All right. We are good to go and live for the webcast, so I want to thank everyone for joining us for the 3:15 session. My name is Buck Horne. I'm the Raymond James Housing Analyst, also covering all residential REITs and timber REITs, and that includes Weyerhaeuser. Really thrilled to be able to—to my left I've got Devin Stockfish, the CEO, and David Wold, the CFO of Weyerhaeuser, to talk timber and a lot of interesting things that have been going on at the company. Obviously, the housing market has not cooperated as well as we would have anticipated or liked to start the year, but things are, you know, I think hopefully bottoming out here. We'll get the update from Devin here, and they're certainly not sitting on their hands in this environment. That's the good news.
Lots of things to talk about, and I'll turn it over for a few intro remarks, and then we'll dive into some Q&A.
Great. Thanks, Buck. I'll keep it pretty brief. We do not have a lot of time, so we want to make sure we have plenty of time for Q&A. Here is a quick overview for those that do not follow the company as closely. We are the largest private owner of timberlands in North America. We have about 10.5 million acres of high-quality timberlands across the Pacific Northwest, the U.S. South, and the Northeast. We are also one of the largest manufacturers of wood products. We make lumber, oriented strand board, a variety of engineered wood products. We have a distribution facility as well. Our final business segment is real estate, energy, and natural resources. That is really all about making sure that we are capturing the maximum value from every acre we own.
We do that through real estate, a variety of other activities, including our natural climate solutions business, which I suspect we'll talk about a little bit here today. Maybe I'll just really quickly give an update on how we're progressing against the multi-year targets that we laid out a few years ago. You know, one of our targets that we laid out back in 2021 was $1 billion of timberland acquisitions over a multi-year period. We just recently announced an acquisition in North Carolina and Virginia. With that acquisition, which we expect to close in Q3, we'll be at about $1.1 billion of timberland acquisitions over this period. We also announced a goal to grow a natural climate solutions business, which covers everything from carbon, carbon capture and sequestration, solar renewables, mitigation banking, to grow that business to $100 million per year of EBITDA by the end of 2025.
Last year, we delivered $84 million against that goal. We're on track to hit the $100 million by the end of this year. We're making good progress against our multi-year OPEX goal. We had set out a target to take out around $175 to $250 million of costs and other margin improvement initiatives over the course of that period. I think we're tracking quite well to hit that target by the end of this year. Lastly, around cash returns. Since we laid out our new program, we've returned approximately $5.7 billion of cash through a variety of dividends and share repurchase. In fact, we just closed out our billion-dollar share repurchase program at the beginning of May, put a new billion-dollar program in place, and continue to make progress against that. A lot of activity.
Buck, I probably will leave it there so we have lots of time to cover some of the things we've been doing here lately.
Yeah, there is a lot going on here. Obviously, you know, you guys are very active in the market right now. Let's dive into the acquisition a little bit. The North Carolina and Virginia deal opened quite a few eyes, I think, in terms of the pricing. What were the characteristics of that particular deal? What made it attractive right now? You know, kind of compare and contrast the opportunities in terms of the capital cost.
Sure. Buck, as you know, we have a team of people that are focused all the time on sourcing deals. I do not think there is anybody else in this space that has the resources, both in terms of people as well as the tools and technology to be approaching the timberlands market. When we think about the investable universe of timberlands, using those technological tools that we have, we can really hone in on the acres that we want to own. Anytime you see us look at an off-market transaction, it is very likely that we really desired those timberlands. When we look at these particular acres, as Devin mentioned, located in North Carolina and Virginia, about 115,000 acres, about $375 million on the purchase price, these are immediately going to be some of the best timberlands in our portfolio, probably the best among our U.S.
South timberlands. When we think about metrics like harvest tons per acre, up over 7 tons per acre is what we anticipate. When we think about the timber-only cash flow yield of a little over 5%, those are phenomenal metrics and immediately, again, become some of the best in our portfolio. As we mentioned in our press release, we're looking to divest some other timberlands to pay for this. We really look at this as upgrading the quality of our portfolio and thinking about how can we make sure we're maximizing the cash yield across our portfolio. In the past, when we've done transactions like this on both the buy and sell side, we'd expect to add a couple points from a cash flow yield perspective in making those swaps.
Very excited about the opportunity, unique opportunity in the off-market manner, and again, very pleased to add it to our portfolio.
Yeah. And speaking to that, you mentioned it was sourced off-market. You reached a deal with this particular seller. You know, what is the state of the M&A market? What would it have been like if you think this acreage had come to market in an auction process? I mean, what's the bid like in the private market for high-quality timber?
Sure. Yeah. Our observation is that the market remains very strong, especially for high-quality timberlands. We saw some transactions last year that maybe struggled a little bit, some lower-quality packages where we had to, maybe the seller had to recalibrate expectations in terms of what the market was offering for some of those lower-quality deals, having seen some high price per acre on some of the better-quality deals. Really, for the high-quality packages, we haven't observed much of a change in how those are trading. In fact, I'd say they've continued to be quite strong. There's a lot of capital that's out there pursuing those, a lot of capital that's been raised over the last couple of years. Last year was still a relatively normal year, a little over $2 billion or so in timberland transactions. This year we expect to be another normal year.
There's a couple packages out there. Again, for those high-quality deals, we expect to see continued strong interest, just really reflecting the recognition of all the different things that you can do with timberlands, all the optionality that's inherent. Certainly, that's a big part of our growth in the natural climate solutions space.
I can think of one high-quality timber portfolio that's on sale right now. It's your own stock. You know, when I think of, on my numbers, you're certainly north of a 30% NAV discount. I'm not sure exactly where consensus is, but I don't think it's that far off. How do you weigh and balance the opportunity for, you know, whether you're doing this particular type of acquisition versus more repurchases? Is it yes to both? It kind of seems like that may be the answer. You know, how do you frame the trade-off there?
Yeah. On the timberland side, I would just emphasize again that we really view this as a way to upgrade the quality of our portfolio. We viewed that transaction as so unique that we felt like we really needed to pursue that one. We will fund that through some divestitures of other timberlands. We really think about that bucket separately from how we think about share repurchase. You're right at the trading levels right now. It's a very attractive lever to be out there repurchasing our shares. That is why we leaned in in the second quarter, wrapped up that first $1 billion authorization, and announced the next $1 billion authorization. We will continue to evaluate that. We do have some growth opportunities that we're evaluating.
Our TimberStrand facility, the new facility that we announced in Monticello, Arkansas, is something that we're going to be deploying capital towards over the next couple of years. Really, it's a matter of weighing all the opportunities and allocating our cash in a way that creates the most value for shareholders.
Let's talk about one source of capital, maybe this recent disposition in Princeton in one of your Canadian mill operations recently selling. Can you talk about, like, the thought process around what led you to this particular deal and who the buyer is and what kind of the economics look like for that transaction?
Sure. The Princeton mill has been a phenomenal mill for us, great people, great assets. It is, unfortunately, located in a very challenging wood basket. I think many of you have heard about the challenges. There has been fire, there have been pests, there have been government restrictions on harvest levels. As we look out into the future, the wood cost and availability is something that is going to limit the ability for that mill to be profitable over time. Fortunately, the buyer of the facility is somebody that is local in that area, committed to that mill. They have been a long customer of the Princeton mill. They take that product and remanufacture it into a higher-quality product that has a different market, different profiles. There are some different dynamics there associated with their business.
I think, excuse me, I think they'll be uniquely situated to drive value over that facility over time in a way that maybe is different from us. Really pleased with our ability to capture that capital and reallocate it into other places.
Maybe we can just dive a little bit into the kind of high-level housing overview and kind of where your end markets are at in terms of what your customers are telling you, either on the single-family side or the R&R side. How has the year played out relative to expectations and kind of how do you, you know, how do you see this playing through the rest of the year?
Yeah. I mean, really at a high level, one of the big demand drivers for most of our products is single-family housing. We had certainly expected things to be a little bit stronger than it has turned out to be the case. It's not horrible. It's just not as strong as we would have expected. The underlying macro dynamics around underbuilding, demographics, et cetera, are still very much there. This has just been a challenging year in terms of interest rates are still a little on the high end from a mortgage rate standpoint. There has just been a lot going on, the daily news around, you know, we have tariffs, we do not have tariffs, and just a lot of uncertainty. I think that's really kept a lot of people that otherwise would be in the market to purchase new homes on the sidelines for now.
It's been a little below where we had expected. The April starts numbers were down around 924,000 in that general vicinity. Although, you know, the new home sales numbers that were announced here just a couple weeks ago were a little higher than expected. So, you know, maybe a little mixed message. We certainly haven't thrown in the towel for housing this year. You know, to the extent that we can get a little certainty or a little help on interest rates, I think there's still an opportunity for housing to pick up a little bit over the course of the year. Given where we are today, certainly a little bit below our expectations coming into the year. You know, on the flip side of that, the multi-family space, which doesn't use as much wood as single-family, so it's not as important.
We have seen a little bit more life in that space here recently. Maybe there is a little bit of a rebound going on there. Our expectations coming into the year was multi-family probably was not going to pick up meaningfully until, you know, toward the end of this year, maybe even as early as, as late as early next year. That has been a little bit surprising, you know, to the positive. Repair and remodel, that has been pretty steady. You know, we have lined a sight into that market through our sales into the home improvement warehouse stores, Lowe's, Home Depot. We have pretty good visibility on how sales are tracking there. That has been more or less flat year over year to date. We do think there is some opportunity for upside over the back half of the year in R&R.
That may be a little bit of a tailwind as we get a little bit further into the year. Net-net, we're probably down just a little bit relative to where we thought we would be primarily just as a result of single-family. I do think that there are some dynamics that are probably going to come into play on the regulatory side. Maybe we'll get there here in a moment with duties and tariffs and some things of that nature that have the potential to shake things up a bit.
You're teeing it up for me pretty nicely there. Let's just jump into tariffs. That was part of the, I think you saw the stock was outperforming quite nicely into the fourth quarter. I think, you know, there was a thought process that, with these new tariffs and, you know, the potential impact on Canadian lumber, Weyerhaeuser and the rest of the timber industry could be a prime beneficiary of that. We kind of got whipsawed on the, you know, the implementation or the exemptions of how those tariffs would be rolled out. For those that aren't as familiar, there's what we call the Section 232 tariffs. There's also these countervailing and anti-dumping duties, which are kind of separate and distinct. It feels like those are going to actually come to fruition in the back half.
Yet the market's not pricing in anything relative to that. How do you see all this playing out? Give us the breakdown.
Yeah. I mean, look, it is a complex landscape when you're talking about tariffs right now. And we've certainly had a lot of back and forth. I will just say at the outset, and we'll kind of get into the details, you know, the one thing I would say, you know, as a backdrop, this administration is very supportive of our industry. I think if you go back in time, you very rarely heard a president talk about lumber and timber as much as President Trump. That is really true across the administration and the different agencies. They are trying to be supportive of the domestic manufacturing of a strong U.S. forest products industry. There is, I think, a desire and a willingness to be supportive and try to find ways to help our industry. That is great. We appreciate that.
You know, as you think about the duties and the tariffs, you know, I'll start with duties. That is one area where I think we do have some more clarity. We know at some point, date still TBD, anywhere from July through September, the duties on lumber coming in from Canada are going to go up from 14% to 34%. That is a very steep increase. We really haven't seen a jump of that magnitude in a very long time. That is going to have an impact, right? When those duties do come into effect, they will announce that any day now. We'll have a little bit more clarity. I think to your point, we really haven't seen buying activity or buying behavior change because people don't know when that new duty rate is going to come into effect.
My assumption is you probably anywhere between two to four weeks before the effective date, you're really going to start seeing buying activity and buying behavior change in anticipation of that. If you sort of step back and think about it from a Canadian standpoint, prices are going to have to go up enough to make the Canadian manufacturing base, at the very least, cash flow break even. You should see when those come into effect, some increase in particularly SPF lumber prices. I would anticipate the other species would follow along behind that. That is one thing that we know. You know, the broader tariff environment, it is challenging to determine exactly how that's going to play out. For reference, there is what they call a 232 investigation going on right now with the Commerce Department.
That very well could result in some additional tariffs for wood products entering the U.S. That would be presumably over and above the tariffs on Canadian lumber coming in, would pick up lumber coming in from Europe and other markets as well if that is the direction that that ultimately goes. I think the dynamic is going to be a little bit more certain as we get deeper into the summertime. We would expect it would change the buying behavior in the market.
No, absolutely. I mean, a 20 percentage point increase in the duties and going directly into the cost of. So maybe help us understand, you know, to your understanding, I mean, what capacity would some of these Canadian producers have to eat some of that tariff or incremental duty to offset that? Or is it really just going to have to get strictly passed through straight to the U.S. consumer? Or how do you think that that gets filtered through?
Yeah. I mean, there's a little margin in the system to eat some of that increase in duty. But, you know, some of that's going to have to be passed on for them to remain cash flow break even. So, you know, I think as we look out into the back half of the year, you're going to have to see prices go up somehow.
Most Canadian producers' cash production costs are probably either close to or right at $500 per thousand board feet.
That's right.
Is that about?
That's right. It's differential by province. Obviously, in British Columbia, it's a little bit higher. Alberta, a little bit lower. On average, you're not far off.
Theoretically, I mean, you add these 20 percentage points, I mean, they're going to be certainly north of 500, right?
I mean, lumber prices are hard to predict. So I'll just start with that. But, you know, directionally, they would seem to go up somewhat.
Directionally.
You know, remember for us, we have a lot of leverage to lumber prices. For every $10 of lumber price, that's $50 million of EBITDA for our company. To the extent that you see a move in lumber prices as we get into the fall, you know, that can have a pretty significant impact on our cash flow.
Can we talk just a minute about OSB pricing and just kind of how that's, you know, what's going on in the OSB market that maybe it's a little bit different than the lumber side?
Yeah. I mean, OSB has a little bit different end market. That is more focused on the single-family space. As we have seen single-family maybe not having as much momentum year to date as we would have expected, you have also had a little bit of capacity that has come online from some new OSB mills. It has just gotten that supply-demand balance a little bit out of whack. You know, the challenge with OSB is there is a fairly narrow band around that supply-demand equilibrium. When you get too far above or too far below, you can see prices move. That is really, you know, you need something to kind of shake that loose, whether that is an increase in demand or some supply dynamic change that plays out over the back half of the year.
Gotcha. Gotcha. We circle back to something David mentioned about this TimberStrand project, the decision to go forward with an entirely new facility, it's a multi-year build-out. It's going to be, you know, several hundred million dollars. You know, what's the thought process behind this particular product in this location? And what are the, you know, opportunities for that?
Yeah. I mean, it's one of the most exciting projects we've done in a very long time. We haven't done a greenfield project in many, many years. It all starts with our optimism and our excitement around the TimberStrand technology. You know, one of the things when you think about engineered wood products, a lot of the products that are in the engineered space come from gluing veneer together. It makes a great product. The challenge with veneer is veneer logs are really expensive. The thing that makes TimberStrand so unique is we make this product out of logs that otherwise would have gone into the pulp log pile. The input costs are dramatically lower than the input costs for making engineered wood out of veneer. When we think about this, we currently have one facility in Kenora, Ontario, great mill.
It's always sold out. We really haven't had the opportunity to grow market share. The entire U.S. South is not currently being served by this product. And so, you know, this is an opportunity. We're putting this mill in Monticello, Arkansas, in an area where we have a lot of timber. And an area, by the way, that's had several pulp and paper mills closed down over the last five or ten years. It is a market that really could use some pulp log demand. There is an immediate benefit for our Timberlands business by putting this facility in. It's going to use a lot of pulp log fiber in that region, which should cause pulp log prices to go up. There is a synergy benefit we get with the Timberlands business. Over and above that, we're investing $500 million in this project.
We expect to generate about $100 million of EBITDA when it comes up online fully. This product has a lot of optionality in terms of end markets. You can, on one end of the spectrum, you can use TimberStrand as a replacement for two-by-fours in high-value homes because they never crook, they never twist, they never are a very precise product. You know, these are higher-end homes that would use it for that purpose. In a regular single-family home, there are all kinds of different usages from beams and headers and just a whole bunch of different things you can do. In a single-family house, you can use it in industrial applications. We do sell some of that out of our Kenora facility all the way to, on the mass timber space, I think there are some very interesting applications in mass timber for this product.
We're really excited about it. David and I, in two weeks, are going to be down in Arkansas at the groundbreaking. It's progressing well. We're really excited to bring this online. I think we've got a lot of new product innovation on top of that that will really be based off of this technology.
You had a very successful facility in Ontario. This is the first time someone has tried to use southern yellow pine as the trade stock for doing this. And, you know, I guess, what have you guys figured out that no one else has quite figured out? You know, what's different about this type of product?
Yeah. I mean, nobody's figured out how to make this kind of product out of softwood generally. It's typically made out of hardwood species. Softwood is a little bit more challenging because it degrades. You have to get the length and the width really dialed in. The thing that Weyerhaeuser has going for us, we have some of the most brilliant wood scientists on the planet. You know, we've dialed it in. We're going to make this product out of southern yellow pine. It will be very hard for anyone to replicate this, both because it's hard to make TimberStrand to begin with, but then on top of that, making it out of a softwood is very challenging technically. We've got some great people that have figured it out. It's going to be exciting for us.
It sounds exciting. It sounds like there's a tremendous amount of applications which demand for it would be huge, I would think. What kind of economics are you thinking of? What kind of projected EBITDA yields?
Yeah. Again, so, you know, $500 million investment, $100 million of EBITDA from the mill. That does not include the synergies that we're going to drive from the Timberlands space, both in terms of logistics benefits because it's going to be located right in the middle of a bunch of our Timberlands, as well as uplift on pulp log prices. Really attractive returns for us.
One of the big challenges for the entire U.S. South industry has been the weakness in pulp logs due to all the pulp mill shutdowns, which have occurred. But, you know, could this be something that could be replicated across different parts of the U.S. South?
Yeah. I mean, we do not want to, we are going to do this one first. We are not committing to the next mill yet. We are really excited about this product. I have a high degree of confidence that we are going to be able to sell this mill out, at which point we will look at what is next. Certainly, we have a lot more optimism than just one mill around the opportunity set.
Outstanding.
Hi. Sorry. I think there are two questions. One, when you talk about the tariffs, if the tariffs do go in place, how much capacity do you have to increase your percentage of the market? So how much slack or there is, or are you basically sold out and, you know, that's number one. Number two, if I don't remember incorrectly, a few years ago, you came up or Weyerhaeuser was touting a way of doing carbon offsets and stuff. And given the current environment, are you seeing less demand for ESG-type products or, and where do we stand?
Yeah. Good question. So, you know, with respect to your first question, I'll answer with respect to Weyerhaeuser specifically and then maybe comment industry more broadly. For us, you know, we can ramp up production. I think you will see us ramping up lumber production this year. We have been doing a lot of work building capacity over the last several years as part of our billion board foot growth plan. Because the market was really challenged last year, you did not really see a lot of that. You are going to see us ramping up lumber production this year and again next year to really get close to that billion board feet. We have more opportunity. I think the industry as a whole in the U.S. has an opportunity to ramp up production.
Just because of the market dynamics that we've seen over the last 12 to 18 months, a lot of mills—and this is true in the South, it's true in the Pacific Northwest to some extent as well—have been running at operating rates that are below where they could otherwise be operating. There is some capacity in the system to ramp that up as needed if the economics make sense. With respect to the natural climate solutions, you know, we have a whole host of different solutions that we offer in that business from forest carbon, which is what I think you're referring to, renewables, carbon capture, and sequestration. I think at a high level, you know, there's no question that the commentary with the current administration is a little less supportive, to say the least, of some of these programs.
Nevertheless, you know, when we look at our various solutions, whether it's forest carbon, renewables, carbon capture, and sequestration, we're still seeing good momentum. You know, forest carbon, for example, that's a process that we've been working on growing that pipeline over a number of years. This year, you're going to see a healthy jump in our forest carbon sales. Last year, we sold about 50,000 units at, call it north of $30 per ton. This year, we expect to increase that by 5-10X, depending on how quickly we can get some of these through the approval process. That pipeline continues to build. We still feel good about the growth of that. Renewables, you know, there's a lot of debate going on right now around tax credits. You know, that to some degree could impact things in the short term.
The longer term, I think, trajectory of renewables is we need that power. When you look at the demand, and particularly with respect to data centers, you're going to need that power. We expect that to continue to grow. That's been what we've been seeing from our vendors. Lastly, on carbon capture and sequestration, there is a tax provision that's supportive of that. It remains available coming out of the House reconciliation bill. We think that's going to be the case with the Senate too. As long as that stays in place, we expect that business to continue to grow. The commentary and the rhetoric are a little different at present. We think the underlying fundamentals are still positive.
Yeah. Go ahead.
With regards to your transaction in North Carolina and Virginia, I guess I'm just trying to understand, just looking at other transactions in the past, I don't think I remember something quite this high in terms of a per acre basis.
Yeah.
I guess it's very well stocked. It seems high on a per acre basis. Is there more to it than just does it have a significant HBU component to it?
The way I would, you know, the one thing that's always tricky when you're looking at Timberlands deals is if you just look at the price per acre, I do not think that necessarily tells the story. It's all about what kind of return on the investment you can get. You know, whether it's $2,000, $3,000, $4,000 for us, it's all about how can you dial in the return profile. From a cash-on-cash basis, strictly timber, this is a very strong cash return profile property. It's got a relatively mature age class, which means you're going to get a lot of that harvest, you know, over the first 5, 10, 15 years. It's in a good market, good stocking, well-managed. The cash return profile just from timber is on the high end of what we own in the U.S. South.
You layer on top of that, which we did not necessarily underwrite, and that is not part of the $5.1 cash-on-cash return that we highlighted in the news release, real estate, natural climate solutions, solar. It has some synergies with our mill. You know, we have a saw mill that is in relatively close proximity. There are a lot of other things that go on top of that. This is really one of, you know, one of the best deals we have had an opportunity to participate in in quite some time. Yes, you are absolutely right. The price per acre was on the high end. The return thresholds and the return profile are also on the high end.
You said it was an off-market transaction. So it wasn't market. It wasn't.
Correct. It did not come to auction. It was a private conversation between our company and Roseburg. Just, you know, we know everybody in the industry. We are always in the market having conversations. For properties that we covet, we make sure that the people who currently own those properties know if you are ever interested in selling, come talk to us first. That does not always work. Typically, people are inclined to go out and market it to a broader group of folks. Weyerhaeuser usually compares fair price, and we can do deals quickly. We can come up with the cash quickly and move to close in an expedited manner. In many instances, that is how we can get these deals done without them going to auction.
All right. Thanks, everyone. I'm going to have to leave it there. Thank you, Devin. Thank you, David. Appreciate everybody's questions and participation. Thank you.
Thanks, everyone.