Crown Castle International surprised some analysts by announcing this morning plans to qualify as a Real Estate Investment Trust by Jan. 1, 2014.
“We are delighted to announce this plan for conversion because we believe REIT status is the optimal structure for our business given the real estate nature of our assets,” explained Ben Moreland, president and CEO of Crown Castle. “We believe a REIT structure will lower our weighted average cost of capital and provide additional opportunities for creating long-term shareholder value. Further, we expect our conversion to a REIT to have little to no effect on our operations, and we intend to continue our focus on maximizing long-term adjusted funds from operations per share through growth and disciplined capital allocation.”
Analysts had expected Crown Castle to move toward REIT status in the 2016/2017 time frame based on comments from company management during its recent second quarter financial release. As part of its quarterly financial reporting, Crown Castle noted that a 26% increase in year-over-year revenues was offset by a surge in tax charges.
The move to REIT status will allow Crown Castle to lower its tax burden and increased dividend payments, but added that it does not plan to make any dividend payments prior to the REIT move. U.S. tax law stipulates that in order to avoid federal income taxes, a REIT must show that 75% of its assets qualify for tax exemption.
Crown Castle’s stock (CCI) was trading up just over 1% early Monday.
Crown Castle last year agreed to lease 7,200 towers from T-Mobile US for $2.4 billion, providing Crown Castle with exclusive rights to lease and operate the towers for approximately 28 years, and have the option to purchase those towers at the end of that lease for an aggregate option payment of $2.4 billion.
Crown Castle rival American Tower converted to REIT status at the end of 2011, which allowed the company to avoid paying federal income tax as long as it distributed 90% of its REIT income to shareholders. American Tower saw its stock price bolstered by the move as well as an increase in analyst coverage of the company, though that stock surge as waned in recent months compared with its peers.
American Tower late last week announced plans to acquire smaller rival Global Tower Partners’ parent company Macquarie Infrastructure Partners Tower Holdings for approximately $4.8 billion. The deal, if approved by regulators, would add around 5,400 domestic towers; 800 domestic property interests under third-party communications sites; management rights to over 9,000 domestic sites, which are primarily rooftop assets; and 500 communications sites in Costa Rica to American Tower’s portfolio of more than 56,000 owned and managed sites.
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