What Will Happen to Weyerhaeuser Real Estate?

Key quotes and trends from Weyerhaeuser Co's (WY) Q3’08 conference call:

     

Investors have been pressuring WY to become a REIT to offset the taxes they pay on their hefty assets. A potential windfall for WY. Plum Creek (PCL), another timber company, successfully became a REIT as well. WY says it could happen in 2009 but they caution:

If we were to elect REIT status, any loss in the taxable REIT subsidiary would have to be carried forward as opposed to carry back against the gains that we have in 2008. So, that's why as we said we have not made any election about REIT status at this point, but what we are doing is putting the company in the best position… once we do have more clarity.

Oil revenue has helped WY's bottom line as other segments are struggling, particularly the real estate subsidiary. Weyerhaeuser RE, for example, is a big equity owner of the now-bankrupt, billion-dollar joint venture LandSource. What will Q4 bring with lower oil prices?

Q: You’ve now got long-term debt of $501M, you paid down about $600 million during the quarter. Does that mean that you contributed a bunch of money from Weyerhaeuser to the real estate subsidiary?

A: We paid-off a third-party debt as it was due. And then there is an advance from Weyerhaeuser Company to Weyerhaeuser Real Estate Company that makes up the difference to get us to a total debt position for RICO.

Q:And that doesn't show up on this balance sheet here?

A: Right.

Russian protectionism should help WY:

Russia announced that as of 1/1/09 [their timber tariffs will] go up to 80%… We've seen increased opportunities for our products in the international markets, as a result of that… We'll continue to see improvements in our [export log] volumes going to both China as well as Korea. The Russian taxes… should also have the effect of driving up fiber prices for the Scandinavian pulp producers. So that may provide some benefit to us.

Other trends that WY execs noted:

 

Housing starts to keep declining:

At this point, housing starts are significantly off, and I think the market has really moved to the sidelines, pending some greater clarity.

Biofuel potential:

Potential... new revenue streams… might be in area of biofuels… biochemicals as well as in the carbon credit arena.

Oil prices will rise again:

There are surely some short-term concerns but long-term, we have a view that oil prices are rising.