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Weyerhaeuser Spins Off Real Estate Unit

Zacks Equity Research

On Monday, Weyerhaeuser Company (WY) confirmed its plan to split its real estate division Weyerhaeuser Real Estate Company (:WRECO). This announcement does not come as a surprise as Weyerhaeuser had already indicated selling or spinning-off its real estate unit last year.

As per the deal, a wholly owned subsidiary of Irvine, CA-based homebuilder TRI Pointe Homes, Inc. (TPH) will merge with WRECO. After the integration, WRECO will surface as a subsidiary of TRI Pointe.

Weyerhaeuser, the Federal Way, WA-based real estate investment trust (:REIT), primarily governs around 7 million acres of timberlands in the U.S. and also manages around 13.9 million acres of timberlands in Canada under long-term license. In addition, it is engaged in manufacturing, distributing and selling of forest products. The current spin-off is aligned with its strategy of increasing focus on its core timber and forest products business.

Through WRECO, an indirect wholly owned subsidiary, Weyerhaeuser is primarily engaged in the development of real estate, mainly single-family homes. On the other hand, TRI Pointe also deals with the designing, construction and sale of single-family homes in Northern and Southern California. Given the identical line of business conducted by both the firms this development is likely to be beneficial for the new entity too.

Though the details of the exchange have not been disclosed, as per the proposed transaction, shareholders of Weyerhaeuser will get the opportunity to partially or wholly exchange their Weyerhaeuser shares for WRECO ones. Moreover, WRECO shares will immediately be transformed into TRI Pointe shares. After the completion of the deal, the number of outstanding shares of Weyerhaeuser will decline.

The transaction is however subject to customary closing conditions. The approval of the TRI Pointe shareholders is also pending.

Weyerhaeuser currently carries a Zacks Rank #3 (Hold), while TRI Pointe holds a Zacks Rank #2 (Buy). Other stocks worth considering in the sector include Pernix Group Inc (PRXG) and William Lyon Homes (WLH). Both these stocks sport a Zacks Rank #1 (Strong Buy).

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