Good afternoon. Alex Reid with B. Riley FBR. I want to thank you all for coming this afternoon. We've got BlueLinx here, and I'm going to introduce Susan O'Farrell, the CFO, to kick off the presentation.
Thank you, Alex. Good afternoon, everyone. Glad to get a chance to be with you here after lunch. Hopefully, we'll keep the energy going, if you haven't had enough coffee after your cookies and carbs. We've got a forward-looking notes here. My lawyers would be upset if I didn't share this with you, so take a moment to read that while I click past it. There we go. We're excited to get a chance to be here together with you today to tell you about the story of BlueLinx. We are one of the largest two-step building materials distributors in the U.S., and we've got a great transformation that we're going through in the business. We sell to customers like pro dealers, national home improvement retailers, industrial companies, as well as local and regional lumberyards.
Across the company, we've sold about over $3 billion in revenues last year. We want to explain to you today where we fit in the value chain for building materials in the distribution industry. We're based out of Atlanta. Again, about $3 billion in revenues, and we split into different categories that we call structural versus specialty. Our specialty products were just about 69% of our business in the first quarter and 31% on the structural side. Why should you, the investor, be interested in BlueLinx? BlueLinx is considered one of the market leaders in building materials distribution. In April 2018, we completed an acquisition of a competitor, Cedar Creek, which almost doubled the size of the company. We'll go into greater detail in a little bit, as we have Shyam Reddy, our Chief Transformation Officer, here with us today to share more of that with you.
The combination allowed us to scale our EBITDA margins and grow the business, greatly enhanced our ability to generate cash flow as the U.S. housing market has continued to recover since the downturn from 2008. On top of this, we're realizing substantial synergies from the acquisition in a timeline that is accelerating, and we're ahead of schedule. That cash that we generate from those synergies is allowing us to delever the business in a meaningful way, and ultimately position our business more effectively. The investment proposition is simple. We can generate a significant amount of cash flow when operating at an efficient scale in a market where real estate construction is growing and the markets are steady with the commodities. Quantitatively, we don't feel the debt profile of our business reflects the real value of our company, which is largely a matter of time.
We closed our acquisition but needed about 18 months to complete the $50 million of synergies that we can generate to delever the business. We are ahead of our schedule in that regard and working more efficiently than we anticipated, it does take time for that to screen effectively for the company. That's an opportunity as you look at this, if you're willing to examine our company and get to know the business. Also, we have substantial real estate assets that we can monetize through sales and sale-leasebacks, we'll talk you through that in a little bit of detail, we can accelerate our cash flow potential with that and paying down debt. First thing, let's take a step back and look at the distribution industry and give you an understanding of where we fit in the value proposition. First, single-family housing starts.
We looked back over the course of 50 years for single-family housing starts, we do that because we're highly correlated to single-family housing starts in the U.S. We're still about 20% below the 50-year average of where you'd expect to see housing starts, that's that without taking into account the population growth in the U.S., which is over 100 million people over this course of time. We believe in the macroeconomic backdrop of single-family housing starts. As a building product material distributor, we obviously look at where builders are thinking about their confidence and where they expect the markets to grow. We look at this, the Builders Confidence Index has actually steadily ticked up this year. Just this last month, the confidence index went up to 66. Anything over 51 is a positive sign.
It's gone from 62 to 63 to 66 this year, which means our builders and our end customers are expecting a positive second half of the year, we're really excited about that opportunity. Where do we fit in the value chain? We are a two-step distributor, which means we sell to other customers who sell to the end customer, sometimes known as a wholesale distributor. We take products from the manufacturers that we show on the left. We've got some marquee brands of products that we distribute with our 700 customer-facing sales representatives, we take them out to the market. We take them out to companies like you'll see, The Home Depot, Lowe's, other regional yards, 84 Lumber, et cetera, as well as manufactured housing and recreational vehicle manufacturers. Again, they sell to those end customers.
That could be home builders, custom home builders, DIY customers, contractors that work on repair and remodel. I think one of the things that's really unique about BlueLinx is that we have a great value proposition as you think about the space in our yards. We've got an extensive network of large distribution warehouses. Our warehouses average anywhere from 25 to 65 acres, so much larger than our customers' yards. We have the lungs, the holding power to bring in full rail cars of product on low-cost industrial rail. We've got heavy product that's moving through, anytime you've got an advantage on cost with freight, bringing the products into our warehouse is a value add for our customers. Some names in the industry. We've listed some of the names of our competitors as well as some of our customers, just so you can anchor that space.
Certainly, we compete in the space with Weyerhaeuser and Boise, but specifically their distribution segments of their business. Not in the entire business, but they also have distribution segments. We compete with them, and we have some large customers, too, that you'll recognize the names of. Frequently, some folks think our customers are, in fact, our competitors, but because of the place we play in two-step distribution, in fact, we're selling to them who sell to the end customer. We'll talk about value proposition here for a moment. A key thing that we provide is we are a full line building products distributor. We sell a wide variety of products, and we've got them listed here in the bottom left.
You can see anything from framing out a home to putting on siding on the home, roofing, flooring, decking, insulation, all the things that go into a single family home. That's very key. We're also managing the logistics and distribution for our customers. We're making sure they have just-in-time products delivered to their facilities right as they need that. With this, I want to make sure we get a chance to have Shyam share with you a little bit more about our value proposition and how Cedar Creek is adding to that value. Shyam?
Thank you, Susan. As you can see, we've got an interesting story here. BlueLinx was formed in 1954 as the distribution arm of Georgia-Pacific, and then it spent the next 65 years basically developing a great reputation in the wholesale distributor space in terms of customer service and its logistics to be able to fulfill its customers' needs. In April of 2018, we were able to bookend that 65-year period with a transformative acquisition of Cedar Creek. As you can see, the combination of these two companies created one of the top three wholesale distributors of building products in the market. Some of the richness of the story for Cedar Creek can be found below.
Over several decades, it was founded in Tulsa, Oklahoma in 1977, and then over the next several decades, it was able to get to a point where it did several strategic acquisitions, which we're now basically taking advantage of as a combined company. The one thing that the Cedar Creek acquisition did for BlueLinx was expand our geographic footprint and also give us an opportunity to expand our product profile, which is great for our customers. Moving forward, as a result of the merger, and as I said earlier, we are one of the top three wholesale distributors of building products in the U.S. Our businesses, our branches are located east of the Rockies. We've expanded our geographic footprint considerably.
In some cases, in these overlapping markets, we've been able to generate significant synergies as a result of the consolidation activities that are taking place, which I'll touch on in just a minute. One of the things that we were really excited about when we did the deal was the fact that we were able to finance the transaction off the balance sheet instead of issuing new equity, which would have diluted our shareholder base. Significant synergies have been generated as a result of the Cedar Creek acquisition. We told the markets we would generate at least $50 million in run rate synergies. At the same time, we said we would exit 2018 with at least $15 million. We actually doubled that when we exited 2018 and announced we exited 2018 with at least $30 million in run rate synergies.
In addition to being able to de-leverage the balance sheet over time with those synergies, we've also got some capacity on the real estate side. Under the term loan, we're able to dispose of up to $75 million in real estate assets, $50 million in the form of sale-leaseback transactions, with an additional $25 million from outright sales in these overlapping markets where we're consolidating a legacy BlueLinx location into a legacy Cedar Creek facility. Just earlier this week, on Monday, I believe, we announced that we did one sale-leaseback transaction at $23 million. We're well on track to fulfill that.
Are you required to take the proceeds of the sale of that real estate to pay down the debt?
Yes, absolutely. The proceeds from the sale-leaseback transactions, as well as the outright sales, go to pay down the debt. You'll see from the synergy breakdown that 40% is coming from G&A, 30% from supply chain and network, and 30% from procurement. We didn't get here by sheer luck. We've got a great management team led by Mitch Lewis, who with his 30-plus years of experience, has been able to not only put together a team, but lead us through some transformative transactions over the last several years that took us from a position where we were significantly leveraged to ultimately de-leveraging while at the same time doing the transformative acquisition of Cedar Creek. The numbers speak for themselves. As you can see, we've got a pretty good runway here with $1.3 million in 2014.
That has now gone up to roughly $70 million at the end of 2018. With that, I'd like to turn it back over to Susan.
Thanks, Shyam. Appreciate that. We're pretty excited about this deal, ultimately, it all comes to the numbers. You want to understand that, I want to take you through that a little bit, and certainly we'll have time to answer questions that you may have. On this page, we've got our financial profile here, give you a little bit of an update there. On the right, I think it's key to see the synergies that Shyam was talking about and how it plays through to gross margin. If you look on the right, you can see that we've expanded our gross margin 90 basis points on specialty products and 20 on structural products. That's really coming from those procurement synergies that Shyam talked about.
We've done a lot of heavy work in the fall to implement contracts that started in 2019, already in Q1, you can start seeing that running into the gross margin rate, as well as the cost out that we're able to get for the G&A synergies that we've been working on. Certainly in the gross margin, nice, sustainable, and glad to see those numbers coming through to the P&L. I think leverage profile is something key. I think it's something that's misunderstood about our company. I want to talk to you about it in two different dimensions. We have the term loan that we took out as part of the Cedar Creek deal, it's something that we are desiring and paying down quickly as we monetize real estate.
It's our intention to pay down debt, term loan would be our first priority because it's our highest part of our capital structure, highest part of the cost of the capital structure. Those proceeds went immediately on Monday to paying down the term loan. We did that $23 million sale-leaseback. That takes us down to about $155 million from the term loan, which is about two times trailing EBITDA, TTM EBITDA. We're really pleased to see that already starting to come down. In addition, the majority of our debt really is our ABL, our revolver, which is the working capital financing that we offer as part of our value proposition to our customers. That's our inventory and receivables. We keep that on the books. It's low-cost paper. This is L plus two.
For us, we see it's a great part of our capital structure to be able to finance the business, and it actually expands and contracts with the business, be it either seasonally or through the cycle. We're really glad to have that there. We have high inventory velocity, low customer debt, so the ABL is really well-costed for us. You start thinking about, well, what happens when we bring together these synergies to the P&L? What happens to the cash? We start thinking about de-leveraging the cash available for debt reduction. You can look at the costs that we have in our business, and we just took our last year's numbers, the back half of last year, and multiplied by 2 to give you an illustrative example of where this could position the company over time in paying down debt.
As we bring together the businesses, there's certainly plenty of cash for us to be de-levering the business as we continue to grow and gain the synergies into our business. We're excited about that. That tells you a little bit about the liabilities, but I think the assets are also something important for you to understand, and real estate too. We'll get to both components. If we look at the assets as compared to the liabilities, they certainly exceed. We have terrific quality of our assets, and the real estate is something that we talk about a good bit. It goes hand in glove with the NOLs that we have to protect the cash generated by real estate sales. Our working capital exceeds the ABL debt by $62 million, providing plenty of cushion.
Again, if there's a contraction in our inventories and cycles, we bring that down and generate cash. The substantial real estate assets that Shyam alluded to as far as the sale-leasebacks. If we look at our real estate as a two-step distributor, we have a terrific legacy of having real estate in our business. As we were spun off from Georgia-Pacific in 2004, we have that real estate on our books at original purchase price rather than mark to market. There's a lot of value over and above what you can see. As we look at this, we have real estate properties. This is through the end of the quarter. 33 properties, now 32. We just did a sale-leaseback that we owned. About $160 million in value. That was appraised by CB Richard Ellis.
We've been monetizing some of those real estate, and what we've seen is that we've been able to achieve those real estate values. As a matter of fact, exceed those real estate estimates. We're really pleased and confident in those values. You can see here a very impressive one is outside of Atlanta. It's about 30 miles from Atlanta. That's our Lawrenceville facility. It is actually 65 acres, about 675,000 sq ft under roof with a mile of rail line running through it. We have industrial rail line where we can bring heavy product in at a low cost of freight, which impacts our COGS. It's a terrific property, and these are unique. Our customers don't have anything like this for scale, which is why, again, we add value in the supply chain and the value proposition.
As I mentioned, last week, we just announced our University Park, which is a suburb of Chicago, on a sale-leaseback for $23 million. Again, the entire proceeds went to pay down the term loan. To conclude, this is what we think is really exciting. Hold on, I'm one page behind myself here. We look at this on the real estate. Again, the real estate is on the books at just under $40 million, and the value is $160 million. As we monetize that, we're able to pay down debt. We've got $50 million that we can work on sale-leasebacks, as well as another $25 million in surplus properties because of the acquisition of Cedar Creek and having duplicative properties. Those are unencumbered. We can again use the proceeds from that to pay down the term loan with actually at par.
Really terrific value to be able to do that. As we think about it in investment conclusion, what we see with all this is the opportunity to expand our EBITDA and look at generating cash to pay down and de-lever the business. As a management team, we remain fully focused on customers, driving sales, and generating the synergies that we know are going to materialize over time. We're making sure that we're using our working capital well and our balance sheet well, paying down that debt. We believe good things are going to happen as we continue our integration. We're just now one year into our integration, and we see the things happening on our P&L, as we mentioned, the gross margin in the first quarter and the lower SG&A cost that we've been able to achieve in the first quarter. Then the real estate assets.
We're going to continue to monetize the real estate assets. We have plenty to be able to do that with, and the market is strong for industrial properties. We've seen a lot of interest in these properties and enable us to substantially transform our balance sheet in the coming year. Looking forward to driving these numbers, telling you more about the story, but now we've got some time to open it up for questions if there's anything on your mind. Alex.
Can you just go back and talk a little bit more about the macro environment, kind of how the last six months affected you, but how the next six months might play out, and overlay that with commentary about lumber prices and the fluctuation of that and on your business?
Great question. Just to anchor back for those in the room and on the mic, listening about the macro backdrop for the past six months. I would say the end of last year and going into the first of this year, single-family housing starts did not perform as well as we've seen in recent history. Some of that was by policy to increase interest rates, which actually didn't come to fruition. Certainly, on the single-family housing starts, builders are very sensitive to new home buyers coming into the market who are very interest rate sensitive. I think that had a cooling effect, certainly. In the first quarter, to further that, there was also complications with weather and rain. There were about 15 states where the governors had declared a state of emergency for flooding.
Really hard to pour a foundation to start the year and to start the business. That's continued a little bit. What we see, though, is the builders knowing what's happening with foot traffic, and I think that's indicative by the builders confidence index that's ticked up. While it's been a tough start to the year, the confidence is very strong, and we hear that across the channel, as you might imagine, our position in the channel. We can see that coming from manufacturers as well as the customers, that we're seeing a consensus towards an increase in acceleration in single-family housing starts this year. We're pleased with that. On the lumber side, it's been a wild ride the last year. We had some record highs as well as lows last year. Actually, the velocity and the change of commodity prices was unprecedented.
We looked back, and it was over 30 years it had been since the last time we had seen a decline in commodities as precipitously as happened last year. That certainly had a negative impact on our business. We had to ride that out. We are exposed to commodity markets. Our job is to manage that and to have high velocity on the inventory to burn through it quickly. That's what we've been doing. What you see now is a more stabilized commodity price. We look at the lumber price index as well as the panels price index. You see we're still tracking right now fairly flat for this year. For lumber, think about 340 in there, which is about 10% below a five-year average, but it's fairly flat for this year.
The prognosticators would suggest that it's going to continue to be a fairly flat year. That bodes well for our gross margin rate. The reality, though, is there's the challenge of the year-over-year comparisons. If you look at the top line revenue as it relates to structural products of our business, that's 31% of our business will be negatively impacted by deflation. We see the gross margin rate has recovered, that's a nice combination. Yes.
What's your free cash flows from operations expected this year?
The question's about free cash flows from operations expected this year. We don't give forward-looking guidance on that, but what we can say is you can see the components in the use of cash, and we expect to continue to improve on that, especially as we pay down the term loan debt, which takes out some of that cash servicing cost. We've got that range back on a few pages we can refer to. Yes.
Can you talk about breakdown between commodity and specialty products and where you go ahead in a few years from now?
The question is about the breakdown of commodity and specialty as far as our mix, and where it could be in a few years from now. The reality is we love both products. Our customers need both products. You can't put specialty products on a home until it's been framed. It's an important part of the value proposition. It is certainly a lower gross margin profile, and we recognize that. You saw 9.5%. Having said that, though, it's also less working capital intensive. We incent our business owners and our general managers to think about things from an EBITDA point of view, as well as a return on working capital. We want to make sure that we are selling what the customers want to buy.
We don't want to stop selling commodities alone because it actually starts the project of a house and framing out a home. We think it's an important part of our business, but we think there's certainly opportunities to sell more specialty products, which has a higher gross margin profile. Yes.
For instance, for Shyam on the construction scale, I was just wondering if you could talk about how the scale has changed in the last year and where you might be in three to five years.
Great question. The question was about scale and what we've been able to accomplish in the last year and how it may look in three to five years. What scale has done for the company via the merger is it's given Legacy Cedar Creek, for example, access to the northeastern markets and then BlueLinx greater access in the Midwest. At the same time, with the overlapping markets, by getting the efficiencies from consolidations, we've been able to take advantage of the new product lines that are coming in as a result of the combined company. The scale gives us greater efficiencies just from an operating standpoint. From a procurement perspective, just being able to consolidate the spend and then negotiate better rebate programs with our suppliers, and also give them deeper penetration in the markets has been a great win-win.
Of course, from a network standpoint, you've just got greater efficiencies just due to an optimal log point from an optimal log point basis. You don't have trucks passing each other in the night, and you can get a more efficient logistics operation out of it. At the same time, I think that what this, and I mentioned this earlier with respect to products, it has really been just, I think, transformative on some level. Neither business, for example, was selling Hardie Siding, which is a really, really popular siding product. We've also been expanding into product lines in new territories like MiraTEC in Texas. We're selling Huber products in the Northeast. There are a lot of exciting opportunities that come with this scale.
Over the next three to five years, we're going to end up, as a result of this, develop the muscle memory and the platform to continue finding opportunities, whether it be from a consolidation standpoint or leveraging the scale to bring in new and exciting products and bake it into the platform.
If I can just add, one of the key things that we look at is how highly fragmented this industry is. While we're the second largest player in the building products distribution space, we still believe we likely have less than 5% of the marketplace. There are so many competitors throughout the landscape, then we look at what could happen as far as a roll-up into the industry, we'd like to be a leader in rolling up the industry. We've got a platform for that. We've got a great management team. We've got a scalable ERP system that we can continue to grow the business, that will continue to give us scale over the course of time. We expect to be looking for those opportunities.
That was all for me. Thank you very much.