1. Weyerhaeuser Company April 14, 2017
Stock pitch for Rivanna Investments by:
Sanders Wommack

2. Why Invest in Timber?
Diversification, relatively low risk, good returns
Source: Campbell Global Timber Primer

4. Changing Forest TODAY #1. Weyerhaeuser 13 million acres #2 Hancock
#2 REIT Rayonier
2.7 million acres

5. The rise of Timber Investment Management Organizations (TIMOs)
Currently $100 billion in institutional funds in TIMOs
Likely consequences of shift to TIMOs
1. Land fracture
2. Greater incentives for “short termism”
Weyerhaeuser Timberlands in Western Oregon

6. One of the largest private timberland owners in the world
~13 million acres in U.S.
~14 million acres leased in Canada
300,000 acres in Uruguay
$26 billion market capitalization
Source: Slide 8, March 8, 2017 Weyerhaeuser Investor Presentation.

7. History of Weyerhaeuser Company
Founded in 1900 with purchase of 900,000 acres from the Northern Pacific Railway By 1929, owned and operate world’s largest sawmill in Longview, Washington 1941: first replanting 1940’s-2000’s: geographic expansion and vertical integration Recently, the company has retrenched to focus on core operations

8. Recent Restructuring 2007: exited fine paper business
2008: exited containerboard packaging
2010: Grudgingly converts to a REIT, pays $5.6 billion dividend
July 2014: Sells homebuilding operations to TRI Pointe for $2.8 B.
November 2015: Merger with Plum Creek Timber (~6 million acres) announced in $8.4 billion transaction. Closed in February
June 2016: Closes lumber mill in Montana
June 2016: Sells liquid packaging board business to Nippon Paper for $285 million.
October 2016: Announced the “exploration of strategic alternatives” for its 300,000 acres of timberlands and manufacturing operations in Uruguay
November 1, 2016: Completes sale its paper printing business
December 1, 2016: Completes sale of its seven Cellulose Fibers pulp mills to International Paper for $2.2 billion.

10. WY: Legacy Timberlands+
Plum Creek: TIMO model of land management

11. 2016 Merger between Weyerhaeuser and Plum Creek Timber
Touted:
$100 million in annual “hard dollar cost” synergies (since raised to $125 million)
$130-$140 in annual “operational synergies”
$2.5 billion repurchase to plan to help reduce float
“Plum Creek’s expertise in real estate and optimizing land values”
“[Plum Creek CEO, Rick] Holley says he wouldn’t have considered the merger five years ago because the cultures were so radically different. Now, he says, the two make a compelling combination, and ‘if you’re going to grow in the resource-management business, what better way to do it but this.’”
---“Sizing Up the Weyerhaeuser-Plum Creek Merger.” Barron’s, November 14, 2015.

12. Three Business Segments of Modern Post-Merger Weyerhaeuser Company

13. Timberlands: A Pretty Simple Business
Source: Weyerhaeuser 2016 Annual Report

14. Timberlands: West vs. South
2016 stats:
52 years: average tree’s age harvested in 2016.
2% of land cut annually in the west
8.7 million tons of logs harvested
$865 million in log sales
Benefited by increasing trade with Asia
2016 Stats:
Roughly 30 year growing cycle
3% of land cut annually in the South
15 million tons of logs harvested
$566 million in log sales
Source: Weyerhaeuser 2016 Annual Report

15. Real Estate & Energy and Natural Resources: “Ramping Up” in 2017 and Beyond
Moving forward: Asset Value Optimization (AVO)—looks like ~10% to 15% of land going up for sale
Energy & Natural Resources
Aggregates and Minerals
Oil & Natural Gas (Deep South & W.V.)
Wind (ME, WA, N.C.)
Management says this segment is “ramping up” in 2017 and beyond
Projected EBITDA of $250 million, compared with $175 million in 2016
RE & ENR Segment Results
2016*
2015
2014
Real estate sales
172 75 72
Energy & natural resources 54 26 32
Total
227
101
104
Cost of products sold
($134)
($20)
($19)
Operating Income 55 79 81
Real Estate Sales Breakdown
2016*
2015
2014
2013
2012
Acres sold
82,687
27,390
24,583
25,781
25,234
Average price/acre
$2,072
$2,490
$2,428
$2,462
$2,123
*includes Plum Creek sales
Source: Weyerhaeuser 2016 Annual Report

16. Wood Products Division: WY’staxable subsidiary
19 Lumber mills
6 Oriented strand board (OSB) mills
6 Engineered wood mills
6 Veneer/plywood mills
1 Medium density fiberboard mill
17 distribution facilities
($) Sales by product
2016
2015
2014
Structural Lumber
1839
1741
1901
Engineered solid section
450
428
402
Engineered I-joist
290
284
277
Oriented strand board
707
595
610
Softwood plywood
174
129
143
Medium density fiberboard
158 -
Other products
201
189
176
Complementary building products
515
506
461
TOTAL
$4,334
$3,872
$3,970
CONTRIBUTION TO PRETAX EARNINGS
$512
$258
$327
Looking ahead:
Realizing synergies with Plum Creek mills
Riding the housing market recovery
Source: Weyerhaeuser 2016 annual report

17. All together
Source: Weyerhaeuser 2016 Annual Report

18. Catalyst #1: Demand Continued Strength in the Housing Market
-Housing starts up 10.5% y/o/y (January 2017)
-Expected growth of 2-3 billion board feet per year for U.S. lumber market from current 55 b.b.f.

19. Catalyst #2: Supply The Canada-U.S Softwood Lumber Dispute
Since the early 1980’s, various groups have claimed that Canadian softwood lumber importers have an unfair trade advantage
Lumber IV: Most recent (2006) Softwood Lumber Agreement between the two countries expired in October 2015
Expectation of renewed export duties!
Decision on April 24.

20. Catalyst #3: Supply Mountain Pine Beetle
Current outbreak 10 times larger than past
70% of British Columbia’s pine forests expected to be dead by this year.

21. Valuation Book value: DCF model Assets ~$17.50 Problems with β
$4.84B Current and non-timber long-term assets
$8.12B Plum Creek Timber fair value
$6.18B book value of WY timberland
$10.8B est. F.V. for western land
$9.4B est. F.V. for South and Uru. Land
TOTAL= ~$33B est. F.V. of assets
Liabilities
$10.063B current and long-term
Book value=~$23 billion, ~$30 per share
DCF model
~$17.50
Problems with β
Changed company post –divesture and restructuring
Aberrant price fluctuations
$35?
Under-valued assets