(Adds details, background, analyst comment; updates shares)
By Supantha Mukherjee and Marina Lopes
July 29 Shares of U.S. telecom companies rose
after network operator Windstream Holdings Inc received
regulatory approval to convert some assets into a real estate
investment trust - a tax-efficient structure that could be
adopted by others.
Windstream's shares jumped as much as 26 percent to their
highest in more than two years.
The stock topped the broader S&P telecoms sector index
, which was up 3 percent by midday. CenturyLink Inc
shares were up 8 percent, AT&T Inc was up 3
percent and Verizon Communication Inc rose 2 percent.
Windstream said on Tuesday it received a favorable ruling
from the Internal Revenue Service (IRS), allowing it to spin off
its fiber and copper network and other fixed real estate assets
into a REIT.
"Given the IRS approval, we expect other companies may
explore the possibility of spinning off their Wireline assets
into a similar structure," Jefferies & Co analysts said.
REITs are not required to pay corporate tax but must
distribute at least 90 percent of their taxable income among
shareholders via dividends, making them attractive for
To qualify as a REIT, a business must have at least 75
percent of its holdings in real estate assets and must get
approvals from shareholders, the U.S. Securities and Exchange
Commission and the IRS.
Telecom companies own large real estate assets in the form
of fiber networks, towers and data centers. Windstream, whose
fiber network spans about 118,000 miles, has 27 data centers
that offer managed services and cloud computing.
Telecom tower companies such as American Tower Corp,
which holds substantial real estate, have already converted into
Some analysts, however, said a REIT conversion might not
benefit the major wireless companies as they already rent their
infrastructure to third parties and have minimized their tax
AT&T and Verizon have not consistently paid material cash
income taxes to benefit from the REIT tax reduction, said Craig
Moffett, chief analyst at MoffetNathanson.
"It appears to us that this morning's stock reactions are
indiscriminate, at best," Moffett said in a note.
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.
The company said the REIT would raise about $3.5 billion in
new debt, which would be used to retire Windstream's $3.2
billion of debt.
The company said it plans to pay $650 million annually in
rent to the REIT.
Windstream's shares were up about 14 percent at $11.99 in
afternoon trading. More than 88 million shares had changed
hands, 16 times the stock's 10-day average.
The proposed spinoff also boosted shares of other network
operators - Comcast and Time Warner Cable were
up more than 2 percent each.
(Editing by Saumyadeb Chakrabarty)