Weyerhaeuser Co. said Tuesday its board has approved a conversion of the forest products giant into a real estate investment trust, letting the company take advantage of major tax benefits.
Weyerhaeuser has been under pressure for years to lower its income tax rate _ which currently totals 35 percent _ by becoming a REIT. The investment trusts distribute at least 90 percent of their taxable income to shareholders as dividends each year, and then can deduct those dividends from corporate taxable income. In many cases, REITS will pay out all of their taxable income and owe no corporate tax at all.
"This conversion will position us to be more competitive in our timberlands business," President and CEO Dan Fulton said in a statement. "In addition, we are able to convert with our existing business mix of timberlands, wood products, cellulose fibers and real estate."
The Federal Way, Wash.-based company said the conversion may occur as soon as next year, depending on the economic recovery and changes in tax policy.
Shares rose 60 cents to close at $43.11, earlier reaching a new 52-week high of $46.80.
Fitch Ratings said Tuesday that Weyerhaeuser's planned conversion won't affect its debt ratings. In September, the agency downgraded the company's long-term senior unsecured debt and issuer default ratings to junk status from investment grade and maintained a negative outlook.
Under its conversion into a REIT, the company must issue shareholders a special, taxable dividend of its earnings by the end of the year of conversion. Weyerhaeuser has pegged its 2010 profit at just under $6 billion. It plans to pay a significant portion of the dividend in stock.
The company also said it will ask shareholders at its annual meeting in April to approve changes in its structure, eliminating its classified board and removing super majority voting provisions.
Weyerhaeuser will join fellow forestry REITs Potlatch, Rayonier Inc. and Plum Creek Timber Co.