Weyerhaeuser to become REIT, pay special dividend
Weyerhaeuser Co
Investors cheered the news, sending shares of the forest products company up more than 10 percent at one point on Tuesday. By afternoon, however, the stock was up about 2 percent.
The conversion to a real estate investment trust, or REIT, probably will take place in 2010, depending on the economy, Chairman Chuck Wilson said in a statement on Tuesday.
The move will slash Weyerhaeuser's tax burden and give its investors higher returns. The company would still trade on an exchange and would be required to pay 90 percent of profit to shareholders.
A REIT, in essence, is like a mutual fund in that it allows multiple investors to pool resources to control assets.
Weyerhaeuser has large timberland holdings in North and South America, builds homes, and produces packaging and various timber products.
Investors had been clamoring for years to have the company convert into a REIT, saying it is more of a real estate manager than a timber products maker or homebuilder.
MOVING ASSETS
Federal Way, Washington-based Weyerhaeuser will place its timber business into the REIT and fold its remaining businesses and all of its debt into a taxable REIT subsidiary, or TRS.
To become a REIT, a company must make most of its income from real estate-related activity. The TRS designation lets Weyerhaeuser retain its non-real estate assets while still enjoying the financial benefits of a REIT.
However, the company will probably find its non-timber businesses will perform poorly in TRS status and start to sell them in coming years, Sterne Agee analyst Mark Connelly said.
You can't have a packaging company being part of a REIT, said Daniel Perlman, a real estate lawyer with Paul Hastings, Janofsky & Walker in Chicago.
SPECIAL DIVIDEND
Weyerhaeuser said that by the end of the year it converts to a REIT, it must pay a special taxable dividend.
For 2010, the company expects that payout to total just under $6 billion, with up to 90 percent possibly coming in the form of stock and the rest in cash.
Executives declined to discuss the exact payout ratio on a conference call with investors and media.
The payout will probably break down to $28 per share, with about $2.80 to $5.60 cash and the rest in stock, Credit Suisse analyst C.A. Dillon said.
Dillon cut his rating on the company to underperform from neutral, saying the full benefit of the REIT status is already priced into shares.
Also on Tuesday, Weyerhaeuser said it would ask shareholders to eliminate its supermajority voting structure and remove a staggered system for board elections.
In afternoon trading, the company's stock was up 2.1 percent at $43.42.
(Reporting by Ernest Scheyder; additional reporting by Matt Daily; editing by John Wallace, Gunna Dickson and Lisa Von Ahn)
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