Potlatch Board Approves REIT Conversion Effective January 1, 2006

Business Wire, Sept 19, 2005

SPOKANE, Wash. -- Potlatch Corporation (NYSE:PCH)

--Company Expects Post-Conversion Annual Dividend of $2.60 Per Share E&P

--Distribution of Approximately $440-$480 Million Expected Q1 2006

--Also Outlines Resource Initiatives Expected to Generate Long-Term Growth

Potlatch Corporation (NYSE:PCH), an integrated forest products company, announced today that its Board of Directors has approved a restructuring to convert the company to a real estate investment trust ("REIT"), effective January 1, 2006. The company expects its annual dividend, post conversion, to be approximately $76 million, or $2.60 per share. Potlatch also intends to issue a special, taxable dividend to stockholders of its undistributed earnings and profits ("E&P") of approximately $440-$480 million in the first quarter of 2006. In addition, Potlatch provided information on two ongoing resource initiatives that are expected to generate significant long-term cash flow and earnings growth.

Under the conversion plan, income from the company's 1.5 million acres of timberland assets will qualify for REIT tax treatment. All of Potlatch's non-qualifying operations, including the company's Wood Products, Pulp & Paperboard and Consumer Products businesses, will be transferred into a wholly-owned taxable REIT subsidiary ("TRS") and will continue to pay corporate level tax on earnings.

"After carefully considering our options, our Board and management team have concluded that placing Potlatch's timberland assets in a tax-efficient ownership structure is the best way to unlock value for our stockholders and better position the company for future growth," said L. Pendleton Siegel, Potlatch's Chairman and CEO. "Converting to a REIT structure will increase our cash flow, facilitating a much larger annual distribution to stockholders. It will also provide a lower cost of capital for future forestland acquisitions, while continuing to allow us to maintain the competitiveness of our TRS operations."

In compliance with tax rules applicable to REIT conversions, the company intends to issue a special, taxable dividend to stockholders of its undistributed earnings and profits ("E&P") of approximately $440-$480 million. Stockholders will have the opportunity to elect to receive this one-time dividend in cash, stock or a combination of both, with the aggregate cash payment by the company to be capped at 20 percent. The company expects the E&P distribution to occur during the first quarter of 2006.

The company expects to pay its first regular quarterly dividend as a REIT during the first quarter of 2006, consistent with its normal quarterly payment schedule. The approximately $2.60 per share annual dividend amount (or $0.65 per share, per quarter) will be adjusted to reflect the additional shares that will be issued in conjunction with the stock portion of the E&P distribution.

In connection with the REIT conversion, Potlatch plans to restructure its operations to facilitate its qualification as a REIT. As part of that restructuring, Potlatch proposes to merge with a newly formed, wholly-owned subsidiary and expects to hold a special meeting of stockholders in the fourth quarter of 2005 for the purpose of voting on that proposed merger. Potlatch will file a proxy statement/prospectus on Form S-4 with the Securities and Exchange Commission, which describes the conversion plan and the merger. The conversion plan and merger are subject to final approval by the Potlatch Board of Directors prior to December 31, 2005.

Significant Long-term Growth Initiatives

Potlatch also today provided information on two ongoing resource initiatives that are expected to generate meaningfully enhanced cash flow and earnings growth over the long term. First, Potlatch stockholders will begin benefiting from the company's 12-year, approximately $100 million investment in its 17,000-acre Hybrid Poplar plantation near Boardman, Oregon, as 2006 will mark the first full year of the Boardman operation's sustainable 11-year harvest cycle. The company is targeting high value, non-structural lumber markets for the hybrid poplar hardwood sawlogs. Second, the company intends to significantly increase production over the next decade on portions of its 667,000 acres of timberlands in northern Idaho. These timberlands contain second- and third- growth trees that are outside Potlatch's normal age range for harvesting. The increased harvest and enhanced silviculture activities are intended to rebalance the age class distribution of the Idaho timberland asset, while improving species diversity and substantially adding to the asset's long-term sustainable productivity.

"In addition to driving growth through future forestland acquisitions, we expect to generate significant long-term internal growth through the next phase of our hybrid poplar operations and within our sustainable harvesting program for our Idaho timberlands. These projects are a part of our forestry-driven strategic plan and are unrelated to our change in corporate structure. However, we are pleased to highlight them today, along with our decision to convert to a REIT, because they will enhance our ability to increase our dividend over the long term," added Siegel.