(Adds details on debt levels, background)
By Euan Rocha
NEW YORK, Sept 16 (Reuters) - Forest products producer Weyerhaeuser Co (WY.N) said on Tuesday there was a high likelihood it could meet the asset and income tests required for conversion to a real estate investment trust structure as early as 2009.
"We have evolved our thinking, and today we are able to share that there is a high likelihood that we could get there in '09," Chief Financial Officer Patty Bedient said at the UBS Global Paper and Forest Products Conference in New York.
Shares of the company, which were down more than 3 percent early in the day rose into positive territory immediately after it announced that it is considering making this transition as early as next year. The stock closed up almost 3 percent on the New York Stock Exchange.
The timber and forest products company, which has been undergoing a multi-year restructuring process, is under pressure from analysts and investors to adopt a REIT structure, which is more tax-efficient than its current corporate structure.
In May this year, the company had indicated that no such conversion was likely before 2010. Wall Street reacted negatively to the announcement and shares of the company got pummeled at the time.
"In order to preserve the option for a REIT status for 2009, there are some technical changes that we would have to make; we currently have a project under way to determine the feasibility of making those changes effective Jan. 1, 2009," said Bedient.
To convert to a REIT the company must use a calendar year for reporting purposes. The company currently uses a 52- or 53-week fiscal calendar, which typically ends on the last Sunday of December.
The company would have to make a changes to its IT systems and business processes in order to implement this change, said Bedient, adding that it would have to also amend its by-laws.
Weyerhaeuser would also have to change its legal structure as its parent company currently holds both manufacturing and timber assets. To become a REIT the company would have to restructure so that all non-REIT qualifying assets, primarily its manufacturing assets, are held in subsidiaries.
"The reason we are examining these additional steps now, is that they would preserve the option for a REIT election for 2009," said Bedient.
Some of the company's peers such as Potlatch Corp PCH.N, Plum Creek Timber Co Inc (PCL.N) and Rayonier Inc (RYN.N) have already adopted the REIT structure and enjoy a tax advantaged position.
The company currently benefits from the passage of the Timber Revitalization and Economic Enhancement Act, or TREE Act, which is a part of the farm bill that was passed by Congress earlier this year.
The legislation has lowered the company's capital gains tax on timber harvested from 35 percent to 15 percent, but the legislation expires in 2009.
The company is working to have the provisions of the TREE Act extended, but this might not get resolved until well into next year, said Bedient.
Bedient said the company is working on reducing its debt levels and acknowledged that one of the challenges to a REIT conversion would be about where to place the debt.
As of last Friday, Bedient said the company had debt outstanding of about $6.9 billion and a cash balance of about $4.9 billion.
"We have very strong liquidity and we believe that this liquidity affords us flexibility, which is particularly important given the conditions in the credit market," Bedient said.
In August, Weyerhaeuser closed on the $6 billion sale of its packaging business to International Paper (IP.N). The company has been divesting its non-core businesses in a bid to focus on its timberland assets.
Shares of the company closed up $1.52 at $56.30 on Tuesday the New York Stock Exchange. (Reporting by Euan Rocha; Editing by Lisa Von Ahn, Dave Zimmerman and Brad Dorfman)