Ladies and gentlemen, thank you for standing by, and welcome to the Weyerhaeuser First Quarter 2020 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to Beth Baum, Vice President of Investor Relations and Enterprise Planning. Thank you. Please go ahead.

Thank you, Jason. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's first quarter 2020 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. 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. We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Devin Stockfish, Chief Executive Officer; and Russell Hagen, Chief Financial Officer. I will now turn the call over to Devin Stockfish.

Thanks, Beth. Good morning, everyone, and thank you for joining us today. I hope everyone is well and staying safe. I want to begin this morning by sending my heartfelt thanks to our Weyerhaeuser employees. We have remarkable people working for this company, and I'm extremely proud of their unwavering commitment to safety, operational excellence and serving our customers as we manage through this uncertain and challenging environment. This morning, Weyerhaeuser reported first quarter results and announced further actions to preserve liquidity and financial flexibility in light of the global COVID-19 pandemic. Because our markets have evolved rapidly since the end of the first quarter, I will highlight our first quarter results and then turn my focus to current business conditions and our actions in response to COVID-19. Weyerhaeuser reported first quarter GAAP earnings of $150 million or $0.20 per diluted share on net sales of $1.7 billion. Excluding a $12 million benefit from special items, we generated earnings of $138 million or $0.18 per diluted share. Adjusted EBITDA totaled $413 million in the first quarter, an improvement of nearly 60% compared with the fourth quarter and 13% higher than a year ago. I'll begin the discussion of our results with some high-level comments on our first quarter business conditions. U.S. housing activity started the year very strong. Total starts averaged 1.6 million in January and February, supported by low unemployment, favorable mortgage rates, and increased builder focus on bringing affordable product to market. By mid-March, however, our customers began to express some concern about the effects of social distancing mandates and stay-at-home orders, and housing activity started to weaken in certain markets. Although housing starts declined to 1.2 million for the month, our sales volumes remained steady through late March. Against this backdrop, each of our businesses delivered strong first quarter operating results despite the rapidly changing upstream market conditions. Turning to Timberlands on Pages 6 through 8 of our earnings slides. Timberlands contributed $105 million to first quarter earnings and $173 million to adjusted EBITDA. EBITDA increased $15 million compared with the fourth quarter. In Western Timberlands, EBITDA increased $20 million compared with the fourth quarter. Average sales realizations and volumes for Japan export logs increased and average domestic sales realizations improved modestly. In the western domestic market, improving demand and pricing for Douglas fir lumber drove solid demand for logs through late March and pricing for domestic logs strengthened. Logging conditions were favorable and mill inventories were adequate. Our fee harvest volumes increased slightly and costs improved seasonally due to reduced road and forestry costs as well as lower per unit logging and hauling costs. Turning to our export markets. Log sales volumes to Japan increased substantially in the first quarter, and average sales realizations improved modestly. While Japanese housing starts were down approximately 10% year-to-date following the implementation of the consumption tax in the fourth quarter, demand from our customers who serve the post-and-beam market increased due to limited availability of Canadian export logs and reduced imports of competing European laminated beams. As expected, our China export sales volumes declined significantly in the first quarter as we flexed our volumes to the domestic market to capture higher-margin opportunities. Softwood log inventory to Chinese ports nearly doubled in the first quarter to 7.1 million cubic meters. Takeaway was weak as sawmills and construction sites closed for the Lunar New Year holiday and did not begin to reopen until COVID-related restrictions eased in mid-March. Log supply from New Zealand and Europe remained abundant for most of the first quarter, and our sales realizations decreased slightly compared with the fourth quarter. Relative to the year ago quarter, our total western log export revenue declined due to significantly lower sales volumes to China, partially offset by higher volumes to Japan. Moving to the South. Southern Timberlands EBITDA decreased $7 million compared with the fourth quarter. Demand remained steady through late March as unseasonably wet weather reduced grade log availability across many southern markets. Our fee harvest volume declined 7% compared with the fourth quarter, primarily due to seasonally lower stumpage sales. Average sales realizations declined slightly due to mix. Comparing our overall Southern Timberlands first quarter results with the year ago period, EBITDA declined by $12 million due to lower fee harvest volumes and modestly lower average sales realizations. In Northern Timberlands, EBITDA was comparable with the fourth quarter and $4 million lower than the first quarter a year ago. Fee harvest volumes declined due to the sale of our Michigan Timberlands, and average sales realizations improved primarily due to mix. Real Estate, Energy and Natural Resources, Pages 9 and 10. Real Estate and ENR contributed $36 million to first quarter earnings and $101 million to adjusted EBITDA. First quarter EBITDA was $64 million higher than the fourth quarter and $5 million lower than the year ago period. Compared with the fourth quarter, real estate sales were significantly higher due to an increase in the number of acres sold. We experienced strong interest in real estate across our markets throughout much of the first quarter. In Energy and Natural Resources, construction materials volumes were seasonally lower. Average price per acre declined, and average land basis as a percentage of real estate sales, was higher due to the mix of properties sold. First quarter real estate sales included some low productivity acreage in Southern Oregon that we acquired with the Plum Creek merger. Wood Products, Pages 11 and 12. Wood Products contributed $134 million to first quarter earnings and $184 million to adjusted EBITDA. EBITDA increased $74 million or almost 70% compared with the fourth quarter and was 60% higher than the first quarter a year ago on improved commodity realizations and higher sales volumes across all product lines. Our first quarter Wood Products performance was outstanding. Our relentless focus on safety and efforts to drive reliability and cost structure improvements continue to yield positive results and have never been more important than it is today. I'm extremely proud of the progress that our teams continue to make on the operational excellence front. EBITDA for lumber increased $36 million compared with the fourth quarter. Strong housing activity drove improved demand and benchmark pricing trended higher through much of the first quarter. Our sales volumes improved modestly and average lumber realizations improved 7% over the fourth quarter. In the first quarter, our lumber operations delivered the lowest quarterly controllable manufacturing cost on record and also set a new monthly record in March. Compared with the first quarter a year ago, lumber EBITDA improved by $32 million due to improved realizations, higher sales volumes and lower per unit manufacturing costs. In OSB, EBITDA improved $26 million compared with the fourth quarter. Realizations improved significantly, and sales volumes were moderately higher. Our OSB business delivered the lowest quarterly controllable unit manufacturing cost in our history. On average, the benchmark OSB composite price increased 22% compared with the fourth quarter. Our average realizations increased 14% as the length of our order files creates a lag between published and realized pricing. Compared with the year ago quarter, OSB EBITDA increased $26 million. Average sales realizations increased 10%. Fiber costs declined, and sales volumes were higher. Engineered Wood Products EBITDA improved by $10 million compared with the fourth quarter. Sales volumes for solid section and I-joists were moderately higher due to strong construction activity. Per unit manufacturing cost improved relative to the fourth quarter with seasonally higher operating rates. Average sales realizations for both solid section products and I-joists decreased by 1% due to mix. Compared with the first quarter a year ago, EBITDA improved $4 million due to higher sales volumes and lower fiber and unit manufacturing costs. Distribution EBITDA increased by $4 million due to higher sales volumes and improved product margins compared with the fourth quarter. Compared with the year ago quarter, EBITDA increased by $8 million due to higher sales volumes, partially offset by higher delivery and warehouse costs. Turning now to operational excellence. In the first quarter, each of our businesses made good progress against our $50 million to $70 million OpEx target for 2020, and we remain focused on delivering industry-leading performance across a wide range of market conditions. This commitment to operational excellence and having the right cost structure has never been more essential, and our focus is unwavering. Let me turn now to the recent deterioration of industry-wide business conditions in the second quarter and the actions that we've taken to preserve liquidity and financial flexibility and maintain our capital structure in light of the COVID-19 pandemic. At the end of March, the rapid deterioration in macroeconomic conditions began to translate into weaker demand across our value chain. In April, as stay-at-home orders were enacted across the nation and unemployment began to rise, our homebuilder customers started to report steep declines in buyer traffic and increasing cancellation rates. Likewise, many of our building products dealer customers communicated that they were experiencing sharply lower order files. While residential construction was designated an essential industry in most jurisdictions, allowing for continued construction activity, the impacts of stay-at-home orders and general economic uncertainty on potential homebuyers translated into a significant slowing of housing activity in late March and throughout April. Obviously, the impacts in regions where state and local restrictions prohibited construction were even more pronounced. Although takeaway from our home improvement warehouse customers has remained solid, the pandemic-related reductions in construction activity have resulted in a significant drop-off in overall demand for wood products. Across our Timberlands segment, demand for fiber logs has held up well. But many domestic sawlog customers have curtailed production in response to weaker wood products demand. In total, we have noted curtailments at over 100 customer destinations, reducing sawlog demand by approximately 25% in April versus March. For our Real Estate and ENR segment, social distancing and other measures have curtailed real estate broker activity and increased the time required to finance, close and record transactions. So in summary, we have seen a steady decline across all of our markets over the last month. Importantly, however, our businesses were well prepared to rapidly respond to the changing market dynamics. In Wood Products, we've reduced operating capacity by 15% to 35% across our manufacturing businesses to align our production with customer demand, and we quickly pulled back on discretionary capital expenditures and other operating costs. We have continued to safely deliver on our value proposition of quality, reliability and logistics expertise despite the broad social and economic disruptions. This has further enhanced our position as a preferred supplier for our customers. In Timberlands, we opportunistically flexed volume into the China market in April to capitalize on improved demand and pricing. We also leveraged our vertical integration, reoptimizing log procurement across our Wood Products segment to facilitate increased fee harvest consumption by our internal mills. These actions offset all of our demand reduction in the U.S. West for the month of April. However, they mitigated only a portion of the reduction we're seeing in the southern demand. In light of these market conditions, we are reducing our planned 2020 southern harvest volume by approximately 10% to match our supply with the lower demand. We will continue to closely monitor market conditions and take the necessary steps to align our operations and production levels to evolving customer demand. In general, current economic data and forecasts lead us to believe that our near-term business conditions will remain challenged for some period of time. Key indicators that we are monitoring include unprecedented levels of weekly unemployment claims, rapidly rising mortgage forbearance requests, record declines in consumer sentiment and builder confidence, mortgage purchase applications substantially below year ago levels, tighter mortgage credit availability, and estimates for a continued near-term contraction in U.S. GDP. Further, there continues to be a high level of uncertainty regarding the duration and magnitude of the societal and economic impacts of this COVID-19 pandemic. The timeline for effective medical treatments and vaccines is unclear. Recent steps toward economic reopening are positive, but we expect the trajectory of the economic recovery will be bumpy and gradual. This drives significant uncertainty regarding the medium-term outlook for U.S. housing activity. We anticipate that pricing and demand will remain choppy across our markets for much of 2020. Once stay-at-home orders are lifted, our customers tell us they anticipate a near-term pickup in activity as builders complete in-process homes and work through pre-pandemic order backlogs. However, following that immediate surge, most are anticipating lower sales and construction activity until employment and consumer confidence materially improve. In light of these expectations, we're taking actions to preserve liquidity and financial flexibility and maintain our capital structure during this unprecedented time. First, we're cutting 2020 capital expenditures by $90 million. Second, we're reducing nonessential expenses by $55 million. This includes G&A and operating expense reductions across our businesses and corporate functions. Third, we will defer $25 million of federal payroll tax payments until 2021. Fourth, our senior management team and Board of Directors have elected to reduce their compensation for the remainder of 2020. I will reduce my base salary by 30%. Our Board will reduce its fees by 20% and the remainder of our senior management team will reduce their base salaries by 10%. Finally, our Board of Directors is temporarily suspending the quarterly dividend. The dividend suspension is an extremely difficult decision but one that we believe is prudent given deteriorating end-market conditions and a highly uncertain economic environment. I want to be clear that returning cash to shareholders through a sustainable dividend is a core part of our balanced capital allocation philosophy. The Board will regularly evaluate opportunities to reinitiate an appropriate quarterly cash dividend as soon as practicable. This evaluation will take into account a number of variables, including the broader macroeconomic environment, our market conditions and customer demand as well as the company's cash flow, liquidity and leverage. I will now turn it over to Russell to discuss our financial position and second quarter outlook.

Thanks, Devin, and good morning. While we're expecting challenging market conditions until the impacts of the COVID-19 pandemic recede, we are confident that the actions we have taken will enable us to maintain a strong financial position through this unprecedented time. We have a solid balance sheet, a competitive cost structure, and our 11 million acres of Timberlands provide strong asset coverage. We hold investment-grade credit ratings and remain well in compliance with our debt covenants. Moreover, our trees will continue to grow and generate value now and into the future, regardless of the economic conditions. In the first quarter, we took several steps to enhance our financial flexibility. First, we refinanced our $1.5 billion revolving credit facility to capture more favorable pricing and extend its maturity to 2025. Second, we increased our cash on hand through a precautionary $550 million draw on our revolver. Today, this facility still has $950 million of available capacity remaining. Third, we issued $750 million of 4% notes through a public bond offering with the net proceeds to be used to repay our 2021 debt maturities. Fourth, we completed the sale of our Montana Timberlands for $145 million in cash. We originally anticipated this transaction would close in the second quarter. These activities are reflected on Page 14, which summarizes our key financial items for the quarter. We ended the first quarter with a cash balance of $1.4 billion, excluding the cash earmarked for repayment of the 2021 maturities and the $550 million draw on our revolver, which we will repay when appropriate. We had approximately $170 million of cash on hand at the end of the first quarter. This is in line with our typical cash balance. Our gross debt outstanding increased during the quarter due to the bond offering and the revolver draw. Subsequent to the end of the first quarter, we submitted notice that this month, we will be redeeming our $569 million notes due in March 2021. Following this repayment, we have a total debt of approximately $6.8 billion. We intend to repay $150 million debt note in 2021 at maturity. After these repayments, we have no additional debt maturities until 2023. These actions are consistent with our strategy to preserve liquidity and financial flexibility in this uncertain environment. Turning to cash flow. Cash from operations during the first quarter was $86 million. First quarter cash flow is typically lower due to seasonal working capital increases and higher quarterly interest payments. Cash from investing totaled $441 million. This includes $362 million of cash from the maturity of our last variable interest entity and $145 million from our Montana Timberlands sale. Our capital expenditures for the first quarter totaled $68 million. As Devin mentioned, we are reducing our 2020 CapEx by $90 million to help preserve liquidity. $75 million of reductions will come from wood products, where we are eliminating discretionary capital projects and cutting back to the low end of the maintenance capital range, $10 million will come from Timberlands, and $5 million from corporate. Our revised guidance for total 2020 CapEx is approximately $270 million. This includes $110 million for Timberlands, inclusive of reforestation costs.

Yes. Let's continue.

Looking forward, key outlook items for the second quarter and the full year are presented on Pages 15 and 16. In our Timberlands business, we expect second quarter earnings and adjusted EBITDA will be significantly lower than the first quarter. In our Western Timberlands operations, domestic mill log inventories were above target in early April as lumber mills reduced production in response to the uncertain market environment. By month-end, log inventories came into balance as customers limited log purchases to align with planned production. As Devin mentioned, our Western Timberlands team was able to leverage our scale, customer diversity, and collaboration with our mills to offset all of the demand reductions we experienced in April. As a result, even with current market conditions, we expect our second quarter domestic log sales volumes will be comparable with the first quarter. Average log sales realizations are expected to be lower than first quarter levels, and forestry and road spending will increase as we enter the spring and summer months. Moving to the export markets. In Japan, a significant amount of residential construction activity has been curtailed due to the COVID-19 outbreak. Demand for logs remained steady in April but is expected to soften as the quarter progresses. We expect our second quarter Japanese export log sales volumes and realizations will be lower than the first quarter. We expect our Chinese export log sales volumes and realizations to increase in the second quarter. In early March, Chinese log importers began to apply for and were granted exemptions from tariffs imposed on U.S. softwood logs. As COVID-19-related restrictions eased in China, construction activity has resumed and log takeaways returned to more normal levels. Disruptions to the supply of competing logs out of New Zealand and Europe, coupled with additional takeaway, has driven improved demand and pricing for our western export logs. We anticipate minimal effect on second quarter market conditions from the recent easing of restrictions of the New Zealand forestry operations. In the south, manufacturing shift reductions and curtailments reduced demand for our grade logs by over 30% in the month of April. Demand for fiber logs remained stable as increased production of hygiene products offsets weaker demand for printing and writing papers. We expect our second quarter fee harvest volumes will decline approximately 5% to 10% compared with the first quarter. Average log sales realizations will be slightly lower than the first quarter, primarily due to mix as we expect a greater proportion of fiber log sales as we continue to shift to more thinning activities. We are seeing increased interest in exports of our southern yellow pine logs to China as waivers are granted for the ongoing 25% tariff. In the North, second quarter fee harvest volumes will be lower than the first quarter due to the spring breakup season. As Devin indicated, we expect to reduce our southern fee harvest by approximately 10% this year to align our production with reduced sawlog demand. As a result, we are updating our total fee harvest guidance to between 33 million and 34 million tons for the full year 2020. We do not anticipate material changes to our western fee harvest volumes. Clearly, second quarter activity is highly uncertain. Assuming current market conditions persist, we anticipate earnings and adjusted EBITDA for our Timberlands business will be approximately $50 million to $60 million lower than the first quarter. Turning to our Real Estate, Energy and Natural Resources segment. We anticipate second quarter earnings and adjusted EBITDA for this segment will be approximately $20 million lower than the second quarter of 2019 due to fewer real estate acres sold. We expect second quarter land basis as a percentage of real estate sales will be moderately higher than the first quarter of 2020. In real estate, we continue to experience demand and interest in our properties with social distancing and other measures have curtailed broker activity and lengthened the time required to finance, close and record transactions. Demand for smaller HBU transactions remained steady. The volume of larger transactions requiring financing is slowing due to challenging credit availability. In Energy and Natural Resources, second quarter activity has been stable, but we anticipate adjusted EBITDA will decrease as the year progresses due to lower demand for construction materials and reduced interest in new oil and gas leasing activity. As a result, we are lowering our full year adjusted EBITDA guidance for Real Estate, Energy and Natural Resources to $200 million. This is a $55 million reduction from our prior guidance. We continue to anticipate land basis as a percentage of real estate sales will be between 55% and 65% for the year. For our Wood Products segment, we expect second quarter earnings and adjusted EBITDA will be significantly lower than the first quarter 2020 and the second quarter of 2019. We anticipate significantly lower sales volumes across all product lines in the second quarter. The market demand has deteriorated across our Wood Products businesses due to the economic impacts of COVID-19 and the related reduction in residential construction and large repair and remodel activity. To align our production with the market demand, in April, we reduced our operating capacity by 20% for lumber and 15% for oriented strand board, and we expect to extend these reductions at similar levels in May. Across our various engineered wood products, we reduced capacity by 15% to 25% in April, and plan to reduce engineered wood products capacity by an additional 10% for the month of May. We will continue to dynamically adjust our production to align with profitable demand. Benchmark pricing for frame and lumber composite and OSB composite has declined approximately $75 and $100, respectively, since early March. For lumber, our quarter-to-date average sales realizations are $25 lower, and current realizations are $20 lower than the first quarter average, respectively. For oriented strand board, our quarter-to-date average sales realizations are $5 higher, and our current sales realizations are $20 lower than the first quarter average, respectively. It is important to note that due to the length of our order files, there is a lag between the cash benchmark price and our realizations. As a reminder, at typical operating rates for lumber, every $10 change in realizations is approximately $11 million of EBITDA on a quarterly basis. And for OSB at typical operating rates, every $10 change in realizations is approximately $8 million of EBITDA on a quarterly basis. For engineered wood products, we expect second quarter average sales realizations will be generally comparable to the first quarter. Page 13 outlines the major components of our first quarter unallocated items. Adjusted EBITDA for this segment was comparable to the fourth quarter 2019. Special items for the first quarter consists of a $12 million benefit from the legal settlement of a legacy insurance coverage matter. Our noncash, nonoperating pension and postretirement expense was $9 million in the first quarter, and we continue to expect approximately $40 million of expense for the full year 2020. We also continue to expect approximately $30 million of required cash payments related to our pension and postretirement plans. We do not expect to make any contributions to our U.S. qualified pension plan. As a reminder, we have reduced our future pension obligations by over $2 billion since 2018, and we have significantly reduced the plan's exposure to market and interest rate volatility by transitioning to a liability-driven investment strategy. First quarter interest expense was $85 million. We now expect interest expense will be approximately $360 million for the full year 2020 before special items. This incorporates the previously discussed debt transactions and assumes a higher revolver balance as part of the actions to increase cash on hand. In the second quarter, we expect to record a net pretax charge of $11 million, which will be reported as a special item as part of the early redemption of our $569 million note. I'll close my comments with taxes. For the second quarter and the full year 2020, we now expect a modest tax benefit due to our current outlook for the remainder of the year. The tax rate will be sensitive to the level and the mix of earnings between our REIT and taxable REIT subsidiary for the year. As previously discussed, the $90 million refund associated with our 2018 pension contribution remains in process. We anticipate receiving this refund in early 2021. Now I'll turn the call back to Devin and look forward to your questions.

Thank you, Russell. Although we expect near-term market conditions will be very challenging, I'm highly confident that Weyerhaeuser is well positioned to successfully navigate these unprecedented times. Our strong safety culture and high level of employee engagement enabled us to rapidly implement rigorous safety measures to protect the health and well-being of our employees for the duration of this COVID-19 outbreak. Our businesses have industry-leading scale, cost structures and supply chain expertise and an unmatched diversity of customers, products and geographic locations. Our teams are agile, innovative and committed to effectively serving our customers. We have an unrivaled portfolio of valuable timberland assets and a wood products business with a proven ability to generate cash through adverse market conditions. And we have acted prudently and decisively to preserve Weyerhaeuser's financial flexibility, maintain our capital structure and ensure we have sufficient liquidity to weather this period. Looking forward, our confidence in the underlying thesis for the U.S. housing remains strong. In contrast to the period following the Great Recession, U.S. housing is now severely underbuilt, and evolving societal preferences as we emerge from this pandemic are likely to support strong demand for single-family homes. We are confident that U.S. housing growth will resume as economic fundamentals stabilize and consumer confidence rebounds, and we are well positioned to capitalize on that trend. We remain focused on driving long-term value for our shareholders through industry-leading operating performance and disciplined, prudent capital allocation. And now I'd like to open up the floor for questions.

[Operator Instructions]. Your first question comes from the line of Mark Weintraub from Seaport Global.

Two questions. The first, if you could just walk us through the thought process on choosing to suspend the dividend as opposed to resetting it to a lower level? And maybe as we think about as it gets reinstated, is that likely to be a gradual increasing process? Or do you wait until you're at a point to restore it to what you think's an appropriate ongoing level for the cycle? And then real quickly, too, if there's any help you can give us in modeling or thinking through the absorption of fixed cost issues as you are taking significant volume out, particularly in the Wood Products business?

Yes, sure, Mark. Well, I'll take the first two questions, and then I'll pass it over to Russell on the fixed cost question. Really, we look at this through the context of the macro environment and our market conditions. And really, as I mentioned, it's just an unprecedented situation in terms of what's going on with the pandemic, broad swaths of the economy being locked down. We're seeing historic levels of unemployment, GDP contraction in Q1, expectations that it's going to be much more dramatic in Q2, consumer confidence dropping, and really no clear path on the trajectory of recovery. So really, we're expecting a significant erosion in housing and residential construction as well as, to some extent, larger remodel activity here in the near term. I think we're in the early stages of understanding what that's going to look like. It may get worse for a while. And so we're expecting that that's going to result in a very challenged and choppy pricing and demand environment for our products for much of 2020. Our view is that the full impacts from the housing slowdown won't be seen for a while longer, just given the builders and contractors are working through existing backlogs. They're finishing up projects that are under construction. So there's likely to be a bit of a lag before we see the full impacts of the reduced wood products demand. So just a lot of uncertainty around how this is going to play out over the next few quarters. Again, we're expecting a challenging environment for most of 2020. In light of that, we elected to suspend the dividend as a temporary measure to help preserve our liquidity and financial flexibility. It was obviously an extremely difficult decision. Returning cash to shareholders through a sustainable dividend remains a core part of our balanced capital allocation philosophy. However, under the circumstances, we believe this is the right action, a prudent action to take at this time, just given current business conditions, our expectations regarding a very challenged environment over the next several quarters, and a high degree of uncertainty. In terms of the timeline, just given the uncertainty, I think it's difficult right now to determine just how this is going to impact our markets over the next several quarters. So we're monitoring that closely. The Board is going to really look to see firm evidence of stabilization and recovery in our business conditions and cash flow. More specifically, we're going to be looking at a number of factors, including market conditions, customer demand, broader economic environment as well as the read-through on our cash flow, liquidity position, and leverage ratios. But I want to make this point really clear, we are committed to reinitiating a quarterly cash dividend as soon as practicable, and the Board is going to continue to evaluate that on a regular basis. In terms of the level, we're going to look to reinitiate it at a level that is appropriate and sustainable in the context of our cash flow and our business conditions. And so I think we would be open to doing that in stages. We would expect to reinitiate the dividend at a level that it can be sustainably increased over time as markets improve. So Russell, do you want to touch on the fixed cost question?

Sure, Mark. So when you look across the business, our fixed cost structure is about 15% kind of in total. For wood products, wood fiber's the largest input cost. Lumber, it's about 2/3 of the cash costs. OSB is about half the cash cost and the other half is resin and wax. Engineered wood products is a little less. Again, wood fiber costs and then resin and waxes. Beyond fiber, labor is the next largest variable cost. So then you get down to fixed overhead in our manufacturing operations, it's relatively small. Typically a mill manager, utilities, taxes, et cetera, so it's a pretty low overhead, a pretty low fixed cost structure. Timberlands, we have very low input and maintenance costs. So you really aren't incurring any costs until you cut the timber. In real estate, our fixed costs are really minimal, closer to like 10%, which is mostly labor because we outsource really a majority of our broker network.

Super. Just one clarification. I'm sorry, that 15%, was that for wood products? Or was that for the overall company, the first allusion to 15%?

That's the overall company. Wood products is probably more like 18%. And then timberlands is probably right about 15%.

This is actually John Babcock on the line for George. I just wanted to start out. I was wondering if you can kind of remind us what is kind of different about the southern markets versus the west, such that you are cutting harvest by 10% in the south, but with no changes in the west. I assume the export markets may have something to do with that. But then kind of the next level to the question is also if you could kind of dig a little bit more into the reduction in operating expenses and what makes that up. And also, provide a little bit more color on where you're reducing capital spending, that would be helpful.

Yes. Sure. Well, you're right. It's a different market dynamic in the west than it is in the south. The west is fundamentally a more tensioned wood basket, and we have a diverse set of markets that we can flex volume to. As I mentioned earlier, we have the domestic third-party market, we have our internal mills, and then we have the export markets out of the west. And so as we saw the third-party domestic demand drop, we were able to flex additional volume to that export market. So we anticipate that we'll be able to continue to move our volumes in the west at good margins. So we don't anticipate a harvest reduction there. South, a little bit different story. You don't have that same market outlet to the export markets. I will say just as an aside, we have seen the China export market start up again in the south as those tariffs have fallen off, but it's a really small percentage of our overall harvest volume. So really, when you see that domestic third-party mill consumption in the south go down dramatically, that's really what's driving the reduction. We come to that conclusion really by doing a wood basket-by-wood basket analysis of demand, and that 10% is really just a roll-up of that work. In terms of operating expenses, it really just cuts across the entirety of the company. It covers things from the obvious like reduced travel and entertainment to deferred IT projects, controlling other nondiscretionary spend really all across the entirety of the company. In terms of the CapEx, the majority of that CapEx came out of the wood products CapEx budget. The rationale there was we're just going to defer the discretionary capital projects and really take that down, as Russell mentioned, to the bottom end of the range of our sustaining and maintenance capital range.

It's Derrick Laton on for Brian. Just a follow-up on the comments on the southern log market and the 10% reduction in the harvest for this year. I think you said maybe the demand was down about 30% in April, if that was right. And then if that's the case, then what gives you the confidence that 10% is the right cut here for 2020?

Yes. I think a couple of things. First of all, if you think about the market in total, we have the fiber market and the grade market. In the fiber market, that has held up fairly well. You think about paper towel, toilet paper, the hygiene market. Demand in that segment has remained relatively strong. So the fiber market has held up fairly well. So really, what we're looking at is in the grade market. One of the advantages to our system and the vertical integration that we have is we do have a little bit more flexibility when we see that third-party domestic demand fall off. We have the ability to flex additional volume into our own internal mills. That really gave us the flexibility to take the harvest levels down less than the overall demand reduction.

Got it. Okay. That's helpful. And then just going back to wood products. I appreciate you saying that it's a pretty low fixed cost business. And you guys give the sensitivity to EBITDA quarterly on the price changes for lumber and OSB. But would it be safe to assume that if those are at sort of typical operating rates and where you're sort of looking at operations in the second quarter, that those sensitivity numbers might be a little bit north of what the typical ones you would provide?

No. The sensitivity numbers that we gave were on what we'd consider our typical operating rates. And so I would expect that as volume comes down, you're going to have to adjust for that.

Adjust down.

Russell or Devin, I'm just -- I'm curious, are there other liquidity levers that you could pull that you'd be willing to talk about?

Yes. Well, Mark, really, at a high level, the 2 additional places that you can go are either nonstrategic Timberland sales or adding additional leverage to the balance sheet. Speaking to the Timberland sales, obviously, we've generated a significant amount of cash over the last few years through the transactions in Michigan and Montana. We're always looking at ways to optimize the Timberland holdings in the overall value of our portfolio. We're continuing to do that. But we're only going to do transactions that make sense, that create value, looking for the right deal, and we're going to continue to be very disciplined in terms of how we do that. I would note, just as an aside, in terms of those larger transactions, the runway is probably a little bit longer right now just on the ground. Due diligence is a little bit more complicated with the social distancing, title work, etc. Some of these things are extending that runway out a little bit. And then the other avenue is just adding additional leverage. As we've said, we think it's important to maintain an investment-grade credit rating. It's part of our overall balanced capital allocation philosophy. I think we saw the benefit of that in our recent bond offering. So we're really focused on maintaining an appropriate level of leverage in this environment. Our leverage ratio has been in excess of the 3.5x target as we maintain the dividend through an extended period of low lumber and OSB prices in late '18 and '19. So we just didn't feel that it's prudent at this point to add additional leverage to the balance sheet in this environment. So those are the 2 primary levers in addition to the CapEx, operating cost, and other changes that we announced today.

Okay. Just two other ones. I wondered first, Devin, if you can talk about how you're handling the production cutbacks, whether you're just trying to roll this across your system or whether you're shutting down or idling particular mills. And then the other thing I'm curious about is just what you're seeing from your distribution business in terms of what the channel looks like.

Yes. Well, with respect to the operating posture decisions that we're making, it's really based on a few things. One is the cost structure of the individual mill. We're going to prioritize mills with a lower cost structure or a worse cost structure rather than our lowest cost mills as we make those decisions. We're also on a weekly and, frankly, daily basis looking at sell-through and inventory levels at the mills to make those decisions dynamically depending on what's going on in the market. With respect to the distribution business, obviously, they're very close to the ground in terms of gauging market conditions. Generally speaking, and I think this is really true across all of the products, inventory levels are fairly low, as you would expect. I think people are cautious about building inventories in a very uncertain environment. There's just been a lot of purchasing kind of to cover immediate needs. Frankly, we think that's one of the things that we saw that kind of stabilized lumber prices over the last couple of weeks after we saw that initial significant drop, where people were trying to gauge what was going on in the market. People paused buying. I think there was a fair amount of destocking. What we've seen over the last couple of weeks is people just took their inventory levels down pretty low and had to go out and cover. But I would say on balance, inventory levels are still pretty low across the system.

Two things. You've said for quite a while that you run real estate to generate steady cash but not growing cash. Given your comments, Russell, should we assume that, that sort of $250 million normal target is also subject to review alongside the dividends?

Yes, Mark, you're correct. I mean, we've kind of set that business at about a $250 million plus run rate. We still believe that over the long term, once we get through this COVID disruption that, that business will return to that type of a cash flow profile.

Okay. And the second question is just about small land owners to the south. We were seeing small private owners of land working pretty hard to get their trees cut in the first quarter despite the weather, which leads me to think that they were already looking to raise cash. Do you -- are you expecting that side of the business to curtail as quickly as you do or more than you do?

Yes. I think with respect to the small landowners, I would expect that they're going to likely be some of the first to turn off their production. They don't necessarily have the same delivered model that a lot of the bigger players do. They rely more on stumpage. And so as the mills dial back their consumption, oftentimes that stumpage is one of the first to go. So yes, we would expect that, that would be a segment that would get turned off earlier.

I wanted to take a little bit different spin on Mark Weintraub's question. We were off to a great start in wood products with better housing late last year, good housing start applications and spiking prices until the end of February. So if we had never heard of COVID, do you think you would have taken any action on your dividend at all?

As we think about the way the year started with 1.6 million housing starts in each of those months, that kind of 1.5 million housing start level is really where we had expected this market to be even years ago. And so in that environment, as we showed with our first quarter results, we generate a lot of cash flow out of our businesses. Certainly, as we think about the ability to generate significant EBITDA across our businesses in that environment, and our commitment to return significant amount of that cash flow back to shareholders, certainly, in that environment, I don't believe we would be taking the actions we announced today by any means.

Okay. And just wondering why did you mention the fact that Weyerhaeuser will remain in compliance with REIT taxable income, the doctrine? Because presumably, you will be reinstating the dividend in due course and possibly at a lower rate. So why was that necessary to even mention?

Yes. Steve, this is Russell. I think through the suspension of the dividend, I guess, the question arises, can we meet that 90% minimum distribution required in the REIT income. So we have no -- we have complete confidence we can manage the distribution requirement and in no way put the REIT status in jeopardy. We did make the dividend payment in the first quarter of $254 million. Then we have net operating losses that we can carry forward to offset any other REIT income in absence of the dividend.

I mean, the real answer is we just -- we didn't want there to be any confusion about that fact. So that's why we put it in there.

You remain a REIT. Got it. Okay. One other question on a different tangent. To the extent that you have sawmills in close proximity to tissue and board mills, which are running flat out, are you seeing a spike in chip or residual prices? And can you take advantage of that by maybe being a little less precise on your cuts?

Well, we would -- I don't think it would necessarily be less precise on our cuts. But certainly, to the extent that the pulp mills are in proximity to sawlog or sawmills that have reduced production and are thereby producing fewer chips, the market for that is stronger. So we'll certainly take advantage of that. But honestly, in the grand scheme of things, that's really around the margins.

Apologize if I missed this when we cut out, but I just wanted to go back to some of the discussions on capital allocation over the near to intermediate term. Just to clarify, will the only focus be on preserving liquidity? Or is there any appetite for share repurchases just given where the stock price is? It sounds like, again, in response to an earlier question, roughly, you kind of highlighted the goal of keeping leverage at a manageable level. But just kind of curious as you think about the alternatives out there where share buybacks might fit in.

Yes. Well, as we've said before, share repurchase can be a good tool for returning cash to shareholders under the right circumstances. And certainly, we believe the underlying value of the company is not fully reflected in the current stock price. But we would balance share repurchase against other capital allocation priorities. And I think as conditions improve, we're likely to prioritize reinitiating the cash dividend over share repurchase.

Got it. Just going to the ENR guidance as well. Can you maybe just elaborate a little bit more on the reduction you outlined in the prepared remarks? Russell, I know you particularly highlighted that a lot seems tied to the challenges associated with closing deals in the current environment. But just to clarify, are you seeing any shift in demand or prices buyers are willing to pay? Or is it just really just kind of that timing lag? And then on a related note, is the lower contribution from energy and natural resources, kind of that component of the business, can you quantify that at all?

Sure. I would say on the real estate, we continue to see demand for the HBU properties, and the values are remaining strong. We have a really large program. I think as we look at the components of the program, we need to kind of break it into two pieces. We have small-sized HBU properties, and those are typically under around $500,000. That's really a majority of the deals that we close, and that's pretty sustained activity. Those are typically cash buyers. They're not as complex to complete. We are seeing some delays just because of the social distancing, etc. The larger HBU deals, and this is really what we're looking for adjusting kind of our guidance on this is the deals that are over $500,000 or the larger ones, especially the ones that require financing. We're experiencing some slowdown in those, and that's really due to the challenges of getting the credit in place. So that's primarily the driver on the adjustment for the HBU sales. But the fundamentals of the HBU market really haven't changed. One thing that we're seeing and we're hearing, we're definitely getting a lot more traffic kind of on our websites. I think that's because people have more time to spend on the Internet. But we are seeing more interest in people seeking out some space. It's very profitable to provide those opportunities so they can meet that future demand. As far as the ENR EBITDA, that's really driven by lower construction material volumes. One second, guys. We're going to fix this. [Technical Difficulty]. Okay. Sorry, we had a little feedback on our side. So for the ENR, that's really lower construction materials volumes. The primary driver is just a slowdown of activity because of COVID, and then we have less lease activity. I would say if you look at 2019, a 20% reduction in the real estate kind of EBITDA and then a 20% reduction applied to the ENR EBITDA kind of gets you to where that adjustment is.

This is actually Randy Toth sitting in for Anthony. Just quickly on the U.S. south export business. Have conversations begun with Chinese log importers regarding the purchase of timberland out of the U.S. south? And could that business come back quickly? Or does the waiver nature of the tariff relief limit demand? Any color there would be helpful.

Yes. So a couple of things on the China export market, and this is true really across the west and the south, and then I'll get specifically to the south. As we got into the late March and April period, we did see a reduction in the amount of log flow from New Zealand and Europe hitting that market, and that created an opportunity for U.S. logs to hit that market. At the same time, our importers from China applied for and received exemptions from the retaliatory tariffs. So in the west, that was 5%; in the south, that's 25%. Taking that 25% tariff off really opened that market back up. We've been ramping up our production for the export market out of the south. As long as that tariff stays off, there will continue to be a good opportunity for us to grow that business. Okay. Understood. And then just maybe switching gears to the OpEx opportunities for the year. I was surprised with CapEx being cut by 30% or so. OpEx expectations remain unchanged. Can you maybe touch on what is driving that and the projects being pursued this year? Yes, sure. A few things. And clearly, the capital that we've put back into the business, particularly on the wood products side, has really facilitated a lot of the cost reductions and other operating improvements that we've seen. But what gives us, I think, confidence at this point is against that $50 million to $70 million target, we got off to a really good start in Q1. As we think about the OpEx opportunities, not all of those are specifically capital related. They are continuing to focus on getting better recovery, better reliability, better -- higher-margin product production out of our mills. Those things we can continue to do even with the reduction in CapEx. Similarly on the timberland side, the things that we're doing about mechanized logging and improving the haul and logging efficiency. We're going to continue to work those. Yes, it does get a little bit more challenging in this environment, but OpEx has become such an important part of the culture at Weyerhaeuser. I'm confident that our colleagues in the businesses will continue to drive that even in this challenged environment.

Just two questions. One, in reference to Steve's question on the dividend. Devin, you made a comment that at 1.5 million housing starts, Weyerhaeuser throws off a lot of cash. Does that kind of imply that if we get back to U.S. starts at 1.5 million, you're able to reinstate the dividend at sort of a $1 billion a year level?

Yes. Again, so our view is that we're going to reinitiate it as soon as practicable. I think it's really going to be dependent on what the cash flow and operating environment look like. Certainly, as housing eventually improves back to a level that we had expected, that gives us a lot more flexibility to continue to increase the dividend. But for us, that doesn't necessarily require that level of housing starts for us to reinitiate. We would look to do that as soon as we can and then adjust that as market conditions improve.

Okay. And then you made an interesting comment about moving more Weyerhaeuser logs to Weyerhaeuser processing facilities. So I'm just wondering what your self-sufficiency was before that initiative in the west and the south and what it is after, i.e., with the incremental differences?

Yes. So typically, about 50% of the logs coming into our mills come from our fee ownership. And obviously, that varies depending on region, but that's the average across the system. That's gone up a bit in this environment, probably 10%, 15% across the system. Again, I think just that vertical integration gives us the flexibility to move those logs to our internal mills when that makes sense and when market conditions require it. It's pretty similar across the west and the south. We do have Timberlands on the Atlantic Coast where we don't have mills. So obviously, we don't have fee logs going into our internal mills in the Atlantic Coast. But pretty much everywhere else, we have good alignment between our fee ownership and our mill manufacturing.

All right. That was our final question. Thanks, everyone, for joining us this morning, and thank you for your continued interest in Weyerhaeuser company. That concludes today's conference call. Thank you, everybody, for joining. You may now disconnect.