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Weyerhaeuser Co. (NYSE:WY)

Strategic Announcements Conference

June 17, 2013 8:30 am ET

Executives

Kathryn F. McAuley - Vice President of Investor Relations

Daniel S. Fulton - President, Director and Member of Executive Committee

Doyle R. Simons - Chief Executive Officer, Director, Member of Compensation Committee and Member of Finance Committee

Thomas F. Gideon - Executive Vice President of Timberlands

Patricia M. Bedient - Chief Financial Officer and Executive Vice President

Analysts

George L. Staphos - BofA Merrill Lynch, Research Division

Anthony Pettinari - Citigroup Inc, Research Division

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Mark Wilde - Deutsche Bank AG, Research Division

Mark A. Weintraub - The Buckingham Research Group Incorporated

Gail S. Glazerman - UBS Investment Bank, Research Division

Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division

Steven Chercover - D.A. Davidson & Co., Research Division

James Armstrong - Vertical Research Partners, LLC

Operator

Good morning. My name is Lori, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Weyerhaeuser Conference Call. [Operator Instructions] I would now like to turn the call over to Ms. Kathy McAuley, Vice President of Investor Relations. Ms. McAuley, you may begin.

Kathryn F. McAuley

Thank you. Good morning, and thank you for joining us. Please review the warning statements in our press release and on the presentation slides concerning the risks associated with forward-looking statements, as forward-looking statements will be made during this conference call. On the call, we will discuss non-GAAP financial measures, and a GAAP reconciliation has been included in this presentation.

Joining me this morning are Dan Fulton, President and Chief Executive Officer; Patty Bedient, Executive Vice President and Chief Financial Officer; Doyle Simons, CEO Elect; and Tom Gideon, Executive Vice President, Timberlands. I will now turn the call over to Dan. Dan?

Daniel S. Fulton

Good morning. As Cathy mentioned, we made a number of exciting strategic announcements yesterday. First, we announced the acquisition of Longview Timber, which we will spend the bulk of our time discussing today.

Second, in conjunction with and subject to the completion of this acquisition, our board intends to raise our quarterly dividend from $0.20 to $0.22 per share in August, payable in September.

Third, we announced that the board has authorized the formal evaluation of strategic alternatives with respect to Weyerhaeuser Real Estate Company, or WRECO, as we call it.

And fourth, we announced that Doyle Simons, a member of the Weyerhaeuser Board of Directors, has been appointed President and CEO of Weyerhaeuser effective August 1 and CEO Elect effective today. Following Doyle's transition to CEO on August 1, I will become Executive Vice Chairman of the Board until my planned retirement in October 2013. I'd like to express an official welcome to Doyle. I know that the Weyerhaeuser team is looking forward to working with you as you lead the next phase of growth of our company. And I'd like to give Doyle a few moments at the start of this call just to say a few words.

Doyle R. Simons

Thank you, Dan, and good morning, everyone. I want to start off by saying how excited I am to have the opportunity to be part of this company's great legacy and serve as Weyerhaeuser's next CEO. As a board member for the past year, I've gained great respect for this company's values, its world-class Timberlands, its quality assets and its people, including Dan, Patty, Tom, Kathy and the rest of the leadership team.

Today's strategic announcements are fully aligned with the board's commitment to further enhance value for all Weyerhaeuser shareholders. My priority over the next few weeks as CEO Elect will be to meet our people, visit our facilities and begin to identify opportunities to build upon our operational improvement and to sustainably grow our company.

I also look forward to meeting, or in many cases, becoming reacquainted with those of you on the call this morning. With that, I'll turn the call back over to Dan, so he can discuss these very important announcements.

Daniel S. Fulton

Thanks, Doyle. We're very excited to agree to purchase Longview Timber LLC from affiliates of Brookfield Asset Management. This strategic acquisition comprises approximately 645,000 acres of unique, high-value timberlands in Washington and Oregon. This acquisition will expand Weyerhaeuser's timber holdings in the Pacific Northwest by 33% to approximately 2.6 million acres and will increase the total amount of Timberlands we own or control to approximately 7 million acres.

The total purchase price, which includes the assumption of debt, is $2.65 billion. And as Patty will discuss, we plan to raise approximately $2.45 billion in conjunction with this transaction. This one-of-a-kind acquisition is very straightforward. It's one that we believe can be completed quickly, and we are confident that we will start to realize the benefits immediately. We expect to close the transaction in July 2013.

We believe that this is a truly unique opportunity for Weyerhaeuser to do a scaled transaction of high-value timberlands west of the Cascades, right at our own backyard. We expect the transaction to be immediately accretive to the funds available for distribution per share, and the transaction enhances our ability to further increase our dividend.

To that end, in conjunction with and subject to the completion of this acquisition, the board intends to raise the quarterly dividend from $0.20 to $0.22 per share beginning with the third quarter dividend, which will be payable in September.

This is an example of the picture being worth much more than a thousand words. Slide 8 provides a visual representation of the strategic fit between Weyerhaeuser's current Timberland ownership in Washington and Oregon, which are in green, and the black regions, which are the Longview Timberlands we are purchasing.

As we discussed in detail with you last month at our Analyst and Investor Day, Timberland located west of the Cascades in the Pacific Northwest is perhaps the highest value Timberland in the nation, with excellent soil and climate conditions to grow Douglas fir, which is a preferred species for structural building products and commands a premium in the export market.

As you see, the acreage is adjacent to Weyerhaeuser's existing timberlands. Importantly, our scale and expertise in owning and managing forest in the region give us great confidence that we can add significant incremental value to this land.

We intend to leverage our silviculture, infrastructure, logistics and marketing expertise to reap the full potential of these lands. This transaction enhances our leading position as the largest owner of Timberlands in the region. These lands are highly complementary and contiguous with our existing ownership in these areas.

As we discussed with you in May, our Timberlands make it a good time to be a Weyerhaeuser shareholder. That was the case then, and it is even more so today. I'd now like to turn the call over to Tom Gideon, who will tell you more about why that is.

Thomas F. Gideon

Thanks, Dan. As Dan mentioned, this is a one-of-a-kind acquisition. It is highly unlikely that the opportunity to purchase high value and high-quality Timberlands of this magnitude from the Pacific Northwest will reappear again. And we are excited to be able to apply our forest management expertise to add value to these acres.

A favorable age class distribution provides us with many options for harvest and significant near-term cash flow. Looking at the chart on Slide 9, you'll see that nearly 70% of the inventory volume is merchantable timber. As a result, this transaction provides the opportunity for high front-end harvest and would allow us to increase our export volumes to higher end Asian markets.

About 2/3 of the Timberlands inventory is Douglas fir, as we have more than 100 years experience owning and managing. So we are well positioned to be begin maximizing the value of these Timberlands immediately upon closing. These lands are at the high end of the Pacific Northwest site productivity in terms of growing high-quality Douglas fir logs at financially optimized harvest rotations. And in addition, these Timberlands offers superior logging operability in terms of flatter, more favorable terrain for safer and lower-cost ground logging systems and because they have an existing well maintained and designed road system that will facilitate optimum harvest flexibility.

Timberlands are the crown jewel of Weyerhaeuser's portfolio. In the Pacific Northwest region, west of the Cascades, is differentiated from other geographies in terms of value. First off, these highly productive lands have more merchantable volume per acre than other geographies. Given the growing strength of the housing recovery in California and the strong and stable export market, driven principally by Japan, the demand for high quality, U.S. West Coast timber is strong. And by increasing our high-value Douglas fir holdings, we will have more flexibility to meet this demand going forward.

The transaction will also enhance our ability to serve the export market. Our extensive merchandising expertise allows us to maximize the value of every tree that we harvest. A Douglas fir, for example, may be merchandised into 3 different log segments that could go to 3 different markets with the highest quality log going to Japan, which represents nearly 80% of our export market. Weyerhaeuser's been shipping high-quality logs to Japan to serve the demand for post and beam housing for over 50 years. This acquisition will allow us to further leverage our existing infrastructure and enhance our competitive position in meeting customer needs, not only in Japan, but also in other Asian markets. The Premium Japanese market values the favorable qualities of Douglas fir, including its size, its strength, its stiffness, its resistance to splitting and its ability to stay straight.

We believe that through this transaction, we are uniquely positioned to realize significant synergies and to maximize the value of these Timberlands. We expect to reach annual synergies of approximately $20 million within 2 years of closing. Near-term synergies will come from reduced operating and G&A costs and improved marketing and revenue opportunities by capitalizing on our scale, which will allow us to lower harvest at all costs and to maximize our low-port facilities.

As a result, we will be able to export higher volumes while providing greater harvest flexibility to our existing holdings and improving the flow of harvested timber. We have established infrastructure that could immediately capitalize on the marketing and revenue opportunities that these lands provide. And in the latter term, we expect our silvicultural practices will further maximize productivity and land value.

With that, I will now turn the call over to Patty to discuss how this acquisition fits into Weyerhaeuser's overall Timberland portfolio, as well as the specifics of our financing strategy.

Patricia M. Bedient

Thanks, Tom, and good morning, everybody. This is an exciting transaction for all of us at Weyerhaeuser. With the addition of Longview Timber, Weyerhaeuser's overall Timber holdings will increase to almost 7 million acres. Importantly, our Timberlands holdings in the Pacific Northwest will increase by approximately 33% as a result of this transaction.

The Pacific Northwest, as a percentage of total Weyerhaeuser acreage, will increase to almost 40%. As Tom has just explained, this geography is the most valuable on a per acre basis.

As I discussed during our May Investor Day, the ownership of timber has undergone significant change over the last decade. Today, for an investor in public equity, the choices for timberland investment are limited primarily to timber REITs.

Slide 13 illustrates how this acquisition expands our leadership position as the owner of the most valuable timberlands holdings in the country, and by far, the predominant owner of Timberlands west of the Cascades. Again, while the total acreage is important, it is the location of the timberlands along the West Coast, and in particular, west of the Cascade Mountains range that makes this so compelling.

In the first quarter of 2013, Longview Timber generated EBITDA of over $43 million and funds available for distribution of over $20 million. Combining this performance with the compelling synergies that Tom has described and our financing plans, we expect the acquisition to be immediately accretive to funds available for distribution per share.

Slide 15 outlines our financing strategy for the acquisition. We intend the $2.45 billion of financing for the transaction to come from the combination of approximately equal amounts of equity and debt. The equity will include a combination of common stock and mandatory convertible preferred stock. We launched the equity offerings earlier this morning. The timing and the composition of the debt offering will be announced later. We've also obtained a committed senior unsecured bridge facility to provide additional flexibility.

Ultimately, we believe our financing strategy will support our strong capital structure and allow for a sustainable and increasing dividend. The transaction delivers immediate value to shareholders and is accretive to funds available for distribution per share. As we have said, since first converting to a REIT in 2010, we are committed to a sustainable and increasing dividend. The board intends to authorize a dividend increase of 10% from $0.20 to $0.22 per share with the August 2013 declaration, payable in September of this year. This action is in conjunction with and subject to the completion of the acquisition. This will mark our third dividend increase in the last 4 quarters or a 47% increase over that same timeframe. In addition, we anticipate that the cash flows from this acquisition will enhance our ability to increase our dividend further in the future.

Finally, I want to refer you to the 8-K that we filed this morning updating our financial guidance with respect to our Wood Products segment for the second quarter of 2013. Our prior guidance was that the second quarter earnings would be comparable to the first quarter when the segment had earnings of $178 million. While we still expect Wood Products earnings to be strong, we now expect that this segment's earnings in the second quarter will be lower than the first quarter. The reduction in anticipated second quarter earnings for the segment is primarily due to lower-than-expected price realizations for oriented strand board and lumber. The company does not anticipate any significant changes to the financial guidance that was previously provided with respect to the company's other business segments.

With that, I'll turn the call back to Dan.

Daniel S. Fulton

Thanks, Patty. To summarize our discussion of our Longview Timber acquisition, we're excited about the value we can create by acquiring the strategically located Timberlands. They are unique, high value and are very complementary to our existing acreage in Washington and Oregon.

We believe we are uniquely positioned to maximize the value of these Timberlands. And by increasing our Pacific Northwest timber holdings west of the Cascade mountain range, we will leverage our infrastructure and expertise in silviculture, logistics and marketing to enhance value for our shareholders. This transaction delivers immediate value to our shareholders and enhances Weyerhaeuser's ability to further increase the quarterly dividend.

Finally, we're looking forward to welcoming Longview's highly talented employees to Weyerhaeuser. The priority for both companies is to ensure a smooth transition by continuing to focus on safe, efficient and productive operations.

Let me briefly cover the announcement we made about WRECO, our homebuilding and land development business. The board has authorized a process to explore a range of strategic alternatives for WRECO, including but not limited to, continuing to hold and operate WRECO or a merger, sale or spinoff of the business. Given the improving fundamentals of the housing market, we believe now is a prudent time to explore strategic alternatives for this business. This process will help ensure that WRECO achieves its full potential, while we continue to build on Weyerhaeuser's track record of shareholder value creation. That said, there can be no assurance that the board's evaluation process will result in any transaction, or that any transaction, if pursued, will be consummated. We do not intend to provide any additional information unless or until the evaluation process is completed or terminated.

In summary, we look forward to moving ahead with each of these strategic initiatives. And as always, we will remain focused on maximizing value for our shareholders.

We will now open up the call for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of George Staphos of Bank of America Merrill Lynch.

George L. Staphos - BofA Merrill Lynch, Research Division

I guess the first question I had, do you have any initial thoughts in terms of how the harvest profile will change on an annual basis? Should we simply just take the amount of cubic meters you had in the slide deck and divide it by 5, or will it be more complex than that? And then secondly, do you have the opportunity to improve the EBITDA above and beyond the $40 million or $160 million annually if I just annualize the quarters above and beyond the $20 million synergy target that you provided? I had a quick follow-on.

Daniel S. Fulton

Thank you, George. I'll let Tom address your timberland questions.

Thomas F. Gideon

George, thanks for the question. Obviously, as we get into this, we'll be able to really look and compare the age classification profile for the Longview Timber along with ours. We think there will be opportunity to improve the harvest both from the Longview Timberland properties, as well as relook at some of the opportunities within our existing holdings, where we could actually accelerate harvest beyond what we would have done otherwise. And that will and is built into the synergies that we talked about earlier. With respect to the $20 million of synergies, those are synergies that we think are well defined. We're very comfortable that those will be achievable. Some of those will happen immediately as we reduce some of the fees that were paid to Brookeville. We see some integration with the Longview team with our operations. We start to get some of the accelerated harvest from our own fee. We improved the merchandising off of Longview Timber until you have increased the wood going into export and just leverage our scale. So for all of those reasons, we're very comfortable with the $20 million. As you know, we'll continually look at that. Once we get on the ground, we'll have a much better sense of what the potential opportunity is. So we certainly don't see any downside to the $20 million. And I can assure you that the 2 gentlemen to my right are going to ask me to improve on the $20 million that we have announced.

George L. Staphos - BofA Merrill Lynch, Research Division

The bigger picture question I had is this. Back at the Analyst Day, you obviously discussed the portfolio evaluation question in terms of, I think you used the term, Dan, a couple of times, continuous improvement. And certainly, these timberlands look to be really, really attractive both in terms of their placement in the EBITDA generation off the lands, which actually looked more than I would have expected from an initial standpoint. Having said that, you also mentioned that you're looking now at WRECO and evaluating your options there, to put it that way. How might realizing that you haven't promised anything on WRECO in totality, how might -- what are your thoughts are on how increasing your Timberland holdings relative to potentially trading out of WRECO, improve the overall portfolio of Weyerhaeuser over the course of the cycle?

Daniel S. Fulton

Thanks, George. We've been real clear in recent years really following the timeframe at which we converted that. Our primary objective in growing the company in the near term was to add to our Timberlands position. We have been actively looking at many, many opportunities throughout that period of time. And I can tell you that the Longview property is the most attractive that we have looked at in that timeframe. The fit within our own system, the integration opportunities that we will have long term and sharing best practices and taking advantage of our strategic Pacific Northwest position to serve both domestic markets and export makes this a really special opportunity. As Tom has discussed, we know this land well. It matches up well with our existing ownership. And I think we are truly the best owner for this Timberland long term. As we have talked about, WRECO is a very strong competitor as a top 20 homebuilder. And our focus with WRECO is to maximize its potential. We are, as we discussed in May, seeing a recovery in housing. We believe we're on our path to long-term recovery to trend levels. We want to be sure that we put WRECO in a position to maximize its potential, and that's why we've decided at this point in time that it's appropriate to review strategic alternatives. And as I mentioned in my remarks, we wanted to be clear that we're going through an evaluation process, but we won't be able to add any color for some period of time.

Operator

Your next question comes from the line of Anthony Pettinari of Citigroup.

Anthony Pettinari - Citigroup Inc, Research Division

With regards to the dividend, you, in the past, referred to 75% of funds available for distribution as your sort of target payout for the dividend. And I'm wondering with the additional Timberland earnings and maybe with the change at WRECO, is there anything about portfolio change that changes that target payout?

Daniel S. Fulton

No, Anthony, we've tried to provide guidance when we first set the dividend after conversion that our target was to pay out 75% of the funds available for distribution over the cycle. When we started the process, we were in the early stages, very, very early stages of recovery. And initial payout levels were greater than that. Now we're starting to feel some improvements, which is why we faced some incremental increases to the dividend over the last year, both because of the recovery that we were seeing but also the operational improvements that we have brought to the bottom line. The addition of this Timberland, any other portfolio actions would not change our long-term policy guidance for 75% over the cycle.

Anthony Pettinari - Citigroup Inc, Research Division

Okay, that's helpful. And just maybe following up on George's question, do you have any target timeline for how long the strategic evaluation for WRECO might take or when we might hear the kind of the results of the evaluation?;

Daniel S. Fulton

I do not.

Operator

Your next question comes from the line of Josh Barber of Stifel.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

I'm wondering if you can talk a little bit more about the accretion and how that's going to work. I guess if we're looking at the EBITDA, and certainly, at the cash flow from last year, it seems like about a 4%, maybe 4.5% return if you're building in some more harvest levels over time, is that about what underwriting was on a cash-on-cash basis? Or do you think that there's more interest savings off the debt that you're going to be able to obtain versus what's there currently?

Patricia M. Bedient

Josh, it's Patty. In terms of the accretion, we did say that it is accretive on a per share basis. And we think that the dividend increase that we announced in conjunction with the transaction, as a result of that accretion, is consistent with our dividend payout ratio. We haven't given any really further guidance on dividend or on FAD accretion beyond that. But as Tom talked about, we are very bullish on this transaction and its ability to generate cash flow for all the reasons that Tom very well described. So we look forward to building on that accretion and cash flow as we go forward.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Okay, and I know you can't get into too many specifics. Is there a general timeline for the WRECO decision?

Daniel S. Fulton

No, there's not, Josh.

Operator

Your next question comes from the line of Mark Wilde of Deutsche Bank.

Mark Wilde - Deutsche Bank AG, Research Division

I wondered -- Tom Gideon, just in terms of the performance of Longview in the first quarter, can you give us some perspective on how that might compare to the kind of full year performance? Is the volume in the first quarter pretty typical of what you'd expect to harvest through the year? And if we do annualize it, what does that look like relative to what you think volumes will look like over the next 3 to 5 years?

Thomas F. Gideon

Well, Mark, as you know, we don't give annual guidance -- rather, with respect to our own holdings, let alone this most recent acquisition. But I will say we've looked at the material that we've had available to us. As we look at the first quarter, we saw the harvest patterns and the flows are very consistent with what we have already mentioned earlier in the call today. We think there can be some opportunity, but there was nothing that was, that we saw that was out of the ordinary and how we would have managed that property had we owned it in the first quarter.

Mark Wilde - Deutsche Bank AG, Research Division

Okay, all right, that's fine. And then, Tom, over time, I just, I noticed you got a lot of volume sitting out there kind of 50 years and older. Will the goal ultimately to have the whole kind of distribution kind of between, say, 0 and 45 years such that you've kind of -- or pull all of that 45 and up stuff down over time?

Thomas F. Gideon

Mark, you're absolutely correct. As we look at the opportunity, as you know, the rotation that you mentioned is what we would like to get on a sustained basis, all of our holdings at. We're not there yet today even on our current holdings. But as you can see, as you look at the age classification and the profile that's in Longview Timber, we'll have an opportunity to have some sustained upfront harvest. And that over time, we will get that, as well as in combination with our other holdings into that optimal location age that we have expressed over the years. So we're excited to have that opportunity to do that.

Mark Wilde - Deutsche Bank AG, Research Division

Okay. And then Patty, is it possible to get any thoughts on kind of terms of the debt financing?

Patricia M. Bedient

No, Mark. We really -- as we said, going to bring that out after we complete the equity financing. So we'll announce that at the time that, that's all been determined.

Operator

Your next question comes from the line of Mark Weintraub of Buckingham Research.

Mark A. Weintraub - The Buckingham Research Group Incorporated

So I'm just trying to understand a little bit the upfront harvest potential. I think that, that is above and beyond what we've been seeing from Longview and possibly from Weyerhaeuser. Is that a fair way to understand it? And is there any way, recognizing it's a work in process that you can give us a sense of potential range of what type of acceleration markets accommodating there could be?

Daniel S. Fulton

Well, Mark, I think you hit the 2 points earlier exactly right. It is -- there is an opportunity both within the Longview Timber holdings, as well as with our existing holdings to look at the opportunity to move harvest forward compared to what we would have done otherwise. It is a process. We really need to get out there. And even though we've done extensive due diligence, we have, I think, a very good handle on what the inventory is and what this profile could actually be in terms of harvest. We need to really take a look at that and see how that fits and how we move that appropriately into the markets and actually get all the infrastructure and contractors around that, that would be necessary to increase that. So it's obviously a potential that we're seriously looking at.

Mark A. Weintraub - The Buckingham Research Group Incorporated

Okay. And on the absorption side, is it mostly into the domestic market, or do you also see that there could be demand in, say, the Japanese market that you would be in a position to better meet with more timber potentially available to service the market?

Thomas F. Gideon

Well, Mark, that's a great question. And as a matter of fact, one of the real wonderful things about this transaction is the fact that given its age profile, this not only is going to allow us to move more volume into the production manufacturing markets for beam housing in Japan, it's also going to allow us to reenter in a larger way with the specialty custom wholesale market there as well. In addition, we're going to enhance our ability to serve the Chinese market compared to what we had given some of the holdings that is there. So they were very oriented to export as well as you know before this transaction Weyerhaeuser between the export and the domestic side, we moved about 1/3 of the volume of Longview Timber. We will now redirect that as appropriate, and so we expect that we'll have even a stronger presence in all of the Asian export markets.

Mark A. Weintraub - The Buckingham Research Group Incorporated

Okay, terrific. And just very quick, and is that built into this $20 million synergy that you've given, or are these variables potentially additive to that?

Thomas F. Gideon

Some of those are built in, not all.

Daniel S. Fulton

Mark, I think the really significant benefit here that Tom talked about is the proximity to our land, the ability for us to totally leverage our management capability, our logistics, both export and domestic and having this additional volume at this time for us as the U.S. housing market continues to recover. And in particular, the California market starts to come back, it really puts us in advantageous position, hence our excitement.

Operator

Your next question comes from the line of Gail Glazerman of UBS.

Gail S. Glazerman - UBS Investment Bank, Research Division

Just as a refresher, the species mix, can you remind us how that would compare to your existing lands?

Thomas F. Gideon

Sure. Well, as compared to other industry holdings, Gail, the 66% is very high for Longview Timber. And if you look at just Weyerhaeuser legacy, if you will, or current holdings, it's just slightly above that from Longview Timber.

Gail S. Glazerman - UBS Investment Bank, Research Division

Okay. And just to clarify in the export markets, what percentage of Longview's harvest were being exported?

Thomas F. Gideon

Longview had a very comparable pattern to what we had, and it's roughly 30% to 35% of the harvest was going to export.

Gail S. Glazerman - UBS Investment Bank, Research Division

And was that a similar mix to Japan as what you would have or different markets?

Thomas F. Gideon

Well, actually, their largest market was to China and Korea. And their markets to Japan, quite frankly, were through us.

Gail S. Glazerman - UBS Investment Bank, Research Division

Okay. And is there anything you can say, just a general -- obviously, [indiscernible] had been talking about the process that shows how competitive the process for the land was?

Daniel S. Fulton

We can't really comment on that, Gail.

Operator

Your next question comes from the line of Alex Ovshey of Goldman Sachs.

Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division

I think when Brookfield had acquired the land, they paid a little bit over $3,000 for it. And I think now, Weyerhaeuser's paying a little bit over $4,000. So I'm curious if you can talk about how has the property evolved, and how has the market evolved that it makes sense from your end to pay the price that you're currently paying for the land?

Daniel S. Fulton

Sure. Quite frankly, when you look at this, this is a unique opportunity for us to acquire this scale of property, West of the Cascades. And there really aren't any comparable transactions. But you have 2 points of reference, I would reference. And one is if you look at recent transactions of smaller tracks across the Pacific Northwest, this is not at the very high end of that range. Secondly, if you were to look at this value compared to the increased index, you'll see that -- you need to understand that in the increased index, it also includes land, which are east of the Cascades, which not only have a lower percentage of Douglas fir. But as you look at the West, the West has basically twice the yield as compared to that. So as we look at that and we look at the key drivers that we understand very well in terms of value to Pacific Northwest Timberland, we've mentioned the few -- it's the age classification, the very high front-end harvest potential, the very high percentage of Douglas fir, which is preferred in all of the key markets, the great operability, the ability to apply the full range of our force management and marketing expertise and leverage our scale. As we take all of those together, we really believe that this purchase price is fully supported by the cash flows. And in aggregate, this combination of element just makes this a very good attractive purchase for Weyerhaeuser.

Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division

And just one more for me. So what happens to your integration level with the lumber business and the Pacific Northwest post this acquisition?

Thomas F. Gideon

Well, as a matter of fact, today, as I said, when we move about 30% or 35% of Longview's volume today, some of that goes into our existing domestic mills as well just as the other component goes into our export marketing activities. So as we take a look at this and have a better feel for -- we will relook at where those volumes are going and make sure that we're getting the best value of return for that, and so there may be some reallocation. But Longview Timber has done a great job of managing these operations. They've done a good job of getting good value for that. So we're going to be very thoughtful in terms of how we relook at how we may market this volume going forward.

Operator

Your next question comes from the line of Steve Chercover of D.A. Davidson.

Steven Chercover - D.A. Davidson & Co., Research Division

The 60-year-plus trees, I'm just wondering, are there still a lot of mills in the Pacific Northwest that can handle them, or those go primarily to export markets?

Thomas F. Gideon

Well, Steve, there are some mills that can handle that. But primarily, those will go to the higher value export markets. They're great in terms of not only going into the production mills. But as I said, a lot of that will also go into the specialty custom wholesale markets in Japan. So there'll be a full range coming off the acre, but we have good outlets at high values for that volume.

Steven Chercover - D.A. Davidson & Co., Research Division

Great. And then just a couple of quickies. The accretion guidance presumably incorporates the shares that are being issued to pay for this?

Patricia M. Bedient

That's correct, Steve.

Steven Chercover - D.A. Davidson & Co., Research Division

Okay. And is there any HPU potential within these lands?

Thomas F. Gideon

Yes. Actually, there is, and we'll be evaluating that. Some of that is split somewhat towards the eastern side of the properties and some on the west side. But it's not a substantial component of that overall acreage, but it does have some opportunity that we'll be investigating and acting upon as appropriate going forward.

Operator

Your next question comes from the line of James Armstrong of Vertical Research.

James Armstrong - Vertical Research Partners, LLC

My first question is -- it's been talked about a little, but just so we can put some numbers around it. How does the stocking level or merchantable level at Longview specifically compared to like your current land, because 70% seemed pretty high even relative to your land?

Thomas F. Gideon

Right. And that's really why we have -- it's such a great complementary fit. So in the near term, they have a -- Longview represents a little bit higher near-term stocking and merchant availability to us that we'll be able to use to optimize near-term cash flows. Over the longer term, they'll be a good complement that as some of our acres bring up in the productivity and we come up that will have a good flow and increasing harvest availability to us. So it's just an outstanding complement for where we're at within our current holdings.

James Armstrong - Vertical Research Partners, LLC

Very good. And then anything else, anywhere else you see the ability to do transactions like this, not necessarily in the north -- not just in the Northwest, but any places where Weyerhaeuser would want to grow?

Thomas F. Gideon

Well, first of all, let me reiterate, this really was one-of-a-kind transaction that we are just delighted to have the opportunity to not only get into add value over the long haul. And as always, as we mentioned, this is an example of our long-term view that Timberland is a great place to invest in. We will continue to look in the future at opportunities that we think really can add value.

Operator

Our last question comes from the line of Mark Wilde of Deutsche Bank.

Mark Wilde - Deutsche Bank AG, Research Division

Just one final follow-on. Just pretty conceptually, if you look at Weyerhaeuser stock, it doesn't seem like the embedded value in your stock for your Northwest lands is probably close to $4,000? And yet you're issuing shares for a, in a stock, which has kind of a lower embedded price per acre to pay $4,100. Any thoughts on that?

Patricia M. Bedient

Sure, Mark. I think that as Tom has just talked about, the uniqueness of, this transaction and the ability to do this transaction and to generate the cash flow at this point in time really did motivate us to utilize various financing opportunities in front of us to optimize, not only the transaction but also the financing strategy. And that's why you'll see us using a combination of instruments in order to do that. But we do believe that the benefit of this transaction really does underscore the ability for our shareholders to create value going forward from this transaction. So we always like a higher share price, but I think this transaction gives us the opportunity to build on that.

Mark Wilde - Deutsche Bank AG, Research Division

Yes, and if I could, I know this is a little bit premature, but if you were to realize significant proceeds from some type of a WRECO transaction, could you see returning some of that to shareholders?

Daniel S. Fulton

I think it's premature to talk about that, Mark.

Mark Wilde - Deutsche Bank AG, Research Division

Okay, all right. We'll wait for some more news then.

Daniel S. Fulton

Well, I'd like to thank everybody for joining us this morning. I want to recap really quickly the announcements that we made yesterday. First, as we've spent our time talking this morning, we announced the acquisition of really great quality Timberland, predominately west of the Cascade mountain range, giving us strategic advantages on a number of fronts that you've heard about this morning. In conjunction with that and subject to the completion of the acquisition, we intend to raise our quarterly dividend by 10% in August, payable to shareholders in September. Third, as we talked earlier, the board has authorized a formal evaluation of strategic alternatives for WRECO. And then finally, we announced that Doyle Simons has been appointed President and CEO of Weyerhaeuser, effective August 1 and then serving as CEO Elect effective today. So I want to welcome Doyle on board. We have a strong team at Weyerhaeuser. We are very, very well positioned to be able to take on an opportunity such as the acquisition at the Longview Timberlands. We're excited about it, and we look forward to continued discussion. I want to thank everybody for your attendance this morning and for your support. Thank you very much.

Operator

Thank you for participating in today's conference call. You may now disconnect.

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