0.2)
    -------------------------------------------------------------------------
                                                               5.6      17.4
    -------------------------------------------------------------------------
    Distributable cash from continuing operations            (15.2)     (3.5)
    Distributable cash from discontinued operations(1)        (0.1)     (0.4)
    -------------------------------------------------------------------------
    Distributable cash                                    $  (15.3) $   (3.9)
    -------------------------------------------------------------------------
    (1) The Company permanently closed its Elk Falls sawmill operations on
        May 9, 2008.
    


    Distributable cash includes consolidated net earnings (loss), plus
interest expensed on Series A Subordinate Notes owned by unitholders, plus
non-cash income taxes, plus depreciation, depletion and amortization, plus
proceeds from the sale of property, plant and equipment net of their gain
(loss) on sale, less additions to property, plant and equipment, less
financing costs and, from time to time, adjustments for other items deemed
appropriate by the Board of Directors. Earnings from continuing operations
available for distribution is comprised of consolidated net earnings (loss)
from continuing operations plus interest expensed on Series A Subordinate
Notes. The Series A Subordinate Notes are owned by the unitholders and
interest thereon is paid to the unitholders, therefore, earnings from
continuing operations available for distribution to unitholders reflects
earnings before this interest charge.
    Earnings from continuing operations available for distribution and
distributable cash are measures that do not have a standardized meaning
prescribed by Canadian GAAP and may not be comparable to similar measures
presented by other companies. Management believes that the presentation of
these measures will enhance an investor's understanding of the Company's
operating performance. Reconciliations of net earnings (loss) and cash flow
from continuing operations before changes in working capital, as determined in
accordance with Canadian GAAP, and earnings from continuing operations
available for distribution and distributable cash are provided in the
preceding tables.
    The following tables present a quarterly comparison of distributable cash
generated, in total and on a per Stapled Unit basis:

    
                           2009     2008     2007     2006     2005     2004
    -------------------------------------------------------------------------
    (in millions of
     dollars)
    First quarter       $ (15.3) $  (3.9) $  26.9  $  31.5  $  23.9  $  27.7
    Second quarter                  (3.2)    13.6     35.5     15.4     43.5
    Third quarter                   (6.3)    (5.6)     9.3     (1.7)    35.9
    Fourth quarter                 (11.4)    55.4     27.5     29.7     18.1
    -------------------------------------------------------------------------
                        $ (15.3) $ (24.8) $  90.3  $ 103.8  $  67.3  $ 125.2
    -------------------------------------------------------------------------
    Per Stapled Unit(1)
     (in dollars)
    First quarter       $ (0.20) $ (0.05) $  0.35  $  0.41  $  0.31  $  0.36
    Second quarter                 (0.04)    0.17     0.46     0.20     0.57
    Third quarter                  (0.08)   (0.07)    0.12    (0.02)    0.47
    Fourth quarter                 (0.15)    0.71     0.35     0.38     0.24
    -------------------------------------------------------------------------
                        $ (0.20) $ (0.32) $  1.16  $  1.34  $  0.87  $  1.64
    -------------------------------------------------------------------------
    (1) Per Stapled Unit amounts by quarter do not necessarily add to the
        total of the year and year-to-date due to changes in the weighted
        average number of Stapled Units outstanding during the year.
    


    3. Highlights and Significant Transactions

    Financing and liquidity

    On February 11, 2009, the Company completed a refinancing package by
raising $150 million by way of a 9% five-year convertible debenture issue and
finalized a $250 million, three-year revolving loan agreement with a syndicate
of banks.
    The $150 million of convertible debentures was raised through a $100
million private placement with two wholly-owned subsidiaries of British
Columbia Investment Management Corporation (the "bcIMC Investors") and through
a $50 million rights offering to unitholders. These are five year debentures
and are convertible into Stapled Units at $3.50. Upon conversion, the bcIMC
Investors would own 23.7% of the outstanding Stapled Units. The convertible
debentures pay interest quarterly at 9%.
    The net proceeds of the rights offering and private placement permanently
repaid $75 million of indebtedness under the Company's existing bank credit
facilities, with the remainder reducing indebtedness under the its revolving
credit facilities. The new $250 million three-year revolving credit agreement
has been filed on SEDAR and the key terms are summarized below:

    
    -   Pricing is 600 bps over BA rates,

    -   The facility is secured,

    -   The financial covenants include a minimum EBITDA test, which is
        negative for 2009 to give the Company flexibility in what we see as a
        challenging year, and

    -   The other financial covenants include a tangible net worth test and a
        loan to book and market value test.
    

    The 2009 costs related to this refinancing were $8.9 million (2008 - $1.1
million). In the first quarter of 2009, $5.4 million was expensed against
income as it relates to the convertible debentures, which have been designated
as held for trading and $3.5 million was deferred and capitalized on the
balance sheet as these costs relate to debt refinancing held at amortized
cost. All $8.9 million was deducted from distributable cash.

    Cash distribution

    As announced in November, 2008, the January 15, 2009 distribution payment
was deferred for up to 27 months pursuant to the terms of the note indenture
and all 2009 cash distribution payments are deferred for 18 months.

    4. Operating Highlights

    
    Timberlands
                                                              2009      2008
    (in millions of dollars except where otherwise noted)       Q1        Q1
    -------------------------------------------------------------------------
    Log sales
      Domestic                                            $   12.6  $   13.0
      Export - Asia                                           14.4      13.5
      Export - USA                                             2.3       1.7
    -------------------------------------------------------------------------
      Total log sales                                     $   29.3  $   28.2
    -------------------------------------------------------------------------
    Log sales realizations ($/m(3))
      Domestic                                            $     57  $     67
      Export - Asia                                            107       100
      Export - USA                                              83        79
    -------------------------------------------------------------------------
      Total log sale realizations                         $     77  $     81
    -------------------------------------------------------------------------
    Log sales volume (thousand m(3))
      Domestic                                               219.9     193.8
      Export - Asia                                          134.6     134.5
      Export - USA                                            27.8      21.4
    -------------------------------------------------------------------------
      Total log sales volume                                 382.3     349.7
    -------------------------------------------------------------------------
    Log sales mix (thousand m(3))
      Fir                                                    248.2     228.9
      Hembal                                                  75.4      79.1
      Cedar                                                   26.7      15.7
      Other                                                   32.0      26.0
    -------------------------------------------------------------------------
      Total log sales mix                                    382.3     349.7
    -------------------------------------------------------------------------
    Log production volume (thousand m(3))
      Public tenures                                          13.5     107.4
      Private timberlands                                    298.2     276.9
    -------------------------------------------------------------------------
      Total production volume                                311.7     384.3
    -------------------------------------------------------------------------
    Log production costs ($/m(3))                         $     68  $     72
    Timberland cost of sales ($/m(3))                           73        73
    -------------------------------------------------------------------------
    Timberland operating margin (% of log sales)                3%        0%
    -------------------------------------------------------------------------
    


    Log sales revenues for the three months ended March 31, 2009 were up 4%
from the same quarter last year buoyed by a 9% increase in the sales volumes
offset by a $4 decrease in average log sales realizations.
    Logging production costs were lower in Q1, 2009 compared to Q1, 2008 as a
result of lower road building and indirect costs. However, offsetting the
decrease in production costs were higher log purchase costs and higher fixed
costs absorbed during Q1, 2009 resulting in logging cost of sales comparable
to the same period in 2008.

    
    Real estate

                                                              2009      2008
    (in millions of dollars except where otherwise noted)       Q1        Q1
    -------------------------------------------------------------------------
    Sales                                                 $    0.2  $    2.8
    Net proceeds                                               0.2       2.4
    Net proceeds per acre ($/acre)                           4,452    72,547
    -------------------------------------------------------------------------
    


    The Company has established a real estate division which sells non-core
landholdings, pursues entitlements and markets properties. The real estate
division was formally branded during Q1, 2009 when the Company named the
division "Couverdon."
    During Q1, 2009 the real estate division sold one property for net
proceeds of $0.2 million or $4,452 per acre compared to Q1, 2008 when the
division sold one industrial property in Campbell River, B.C. for net proceeds
of $2.4 million or $72,547 per acre.

    
    Discontinued Operations

                                                              2009      2008
    (in millions of dollars except where otherwise noted)       Q1        Q1
    -------------------------------------------------------------------------
    Sales                                                        -      13.0
    Operating loss                                            (0.1)     (0.4)
    -------------------------------------------------------------------------
    Sales revenue by product
      Lumber                                                     -       9.8
      Wood chips and residuals                                   -       2.9
      Other                                                      -       0.3
    -------------------------------------------------------------------------
      Total sales revenue by product                             -      13.0
    -------------------------------------------------------------------------
    Sales realizations by product
      Lumber ($/mfbm)                                            -     579.0
      Woodchips ($/m(3))                                         -      42.0
    -------------------------------------------------------------------------
    Sales volume by product
      Lumber (mfbm)                                              -      17.0
      Woodchips (thousand m(3))                                  -      66.0
    -------------------------------------------------------------------------
    Lumber production volume (mfbm)                              -      28.4
    -------------------------------------------------------------------------
    

    On May 9, 2008, the Elk Falls sawmill in Campbell River, B.C. was
permanently closed, including the associated shipping operations at Stuart
Channel Wharves located in Crofton, B.C. Subsequent to the closure, TimberWest
disposed of substantially all of the assets of the sawmill and dismantled the
sawmill and planer mill. Ongoing costs such as property taxes and insurance
continue to be expensed as incurred. The Company is assessing alternatives for
the former sawmill site.

    5. Financial condition

    The following table highlights the significant changes between the
consolidated balance sheets as at March 31, 2009 and December 31, 2008:

    

    (in millions     March  December Increase /
     of dollars)  31, 2009  31, 2008 (decrease)
    -------------------------------------------------------------------------
    Cash and cash   $   0.5   $  30.8   $ (30.3) The decrease in cash is
     equivalents                                 primarily the result of
                                                 paying down the revolving
                                                 credit facility. Refer to
                                                 section 6 "Liquidity and
                                                 capital resources" for
                                                 greater detail.
    -------------------------------------------------------------------------
    Current assets,    42.4     40.3       2.1   The increase is primarily
     excluding cash                              due to an increase in
     and cash                                    inventory and accounts
     equivalents                                 receivable.
    -------------------------------------------------------------------------
    Property, plant 1,222.3  1,222.0       0.3   The increase is due to a
     and equipment                               reclassification of real
                                                 estate development costs
                                                 incurred in prior periods
                                                 from prepaids and other
                                                 assets of $1.3 million and
                                                 offset by depreciation
                                                 recorded in the period.
    -------------------------------------------------------------------------
    Other assets        9.6       7.1       2.5  The increase in other assets
                                                 is due to the capitalization
                                                 of financing costs
                                                 associated with the
                                                 restructuring of the
                                                 Company's credit facilities
                                                 and offset by the change in
                                                 fair value of the financial
                                                 instruments.
    -------------------------------------------------------------------------
    Current            19.1     133.7    (114.6) The decrease is due to the
     liabilities                                 restructuring of the
                                                 Company's credit facilities
                                                 and a decline in the
                                                 Company's accounts payable
                                                 and accrued liabilities. At
                                                 December 31, 2008,
                                                 $108.3 million of the
                                                 Company's term credit
                                                 facility was classified as
                                                 current. Under the amended
                                                 credit agreement, the term
                                                 credit facility was repaid
                                                 and replaced with an amended
                                                 $250 million revolving
                                                 credit facility classified
                                                 as long-term.
    -------------------------------------------------------------------------
    Revolving         144.0     189.8     (45.8) The decrease is due to funds
     credit                                      received from the
     facilities                                  convertible debenture
                                                 issuance enabling the
                                                 Company to pay down its
                                                 credit facility.
    -------------------------------------------------------------------------
    Convertible       148.0         -     148.0  The increase is due to the
     debentures                                  issuance of convertible
                                                 debentures with a face value
                                                 of $150.0 million during the
                                                 period which have a fair
                                                 value of $148.0 million at
                                                 March 31, 2009.
    -------------------------------------------------------------------------
    Other long-       286.0     292.6      (6.6) The decrease is due to a
     term lia-                                   lower future income tax
     bilities                                    liability as a result of
                                                 provincial tax rate
                                                 reductions and partially
                                                 offset by the deferral of
                                                 the Q1 2009 2% distribution
                                                 payable on the Series A
                                                 Subordinate Notes.
    -------------------------------------------------------------------------
    Series A          241.6     240.4       1.2  Increase due to the
     Subordinate                                 recognition of accretion and
     Notes owned                                 the measurement of embedded
     by unitholders                              derivatives at fair value.
    -------------------------------------------------------------------------
    Unitholders'    $ 436.1   $ 443.7   $  (7.6) Decrease due to the
     Equity                                      net loss for the period.
    -------------------------------------------------------------------------


    6. Liquidity and capital resources

    Selected financial information

                                                              2009      2008
    (in millions of dollars except where otherwise noted)       Q1        Q1
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operating activities from continuing operations:
      Cash used in operations before changes in non-cash
       working capital                                    $  (11.5) $  (26.2)
      Changes in non-cash working capital                     (9.3)      5.3
    -------------------------------------------------------------------------
                                                             (20.8)    (20.9)
    Financing activities:
      Credit facilities                                     (154.1)     17.5
      Convertible debentures                                 150.0         -
      Financing transaction costs                             (3.5)        -
    -------------------------------------------------------------------------
                                                              (7.6)     17.5
    Investing activities:
      Proceeds from sale of property, plant and equipment      0.2       2.4
      Additions to property, plant and equipment              (0.3)     (0.5)
      Other assets                                            (1.2)      0.1
    -------------------------------------------------------------------------
                                                              (1.3)      2.0
    Cash provided by (used in) discontinued operations        (0.6)      0.3
    -------------------------------------------------------------------------
    Increase (decrease) in cash and cash equivalents       $ (30.3) $   (1.1)
    -------------------------------------------------------------------------
    Consolidated debt-to-total capitalization ratio(1)       15:85     19:81
    -------------------------------------------------------------------------
    (1) The consolidated debt-to-total capitalization ratio does not have a
        standardized meaning prescribed by GAAP and may not be comparable to
        similar measures presented by other companies. Debt includes the
        senior debt held by a syndicate of banks. Management believes that
        the presentation of these measures will enhance an investor's
        understanding of the Company's operating performance.
    

    The Company's primary cash requirements during the industry downturn are
to fund operations, capital expenditures and interest payments on the
Company's credit facility and convertible debentures. The Company took steps
to improve its competitiveness by permanently closing its last remaining
sawmill in May 2008, decreasing the number of employees from 385 at the end of
2007 to 88 at the end of 2008, restructuring its contractor arrangements and
changing to a variable interest rate on the Series A Subordinate Notes. These
changes will help conserve liquidity during the downturn.
    During Q1, 2009 the Company issued convertible debentures of $150.0
million and amended its revolving credit facility.
    The Company's consolidated debt-to-total capitalization ratio as at March
31, 2009 was 15:85 compared to 30:70 at December 31, 2008. The funds received
from the convertible debenture issuance were utilized to pay down the
outstanding credit facility. The Company also had cash on hand of $30.8
million at December 31, 2008.
    The Company expects to meet its future cash requirements through a
combination of cash generated from its logging operations and real estate
sales, existing cash balances and credit facilities, and the refinancing
arrangements completed. While the Company expects to remain in compliance with
all of its bank covenants in 2009, if business conditions do not improve in
2010 or if the Company is unable to implement certain business strategies to
improve profitability, the Company may breach its EBITDA bank covenant in 2010
as currently constructed. The Company is monitoring and will take proactive
steps to remedy the situation if necessary.
    The Company's continuation as a going concern is ultimately dependent
upon its future financial performance, which will be affected by general
economic, competitive and other factors, many of which are beyond the
Company's control. In the short term, any significant strengthening of the
Canadian dollar, or further decline in U.S. housing and Vancouver Island real
estate markets which affects demand or other unexpected adverse developments
could adversely impact the Company's liquidity.

    Financing activities

    Cash used in financing activities in Q1, 2009 was $7.6 million, compared
to cash provided of $17.5 million in Q1, 2008. The decrease of $25.1 million
is primarily due to the issuance of the $150.0 million convertible debentures
in Q1, 2009 of which $75.0 million was used to pay down the credit facility
and to fund company operations. In Q1, 2009 transaction costs associated with
the refinancing were $8.9 million; $5.4 million was expensed against income as
it relates to the convertible debentures, which have been designated as held
for trading and $3.5 million was deferred and capitalized on the balance sheet
as these costs relate to debt refinancing held at amortized cost. There were
no Stapled Units issued in Q1, 2009 compared to the issuance of 2,720 Stapled
Units for net proceeds of $35,000 during Q1, 2008.
    As at May 6, 2009, the Company had 2,690,574 granted and outstanding
Stapled Unit option awards and 77,765,440 issued and outstanding Stapled
Units.

    Investing activities

    Cash used in investing activities in Q1, 2009 was $1.3 million, compared
to cash provided of $2.0 million in Q1, 2008. The decrease of $3.3 million was
due to reduced proceeds from the sale of property, plant and equipment in Q1,
2009 compared to Q1, 2008.

    Capital resources

    The Company's capital resources at March 31, 2009 include amounts
available under the revolving credit facility and the convertible debentures.
These sources of borrowing, coupled with cash from operations, are expected to
be sufficient to support the Company's working capital requirements and to
finance planned capital expenditures during the year. Credit ratings for the
Company have been confirmed by Dominion Bond Rating service at BBB as at
December 31, 2008.
    Available capital resources and total liquidity at period-end is
summarized in the following table:

    
                                                              2009      2008
    (in millions of dollars)                                    Q1        Q1
    -------------------------------------------------------------------------

    Borrowing base
      Revolving credit facility (due February 11, 2012)   $  250.0  $      -
      Convertible debentures (due February 11, 2014)         150.0         -
      Tranche A credit facility                                  -     216.7
      Tranche B credit facility                                  -     108.3
      Demand bank facilities                                     -       9.3
    -------------------------------------------------------------------------
    Total borrowing base                                     400.0     334.3
    Letters of credit                                         16.6      17.1
    Amount drawn, net                                        294.0     205.0
    -------------------------------------------------------------------------
    Available to be drawn                                     89.4     112.2
    Cash on hand                                               0.5       0.1
    -------------------------------------------------------------------------
    Total liquidity                                       $   89.9  $  112.3
    -------------------------------------------------------------------------
    

    As of March 31, 2009, the Company had $89.9 million of available
liquidity, comprised of $0.5 million of cash on hand and $89.4 million
available to be drawn on its $250.0 million revolving credit facility.
Compared to March 31, 2008 the Company's total liquidity decreased by $22.4
million, primarily due to increased borrowings by the Company in order to
finance operations during the current market downturn.

    Debt

    At March 31, 2009, the total debt outstanding was $292.0 million. The
following table outlines the changes in the Company's long-term debt for the
quarter ended March 31, 2009:

    
    Issue
                                                               Net
                                             December 31, increase  March 31,
    (in millions of dollars)                        2008 (decrease)     2009
    -------------------------------------------------------------------------
    Secured revolving credit facility of up to
     $250.0 million due February 11, 2012 with
     interest based on Canadian or U.S. Prime
     rates + 5%, or Canadian BA rates + 6%      $      -  $  144.0  $  144.0
    Unsecured long-term revolving facility
     (Tranche A) of up to $216.7 million due
     September 24, 2012 with interest based
     on Canadian Prime/BA or U.S. LIBOR
     rates + 0.9%                                  189.8    (189.8)        -
    Unsecured term facility (Tranche B) of up
     to $108.3 million due September 24, 2009
     with interest based on Prime rates            108.3    (108.3)        -
    Convertible debentures with a face value of
     $150.0 million due February 11, 2014              -     148.0     148.0
    -------------------------------------------------------------------------
    Total long-term debt                        $  298.1  $   (6.1) $  292.0
    Less current portion                          (108.3)    108.3         -
    -------------------------------------------------------------------------
                                                $  189.8  $  102.2  $  292.0
    -------------------------------------------------------------------------
    

    Refer to the Company's Interim Consolidated Financial Statements for the
three months ended March 31, 2009, Note 11 for details related to covenant
compliance.

    7. Impact of accounting pronouncements affecting future periods

    On February 13, 2008, the Canadian Accounting Standards Board ("AcSB")
confirmed the use of International Financial Reporting Standards ("IFRS") to
commence in 2011 for publicly accountable profit-oriented enterprises. IFRS
will replace Canada's Generally Accepted Accounting Principles ("GAAP") and
the official changeover date is for interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2011.
    TimberWest will adopt IFRS according to requirements outlined by the
AcSB, and is in the process of preparing for the adoption of IFRS, including
qualitative disclosure throughout 2009 and 2010, and with adoption of IFRS on
January 1, 2011.

    8. Disclosure controls and internal control over financial reporting

    During the quarter ended March 31, 2009, there was no change in the
Company's internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect the Company's internal
control over financial reporting.

    

    CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

    Unaudited                                             Three months ended
                                                                 March 31
    (in millions of dollars, except per share amounts)        2009      2008
    -------------------------------------------------------------------------
    Sales                                                 $   30.4  $   32.0
    Operating costs and expenses:
      Cost of sales                                           29.7      31.8
      Selling, administrative and other                        2.9       3.0
      Depreciation, depletion and amortization                 0.9       1.2
    -------------------------------------------------------------------------
                                                              33.5      36.0
    -------------------------------------------------------------------------
    Operating loss from continuing operations                 (3.1)     (4.0)
    Interest expense:
      Series A Subordinate Notes owned by unitholders          5.0      21.0
      Convertible debentures                                   1.7         -
      Long-term debt                                           2.1       2.5
      Short-term debt                                          0.5       0.1
    -------------------------------------------------------------------------
                                                               9.3      23.6
    Financing transaction costs                                5.4         -
    Amortization of deferred financing costs                   0.5       0.1
    Change in fair value of financial instruments
     held for trading                                         (2.0)        -
    Other expense (income)                                     0.1      (0.1)
    -------------------------------------------------------------------------
                                                              13.3      23.6
    -------------------------------------------------------------------------
    Loss before income taxes from continuing operations      (16.4)    (27.6)
    Income tax recovery (note 6)                              (8.8)     (4.7)
    -------------------------------------------------------------------------
    Net loss and comprehensive loss from continuing
     operations                                               (7.6)    (22.9)
    Net loss and comprehensive loss from discontinued
     operations (note 5)                                      (0.1)     (0.4)
    -------------------------------------------------------------------------
    Net loss and comprehensive loss                       $   (7.7) $  (23.3)
    -------------------------------------------------------------------------

    Basic and diluted loss from continuing operations
     per share (note 7)                                      (0.10)    (0.29)
    Basic and diluted loss from discontinued operations
     per share (note 7)                                          -     (0.01)
    Basic and diluted loss per share (note 7)                (0.10)    (0.30)
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)


    Unaudited                                             Three months ended
                                                                 March 31
    (in millions of dollars)                                  2009      2008
    -------------------------------------------------------------------------
    Retained earnings, beginning of period                   250.8      15.5
    Net loss and comprehensive loss for the period            (7.7)    (23.3)
    -------------------------------------------------------------------------
    Retained earnings (deficit), end of period            $  243.1  $   (7.8)
    -------------------------------------------------------------------------
    See accompanying notes to the unaudited interim consolidated financial
    statements.



    CONSOLIDATED BALANCE SHEETS
                                                            March   December
                                                               31,        31,
                                                             2009       2008
    (in millions of dollars)                            Unaudited
    -------------------------------------------------------------------------
    Assets
    Current assets:
      Cash                                              $     0.5  $    30.8
      Accounts receivable                                     6.3        4.1
      Inventories (note 8)                                   31.2       29.1
      Prepaid expenses and other current assets               3.0        3.7
      Future income taxes                                     1.9        3.3
      Discontinued operations                                   -        0.1
    -------------------------------------------------------------------------
                                                             42.9       71.1
    Property, plant and equipment (note 9)                1,222.3    1,222.0
    Other assets (note 10)                                    9.6        7.1
    -------------------------------------------------------------------------
                                                        $ 1,274.8  $ 1,300.2
    -------------------------------------------------------------------------
    Liabilities and Unitholders' Equity
    Current liabilities:
      Term credit facilities (note 11)                  $       -  $   108.3
      Accounts payable and accrued liabilities               18.3       23.9
      Discontinued operations                                 0.8        1.5
    -------------------------------------------------------------------------
                                                             19.1      133.7
    Revolving credit facilities (note 11)                   144.0      189.8
    Convertible debentures (note 12)                        148.0          -
    Long-term silviculture liability                          3.2        3.2
    Employee future benefits (note 13)                       36.7       36.7
    Deferred distribution payable (note 14)                  21.3       17.8
    Stapled Unit option plan (note 16)                        0.1          -
    Future income taxes                                     224.7      234.9
    -------------------------------------------------------------------------
                                                            597.1      616.1
    Series A Subordinate Notes owned by unitholders
     (note 15)                                              241.6      240.4
    -------------------------------------------------------------------------
                                                            838.7      856.5
    -------------------------------------------------------------------------
    Unitholders' equity
      Share capital, consisting of common and preferred
       shares (note 15)                                     191.0      191.0
      Contributed surplus                                     2.0        1.9
      Retained earnings                                     243.1      250.8
    -------------------------------------------------------------------------
                                                            436.1      443.7
    -------------------------------------------------------------------------
                                                        $ 1,274.8  $ 1,300.2
    -------------------------------------------------------------------------
    See accompanying notes to the unaudited interim consolidated financial
    statements.

    On behalf of the Board of Directors:


    Paul J. McElligot           V. Edward Daughney
    Director                    Director



    CONSOLIDATED STATEMENTS OF CASH FLOWS

    Unaudited                                             Three months ended
                                                                 March 31
    (in millions of dollars)                                 2009       2008
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operating activities:
      Net loss from continuing operations               $    (7.6) $   (22.9)
      Items not involving cash:
        Depreciation, depletion and amortization              1.4        1.3
        Accretion on Series A Subordinate Notes               1.6          -
        Loss (gain) on sale of property, plant and
         equipment                                            0.2       (0.5)
        Future income tax recovery                           (8.8)      (4.7)
        Change in deferred distribution payable               3.4          -
        Change in fair value of financial instruments
         held for trading                                    (2.0)         -
        Other non-cash items                                  0.3        0.6
    -------------------------------------------------------------------------
                                                            (11.5)     (26.2)
      Changes in non-cash working capital:
        Accounts receivable                                  (2.2)      (2.7)
        Inventories                                          (2.1)       3.2
        Prepaid expenses and other working capital            0.7        0.6
        Accounts payable and accrued liabilities             (5.7)       4.2
    -------------------------------------------------------------------------
                                                             (9.3)       5.3
    -------------------------------------------------------------------------
                                                            (20.8)     (20.9)
    -------------------------------------------------------------------------
    Financing activities:
      Convertible debentures                                150.0          -
      Revolving credit facilities                           (45.8)      17.5
      Term credit facilities                               (108.3)         -
      Financing transaction costs                            (3.5)         -
    -------------------------------------------------------------------------
                                                             (7.6)      17.5
    -------------------------------------------------------------------------
    Investing activities:
      Proceeds from sale of property, plant and
       equipment                                              0.2        2.4
      Additions to property, plant and equipment             (0.3)      (0.5)
      Other assets                                           (1.2)       0.1
    -------------------------------------------------------------------------
                                                             (1.3)       2.0
    -------------------------------------------------------------------------
    Cash provided by (used in) continuing operations        (29.7)      (1.4)
    Cash provided by (used in) discontinued operations
     (note 5)                                                (0.6)       0.3
    -------------------------------------------------------------------------
    Increase (decrease) in cash and cash equivalents        (30.3)      (1.1)
    Cash and cash equivalents, beginning of period           30.8        1.2
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period            $     0.5  $     0.1
    -------------------------------------------------------------------------
    Supplemental information:
      Interest on Series A Subordinate Notes paid
       to unitholders                                   $       -  $    21.0
      Other interest paid                               $     4.1  $     2.6
      Financing costs paid                              $     8.9  $       -
    -------------------------------------------------------------------------
    See accompanying notes to the unaudited interim consolidated financial
    statements.



    CONSOLIDATED BUSINESS SEGMENTS

    Unaudited                           Three months ended March 31, 2009
                                                    Real
    (in millions of dollars)       Timberlands    Estate     Other     Total
    -------------------------------------------------------------------------
    Sales                             $   30.2  $    0.2  $      -  $   30.4
    Operating earnings (loss)              0.8      (0.9)     (3.0)     (3.1)
    Total assets                         988.4     270.2      16.2   1,274.8
    Additions to property, plant
     and equipment                         0.1       0.2         -       0.3
    -------------------------------------------------------------------------
    

    In 2009, the Company has commenced reporting its operating results on a
segmented basis in order to disclose the results of its two significant
operating segments, timberlands and real estate. Sales and operating earnings
reflect the income and expenses of each segment. Private land of approximately
134,000 acres identified as having a higher and better use is reported as real
estate assets at its carrying value. All other assets have been reported under
the segment in which they are managed. The 'other' segment reflects those
costs and assets that are allocated for general corporate purposes.

    
    NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

    For the three months ended March 31, 2009 and 2008
    (Unaudited and in millions of dollars, except per common share amounts)


    1.  Significant accounting policies

        The accompanying unaudited interim consolidated financial statements
        include the accounts of TimberWest Forest Corp. and its subsidiaries
        ("the Company"), have been prepared in accordance with Canadian
        generally accepted accounting principles and are expressed in
        Canadian dollars. Not all disclosures required by Canadian generally
        accepted accounting principles ("GAAP") for annual financial
        statements are presented and, accordingly, these interim consolidated
        financial statements should be read in conjunction with the Company's
        most recent annual consolidated financial statements. These interim
        consolidated financial statements follow the same accounting policies
        and methods of application used in the Company's audited annual
        consolidated financial statements of December 31, 2008, except for
        the adoption of new accounting policies as described in note 3.

    2.  Going concern

        The current economic environment for the global forest products
        industry is challenging with substantially lower than average prices
        and high input costs due to low production. TimberWest responded to
        these conditions by reducing logging production, permanently closing
        its last sawmill operation, reducing overhead costs, and
        restructuring labour and contractor agreements.

        The Company has forecasted its financial results and cash flows for
        2009 using its best estimates of market and operating conditions.
        These forecasts consider the modification of the interest rate on the
        Series A Subordinate Notes, with interest deferred for a period of
        time (note 14), and the refinancing package (note 11) which includes
        credit amendments to the bank facilities, a $100 million private
        placement with British Columbia Investment Management Corporation of
        9% convertible debentures, and a $50 million 9% convertible debenture
        rights offering that was completed on February 11, 2009. The Company
        expects to meet its future cash requirements through a combination of
        cash generated from its logging operations and real estate sales,
        existing cash balances and credit facilities, and the refinancing
        arrangements completed. While the Company expects to remain in
        compliance with all of its bank covenants in 2009, if business
        conditions do not improve in 2010 or if the Company is unable to
        implement certain business strategies to improve profitability, the
        Company may breach its EBITDA bank covenant in 2010 as currently
        constructed. The Company is monitoring and will take proactive
        steps to remedy the situation if necessary.

        The accompanying consolidated financial statements have been prepared
        assuming the Company will continue as a going concern, which
        contemplates the realization of assets and the satisfaction of
        liabilities in the normal course of business. The consolidated
        financial statements do not include any adjustments relating to the
        recoverability and classification of recorded asset amounts and the
        amount and classification of liabilities that might be necessary
        should the Company be unable to continue as a going concern.

        The Company's continuation as a going concern is ultimately dependent
        upon its future financial performance, which will be affected by
        general economic, competitive and other factors, many of which are
        beyond the Company's control. In the short term, any significant
        strengthening of the Canadian dollar, or further decline in U.S.
        housing and Vancouver Island real estate markets which affects demand
        or other unexpected adverse developments could adversely impact the
        Company's liquidity.

    3.  Adoption of new accounting policies

        Goodwill and intangible assets, Section 3064

        Effective January 1, 2009, the Company adopted the new Canadian
        Institute of Chartered Accountants ("CICA") Handbook Section 3064,
        Goodwill and Intangible Assets. This section replaces CICA Handbook
        Section 3062, Goodwill and Intangible Assets, and establishes revised
        standards for the recognition, measurement, presentation and
        disclosure of goodwill and intangible assets. The new standard also
        provides guidance for the treatment of various pre-production and
        start-up costs and requires that these costs be expensed as incurred,
        with the concurrent withdrawal of CICA Emerging Issues Committee
        Abstract 27 ("EIC 27"). The adoption of this section had no impact on
        the Company's accounting on a retrospective basis.

    4.  Segmented information

        Commencing in 2009, the Company has identified two reporting
        segments:

        Timberlands - The timberland division maximizes value by harvesting
        logs in a cost-effective manner consistent with sound safety,
        environmental and sustainable forestry practices and selling logs to
        targeted customers in both the domestic and higher value export
        markets

        Real Estate - Couverdon, the real estate division of TimberWest, has
        developed a long range strategic plan to realize value from land that
        has a higher and better use than timberlands.

        The segments are managed separately. During the first quarter of
        2009, the Company branded its real estate division "Couverdon."

    5.  Discontinued operations

        On May 9, 2008, the Elk Falls sawmill in Campbell River, B.C. was
        permanently closed including the associated shipping operations at
        Stuart Channel Wharves located in Crofton, B.C. Subsequent to the
        closure, TimberWest disposed of all the sawmill assets and dismantled
        the sawmill and planer mill. Ongoing costs such as property taxes
        continue to be expensed as incurred. The Company is assessing
        alternatives for the former sawmill site.

        ---------------------------------------------------------------------
                                                          Three months ended
                                                                 March 31

                                                              2009      2008
        ---------------------------------------------------------------------
        Sales                                             $      -  $   13.0
        Loss before income taxes                          $   (0.1) $   (0.4)
        Net loss                                          $   (0.1) $   (0.4)
        ---------------------------------------------------------------------

        Sales from the logging operations to the sawmill operations have been
        recorded at fair value in accordance with the Company's internal
        policies. Inter-divisional sales for the three months ended March 31,
        2009 were nil (2008 - $8.6 million).

        ---------------------------------------------------------------------
                                                          Three months ended
                                                                 March 31

                                                              2009      2008
        ---------------------------------------------------------------------
        Cash flow from operating activities               $   (0.6) $    0.3
        Cash flow from financing activities                      -         -
        Cash flow from investing activities                      -         -
        ---------------------------------------------------------------------
        Cash provided by operations                       $   (0.6) $    0.3
        ---------------------------------------------------------------------

    6.  Income taxes

        ---------------------------------------------------------------------
                                                          Three months ended
                                                                 March 31

                                                              2009      2008
        ---------------------------------------------------------------------
        Current income tax                                $      -  $      -
        Future income tax recovery                            (8.8)     (4.7)
        ---------------------------------------------------------------------
                                                          $   (8.8) $   (4.7)
        ---------------------------------------------------------------------

        In the first quarter of 2009, British Columbia provincial tax
        legislation was substantively enacted, resulting in the reduction of
        the provincial corporate tax rate to 10.5% for the year ending
        December 31, 2010 and 10% thereafter. This tax rate change resulted
        in a future income tax recovery of $8.7 million and is included in
        the future income tax recovery for the 3 months ended March 31, 2009.

        In the first quarter of 2008, British Columbia provincial tax
        legislation was substantively enacted, resulting in the reduction of
        the provincial corporate tax rate to 11% as of July 1, 2008. This tax
        rate change resulted in a future income tax recovery of $4.3 million
        for the three months ended March 31, 2008.

    7.  Earnings (loss) per share

        ---------------------------------------------------------------------
                                                       Three months ended
                                                             March 31

                                                          2009          2008
        ---------------------------------------------------------------------
        Net loss from continuing operations         $     (7.6)   $    (22.9)
        ---------------------------------------------------------------------
        Net loss                                          (7.7)        (23.3)
        ---------------------------------------------------------------------
        Basic weighted average number of
         common shares                              77,765,440    77,751,368
        Incremental common shares from
         potential exercise of options                   1,215        37,573
        ---------------------------------------------------------------------
        Diluted weighted average number of
         common shares                              77,766,655    77,788,941
        ---------------------------------------------------------------------
        Basic and diluted net loss from
         continuing operations per
         common share                               $    (0.10)   $    (0.29)
        Basic and diluted net loss from
         discontinued operations per
         common share                               $        -    $    (0.01)
        ---------------------------------------------------------------------
        Basic and diluted net loss per
         common share                               $    (0.10)   $    (0.30)
        ---------------------------------------------------------------------

        The convertible debentures issued during Q1, 2009 have been
        considered in the computation of diluted earnings per share and were
        determined to have been anti-dilutive.

    8.  Inventories

        ---------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
        ---------------------------------------------------------------------
        Logs                                        $     31.2    $     29.1
        ---------------------------------------------------------------------

        For the three months ended March 31, 2009, log inventory was written
        down by $0.5 million which was expensed to cost of sales for the
        period (Q1, 2008 - $1.8 million).

    9.  Property, plant and equipment

        Property, plant and equipment at March 31, 2009, includes private
        lands with a carrying value of $1,171.9 million (December 31, 2008 -
        $1,170.9 million). This amount includes a valuation increase
        adjustment of $375.8 million recorded resulting from the adoption of
        Section 3465 - Income Taxes of the CICA Handbook, which was mandatory
        for fiscal years ending on or after January 1, 2000.

    10. Other assets

        ---------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
        ---------------------------------------------------------------------
        Deferred financing costs                    $      4.4    $      1.4
        Financial instruments                              4.3           4.7
        Other                                              0.9           1.0
        ---------------------------------------------------------------------
                                                    $      9.6    $      7.1
        ---------------------------------------------------------------------

        Financial instruments of $4.3 million include the value of two
        embedded derivatives as outlined below.

        The Company has the option to defer the distributions payable to its
        unitholders for a period of up to 18 months in length while the
        distribution rate is set at 2% (note 15). This option constitutes an
        embedded derivative and is measured at its fair value. As the Company
        has elected to defer distributions for the immediate future, the
        value of this option is $3.7 million (2008 - $4.1 million).

        The embedded derivative arising from the option to extend the
        maturity of the Series A Subordinate Notes for a further 10-year
        period from 2038 to 2048 is measured at its fair value of
        $0.6 million (2008 - $0.6 million).

    11. Credit facilities

        The Company's credit facilities are as follows:

        ---------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
        ---------------------------------------------------------------------
        Secured revolving credit facility of up
         to $250.0 million due February 11, 2012
         with interest based on Canadian or
         U.S. Prime rates + 5%, or Canadian BA
         rates + 6%                                 $    144.0    $        -
        Unsecured long-term revolving facility
         (Tranche A) of up to $216.7 million due
         September 24, 2012 with interest based
         on Canadian Prime/BA or U.S. LIBOR
         rates + 0.9%(1)                                     -         189.8
        Unsecured term facility (Tranche B) of
         up to $108.3 million due September 24,
         2009 with interest based on Prime rates(1)          -         108.3
        ---------------------------------------------------------------------
        Total long-term debt                        $    144.0    $    298.1
        Less current portion                                 -        (108.3)
        ---------------------------------------------------------------------
                                                    $    144.0    $    189.8
        ---------------------------------------------------------------------
        (1) The long-term revolving facility of $216.7 million and the term
            facility of $108.3 million were effectively extinguished with the
            amended and restated credit facility.

        On February 11, 2009 the Company raised $150 million by way of a 9%
        five-year convertible debenture issue (note 12). The net proceeds of
        the convertible debentures were used by the Company to permanently
        repay $75 million of indebtedness under its bank credit facilities,
        with the remainder being used to reduce indebtedness under the
        Company's revolving credit facilities. The Company and its lenders
        completed a new $250 million three-year secured revolving credit
        refinancing arrangement as described in detail below.

        Under this facility, funds are available to the Company in Canadian
        and US dollars by way of adjusted Canadian bankers' acceptances plus
        6%, or Canadian or U.S. prime rates plus 5% loans and letters of
        credit. This facility has been underwritten by a syndicate of banks
        and is due on February 11, 2012.

        The facility includes financial covenants to maintain:

        -  minimum bank EBITDA for the period January 1, 2009 to
           June 30, 2009 to negative $16.0 million;

        -  minimum bank EBITDA for the period January 1, 2009 to
           December 31, 2009 to negative $16.0 million;

        -  minimum bank EBITDA per quarter for the eight quarters of 2010 and
           2011 of $8.3 million, $16.2 million, $24.1 million, $32.0 million,
           $40.7 million, $49.4 million, $58.1 million and $66.8 million,
           respectively;

        -  consolidated tangible net worth at the end of each quarter in
           excess of $700 million;

        -  consolidated debt is less than 40% of capitalization;

        -  consolidated debt is less than 40% of the market value of the
           Company's private timberlands and higher use properties.


        Bank EBITDA calculations include full proceeds (net of commissions)
        of real estate sales and other items. At March 31, 2009 the Company
        is in compliance with the terms of its credit facility.

        The 2009 transaction costs related to this refinancing were
        $3.5 million (2008 - $1.1 million) and have been deferred and
        capitalized on the balance sheet as they relate to debt refinancing
        held at amortized cost.

    12. Convertible debentures

        On February 11, 2009, the Company raised $150 million by way of a 9%
        five-year convertible debenture issue. The $150 million of
        convertible debentures was raised through a $100 million private
        placement with two wholly-owned subsidiaries of British Columbia
        Investment Management Corporation and through a $50 million rights
        offering to unitholders. The convertible debentures mature on
        February 11, 2014 and are convertible into Stapled Units at $3.50.
        The convertible debentures pay interest quarterly at 9% with the
        first interest payment made on April 15, 2009.

        The Company has elected to designate this obligation as 'held-for-
        trading' and it will be revalued at fair value at each reporting
        date. Changes in fair value from one period to the next will be
        recognized against net income in the period. Transaction costs of
        $5.4 million were incurred and expensed to the statement of
        operations in the period.

    13. Employee future benefits

        ---------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
        ---------------------------------------------------------------------
        Pension benefits                            $      9.4    $      9.4
        Non-pension benefits                              27.3          27.3
        ---------------------------------------------------------------------
                                                    $     36.7    $     36.7
        ---------------------------------------------------------------------

        The Company, through its subsidiaries, maintains pension plans that
        include defined benefit and defined contribution segments available
        to all salaried employees and a small number of hourly retirees not
        covered by union pension plans. For the three months ended
        March 31, 2009, the Company recorded an expense of $0.4 million for
        pension benefit costs (2008 - $0.5 million) and made cash payments of
        $0.5 million to fund current service costs (2008 - $0.5 million).

        The Company also provides non-pension benefits consisting of group
        life insurance and medical benefits to eligible retired employees,
        which the Company funds on an as-incurred basis. For the three months
        ended March 31, 2009, the Company recorded an expense of $0.6 million
        for non-pension benefit costs (2008 - $0.8 million) and made cash
        payments of $0.6 million to fund current benefit costs (2008 -
        $0.5 million).

    14. Deferred distribution payable

        ---------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
        ---------------------------------------------------------------------
        April 15, 2009 distribution (2%) with a
         face value of $3.5 million due by
         October 15, 2010                           $      3.1    $        -
        January 15, 2009 distribution (12%)
         with a face value of $21.0 million
         due by April 15, 2011                            18.2          17.8
        ---------------------------------------------------------------------
                                                    $     21.3    $     17.8
        ---------------------------------------------------------------------

        The Company can defer distributions on its Series A Subordinate Notes
        after December 31, 2008 for up to 18 months while the distribution
        rate is set at 2% (note 15) and defer the January 15, 2009
        distribution for up to 27 months. As a result of these deferrals, the
        deferred distribution payable is accounted for at its fair value and
        the obligation is revalued at each reporting date.

    15. Stapled units

    -------------------------------------------------------------------------
                                               Stapled Unit Components
                                         ------------------------------------
                                             Series A
                                          Subordinate       Share
                                  Number        Notes   Capital(1)     Total
    -------------------------------------------------------------------------

     Three months ended
      March 31, 2008:

       Balance, December
        31, 2007              77,750,143    $  698.1     $  191.0   $  889.1
       Issuance of Stapled
        Units on exercise
        of options                 2,720           -            -          -
    -------------------------------------------------------------------------
     Balance, March 31,
      2008                    77,752,863    $  698.1     $  191.0   $  889.1
    -------------------------------------------------------------------------

     Three months ended
      March 31, 2009:

       Balance, December
        31, 2008              77,765,440    $  240.4     $  191.0   $  431.4
       Issuance of Stapled
        Units on exercise
        of options                     -           -            -          -
       Accretion on Series
        A Subordinate Notes            -         1.6            -        1.6
       Change in fair value
        of option to defer
        interest payment               -        (0.4)           -       (0.4)
       Change in fair value
        of option to extend
        maturity                       -           -            -          -
    -------------------------------------------------------------------------
    Balance, March 31, 2009   77,765,440    $  241.6     $  191.0   $  432.6
    -------------------------------------------------------------------------
    (1) Share capital consists of common and preferred shares.

        The Company issues equity by way of Stapled Units, each Stapled Unit
        consisting of approximately $8.98 face amount of Series A Subordinate
        Notes, 100 preferred shares and one common share. The securities
        comprising a Stapled Unit trade together as Stapled Units and cannot
        be transferred except with each other as part of a Stapled Unit until
        the date of maturity of the Series A Subordinate Notes or the payment
        of the principal amount of the Series A Subordinate Notes following
        an event of default and expiration of a remedies blockage period.

        On December 19, 2008 the holders of the Stapled Units approved a
        series of note amendments that came into effect on December 31, 2008.
        The note amendments are as follows: (i) the rate of interest on the
        Series A Subordinate Notes payable was changed from a fixed 12% per
        annum to a variable rate between 2% and 12% per annum to be set from
        time to time based on the Company's distributable cash; (ii) the
        period over which the Company can defer payments of interest on the
        notes was reduced from 27 months to 18 months, and the Company may
        only exercise this deferral right in respect of interest payments for
        periods where the applicable interest rate on the subordinate notes
        is 2%; and (iii) replaces the Company's right to elect to pay
        interest on the subordinate notes by delivering common shares or
        preferred shares of the Company with the right to elect to pay
        interest on the notes by delivering Stapled Units.

        Each Series A Subordinate Note has been issued with a face amount of
        $8.978806569, entitling the holder to an interest payment per unit of
        between $0.179576131 and $1.077456788 per annum (2-12%). The Series A
        Subordinate Notes are unsecured and subordinate to all credit
        facilities (see note 11) and convertible debentures (note 12). The
        principal amount of the Series A Subordinate Notes plus accrued and
        unpaid interest thereon are due on August 31, 2038, unless such date
        is extended by the Company at the time of the issuance of additional
        subordinate notes to a date not later than the earlier of: (i) the
        date of maturity of such additional subordinate notes; and (ii)
        August 31, 2048, and will be payable by cash or, at the option of the
        Company, by delivery of common shares to the Subordinate Note Trustee
        for the benefit of the holders of the subordinate notes.

        In accordance with Canadian GAAP, the note amendments had the effect
        of extinguishing the previous debt associated with the Series A
        Subordinate Notes and triggered a revaluation of debt on the
        extinguishment date at December 31, 2008. As a result of this
        revaluation the Company recorded a 'Gain on modification of Series A
        Subordinate Notes' of $461.6 million on the Consolidated Statement of
        Operation and Comprehensive Income (loss) with a corresponding write-
        down to the Series A Subordinate Notes on December 31, 2008. The
        write-down had no tax consequence to the holders of the notes.

        The revalued Series A Subordinate Notes have been measured by the
        Company under Canadian GAAP at amortized cost under CICA Section 3855
        'Financial Instruments.' As such, the balance of the Series A
        Subordinate Notes will be accreted using the effective interest rate
        method to face value of $698.2 million on maturity. In Q1, 2009,
        accretion recognized in the statement of operations was $1.6 million,
        and interest accrued and payable to the holders of the Series A
        Subordinate Notes was $3.4 million for total interest expense of
        $5.0 million.

        At December 31, 2008, transaction costs of $0.9 million had been
        deferred and offset against the Series A Subordinate Notes and are
        being amortized using the effective rate method over the life of the
        Series A Subordinate Notes until maturity.

        The option to defer interest distributions to the holders of the
        Stapled Units for up to 18 months is an embedded derivative under
        Canadian GAAP and is revalued at each reporting date. As at March 31,
        2009 the fair value of this option is $3.7 million (December 31, 2008
        - $4.1 million) and is accounted for as Other Assets (note 10).

        The option to extend the maturity date on the Series A Subordinate
        Notes from August 31, 2038 to August 31, 2048 is an embedded
        derivative under Canadian GAAP and is revalued at each reporting
        date. As at March 31, 2009 the fair value of this option is
        $0.6 million (December 31, 2008 - $0.6 million) and is accounted for
        as Other Assets (note 10).

    16. Stapled Unit option plan

        Under the Company's Stapled Unit Option Plan, the Company may grant
        options for the purchase of Stapled Units to directors, officers or
        employees who are in active service or employment of the Company or
        of any of its subsidiaries. During the quarter ended March 31, 2009,
        there were 1,696,827 Stapled Unit options granted at an average
        exercise price of $3.00 (Q1, 2008 - no Stapled Unit options were
        granted).

        The option to acquire a Stapled Unit effectively provides the option
        holder with an option on the Series A Subordinated Note component and
        an option on the equity components of the Stapled Unit. An option to
        acquire a debt instrument is accounted for under the intrinsic value
        method whereby the compensation cost is determined each period based
        on the fair value of the debt instrument compared to the exercise
        price of the option to acquire the debt instrument. The fair value of
        the equity components is based on the fair value of the option as
        determined using an option pricing model. Historically, the Company
        has determined that the intrinsic value of the option to acquire the
        Series A Subordinate Notes has not been material and the fair value
        of the option has been recorded in equity as contributed surplus
        based on the fair value as determined by the Black Scholes option
        pricing model.

        With the recent changes to the Series A Subordinate Note terms
        including modifying the interest rate to a variable rate from 2% to
        12% which is ultimately based on distributable cash levels and the
        current market value of the Stapled Unit which is below the face
        value of the Series A Subordinate Note, the Company has determined
        that the value of the Stapled Unit option is now in the debt
        component and that the equity option value is immaterial. As a
        result, the accounting for the options issued in the period has been
        done using the intrinsic value method.

        On this basis, the compensation cost for the 1,696,827 Stapled Unit
        options granted between January 1, 2009 and March 31, 2009, based on
        an intrinsic value method of accounting, was $0.1 million and was
        expensed in the period with a corresponding credit to the Stapled
        Unit option plan liability (Q1, 2008 - no Stapled Unit options were
        granted).

        Under the Company's Distribution Equivalent Plan, the Company awards
        Stapled Unit option holders an amount equal to actual distributions
        paid on the Company's Stapled Units. Awards granted under the
        Distribution Equivalent Plan vest under the same terms that apply to
        the corresponding options and can only be exercised at the time of
        exercise of the corresponding options.

        Awards are accrued on a basis equal to actual distributions paid on
        the Company's issued and outstanding Stapled Units and are charged to
        earnings as the underlying Stapled Unit options vest. For the three
        months ended March 31, 2009, no amount was accrued as no
        distributions were paid (2008 - $0.3 million) and $0.1 million has
        been amortized against earnings for the quarter (2008 -
        $0.3 million).

        During the three months ended March 31, 2009, no Stapled Unit options
        were exercised, 47,500 Stapled Unit options with an average exercise
        price of $12.72 were cancelled, and 199,080 Stapled Unit options with
        an average exercise price of $12.65 expired (2008 - 2,720 Stapled
        Unit options with an average exercise price of $11.90 were exercised
        and 1,500 Stapled Unit options with an average price of $16.26 were
        cancelled).

    17. Financial instruments

        Accounting for financial instruments

        These interim consolidated financial statements follow the same
        accounting policies and methods of application used in the Company's
        audited annual consolidated financial statements of
        December 31, 2008.

        On February 11, 2009, the Company issued convertible debentures
        (note 12), the Company has designated these as held-for-trading and
        the carrying values are accounted for at fair value. The convertible
        debentures will be revalued at fair value at each reporting date and
        changes in fair value from one period to the next will be recognized
        against net income in the period. Transaction costs of $5.4 million
        were incurred and expensed to the statement of operations in the
        period.

    18. Comparative figures

        Certain comparative figures have been reclassified to conform to the
        current year presentation.
    

    About TimberWest

    TimberWest Forest Corp. is uniquely positioned as western Canada's
largest private timber and land management company. The Company owns in fee
simple approximately 322,000 hectares or 796,000 acres of private land and is
in the business of selling timber products and real estate.

    Stapled Units of TimberWest Forest Corp. are traded on the Toronto Stock
Exchange under the symbol: TWF.UN

    %SEDAR: 00009326E




For further information:

For further information: Investor Relations Contact, Bev Park, Executive
Vice President and Chief Financial Officer, Telephone: (604) 654-4600,
Facsimile: (604) 654-4662, Email: invest@timberwest.com

Organization Profile

TIMBERWEST FOREST CORP.

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