Telecom shares rise after Windstream gets REIT approval

July 29 Tue Jul 29, 2014 10:51am EDT

July 29 (Reuters) - Shares of U.S. telecom companies rose after network operator Windstream Holdings Inc said it got regulatory approval to convert some of its assets into a REIT - a tax-efficient structure that could be followed by others.

The company's shares jumped as much as 26 percent in early trading. Peer CenturyLink Inc's shares were up 8 percent, while AT&T Inc's shares rose 3 percent and Verizon Communication Inc's shares were up 2 percent.

Windstream said it got a favorable private letter ruling from Internal Revenue Service (IRS), allowing it to spin off its fiber and copper network and other fixed real estate assets into a real estate investment trust (REIT).

"Given the IRS approval, we expect other companies may explore the possibility of spinning off their Wireline assets into a similar structure," Jefferies LLC analysts wrote in client note.

REITs are not required to pay corporate tax but must distribute at least 90 percent of taxable income among shareholders via dividends, making it attractive for investors.

To qualify as a REIT, however, a business must have at least 75 percent of its holdings in real estate assets.

Windstream's REIT will list separately and pay an annual dividend equivalent to 60 cents per share, after a tax-free spinoff, the company said in a statement.

The company's shares were up 18 percent at $12.46 on the Nasdaq on Tuesday morning, after touching a two-year high of $13.30.

Nearly 57.5 million shares had changed hands by 10.48 a.m. ET, 10 times the stock's 10-day average volume. (Reporting by Supantha Mukherjee in Bangalore)