UPDATE 1-Lamar Advertising looks at REIT conversion, shares rise

Wed Aug 8, 2012 12:10pm EDT

* Lamar may make REIT election from taxable year Jan. 1, 2014

* Follows Iron Mountain, Corrections Corp in REIT conversion

* Shares rise 14 pct

By Chandni Doulatramani

Aug 8 (Reuters) - Billboard operator Lamar Advertising Co said it was considering converting to a real estate investment trust (REIT), a move aimed at taking advantage of a seemingly more favorable tax environment.

Shares of the company, which is eyeing a REIT status by January 2014, rose as much as 14 percent to a more than one-year high of $35.99 in early trading.

Analysts have been speculating for the past few weeks that Lamar might be considering converting to a REIT.

"Billboards will make good real estate assets," MKM Partners analyst Eric Handler told Reuters.

Lamar operates more than 143,000 billboard advertising displays that dot highways and busy street corners in the United States, Canada and Puerto Rico.

Several technology companies, especially those with significant real estate assets, have said they are planning to convert into a REIT.

Document storage company Iron Mountain Inc in June said it was looking at a conversion, and data center operator Equinix Inc said last month it was watching very closely the conversion of other technology companies.

American Tower Corp, which said last May it was looking to convert into an REIT, has seen its shares rise 35 percent since then. The tower company began operating as a REIT on Jan. 1.

The market is going to view Lamar's move favorably, analyst Handler said.

Lamar is expected to get approvals from its shareholders and the Securities and Exchange Commission, apart from the Internal Revenue Service for the conversion.

LESS TAX BURDEN

MKM'S Handler said shares of Iron Mountain and Corrections Corp of America have performed well at the S&P 500 since their announcement of a REIT conversion.

Converting to a REIT cuts a company's tax burden, but also requires it to distribute at least 90 percent of its profit among shareholders.

Evercore Partners analyst Douglas Arthur said it was too early to tell if the move was a good idea for Lamar.

"I don't totally understand how it adds so much value right now, but obviously the market disagrees (with his view)," he said.

He said investors may be viewing the conversion as a more tax-efficient mean to distribute the company's cash flow.

Lamar's top customers last year included McDonald's Corp and Verizon Communications Inc.

SECOND-QUARTER REVENUE BEATS

Lamar's revenue increased 3.9 percent to $304.9 million for the quarter ended June 30, above analysts' expectation of $304 million, according to Thomson Reuters I/B/E/S.

The 110-year-old company, which gets about 80 percent of its revenue from the U.S. market, forecast third-quarter revenue of between $303 million and $306 million. Analysts were expecting $307.1 million.

Shares of Lamar, which competes with Clear Channel Outdoor Holdings Inc and CBS Corp-held CBS Outdoor, were up 10 percent at $34.50 in late-morning trading on the Nasdaq.

Clear Channel's shares were up 5 percent at $5.33 on the New York Stock Exchange.

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