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Weyerhaeuser says it won’t spin off timber – right now

Post by Marcelene Edwards on May 30, 2008 at 10:38 am with No Comments »
May 30, 2008 10:38 am

To all those investors who want Weyerhaeuser to spin off its timber assets, the company says not right now.

The Federal Way-based forest products company told investors and analysts today that converting its trees to a real estate investment trust as early as next year wouldn’t be tax efficient, Bloomberg News reports

"That does not preclude the REIT option in 2010," Chief Financial Officer Patricia Bedient said today in a presentation to investors in New York.

Weyerhaeuser’s sale of its divisions including fine paper and corrugated packaging prompted speculation that the company would spin off the trees to reduce taxes on profits from timberlands.

"We’re patient, maybe too patient, but we still think the value of the timberland will be shown over time," Russell Croft, who helps manage $725 million at Croft Leominster Inc., said today in a telephone interview from Baltimore with Bloomberg News.

More from the Bloomberg story:

Weyerhaeuser fell $2.94, or 4.4 percent, to $64.50 at 12:45 p.m. in New York Stock Exchange composite trading. A close at that price would be the biggest drop since Jan. 4. The shares declined 8.5 percent this year through yesterday.

As a corporation, Weyerhaeuser’s timber profits are taxed at a corporate rate of 35 percent, more than double the rate paid by investors in REITs such as Plum Creek Timber Co. and Potlatch Co., according to Robert Willens, president of Robert Willens LLC, a New York-based tax adviser.


"Conventional wisdom suggests that Weyerhaeuser will become more "timber-centered" and migrate toward a tax-efficient REIT structure," Deutsche Bank Securities Inc. analyst Mark Wilde said in a May 27 note to clients. Wilde has also suggested the company consider going private to profit more from its timber investments.

Croft said he was encouraged by comments from Weyerhaeuser executives that the company will continue to sell non-core assets and trim head-office expenses. Conversion to a REIT will require that most of the company’s profit is generated from investments in forests.

"They’d be jumping the gun if they said today they were converting to a REIT in six months," Croft said.

Weyerhaeuser yesterday said it was seeking strategic alternatives for its Westwood Shipping Line and four regional railroads.

The company has also closed mills and sold assets amid a slowdown in U.S. lumber demand. Decreasing home construction and losses at Weyerhaeuser’s homebuilding unit led the company to report a worse-than-expected first-quarter loss of $148 million.

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