(Adds details on debt levels, background)
By Euan Rocha
NEW YORK, Sept 16 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
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,"
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
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
"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
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)