Weyerhaeuser Co. (WY), a leading forest products company, has announced its plans to convert to a real estate investment trust (REIT). The company said that its board of directors determined that converting to REIT status would best support Weyerhaeuser’s strategic direction.
 
Management stated that this conversion will position Weyerhaeuser to be more competitive in its timberlands business. The company pointed that it is able to convert with its existing business mix of Timberlands, Wood Products, Cellulose Fibers and Real Estate.
 
The company hasn’t fixed a date for conversion, but has said that it would be in 2010. The timing of the conversion depends on the state of the economic recovery, changes in tax policy including shareholder tax rates and the distribution of earnings and profits required under tax laws for REIT election.
 
After converting to REIT, Weyerhaeuser must issue a special, taxable dividend to stockholders of its undistributed earnings and profits. As of the beginning of 2010, the company expects earnings and profits to total just less than $6 billion.
 
Weyerhaeuser plans to pay a major portion of the dividend in stock. The company said that it is exploring the potential to pay out as much as 80%−90% in stock. This will require shareholder approval to increase the authorized number of shares.
 
Also, the company announced that its board of directors has approved amendments to the company’s articles of incorporation to eliminate the company’s classified board structure and remove existing super majority voting provisions.
 
For the last couple of years, Weyerhaeuser has been under pressure form its shareholders to convert to a REIT status. The new status will reduce the company’s tax burden and boost profitability.
 
A REIT is a tax designation for a company investing in real estate that reduces or eliminates the corporate income taxes. REITs are required to distribute 90% of their income to investors.
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