NEW YORK, Sept. 29, 2014 /PRNewswire/ -- Windstream is the first to take advantage of the IRS's new guidance regarding moving assets into tax-free real estate investment trusts (REITs), and other telcos will likely follow the leader, according to the latest report from Heavy Reading Insider (www.heavyreading.com/insider), a subscription research service from Heavy Reading (www.heavyreading.com).
Windstream's REIT Gambit: A Heavy Reading Reality Check analyzes Windstream's decision to spin off its legacy network assets, focusing on the factors that influenced the decision and the applicability of those factors to other network operators. It explores and answers two key questions about the Windstream move: Does it create value for the company's shareholders, and does it reduce the company's debt leverage? The report analyzes the relative financial and ownership positions of other network operators to determine which ones may potentially benefit from spinning off their legacy assets in a REIT.
For a complete list of companies covered in this report, please click here: http://twimgs.com/audiencedevelopment/LRHR/PDFS/hri0914_companies.pdf.
"The IRS provided new guidance in May regarding what assets could be put into a tax-free REIT vehicle," says James Crawshaw, contributing analyst with Heavy Reading Insider and author of the report. "Windstream has seen the opportunity to put its passive access network (copper and fiber lines) into a REIT, which it will spin off tax free to existing investors."
The Windstream REIT decision generated a burst of excitement from financial and industry analysts who initially saw something visionary and ground breaking in the strategy, Crawshaw says. "Windstream estimates the REIT spinoff will boost free cash flow to shareholders by $115 million. Heavy Reading estimates suggest this boost is worth around $1 per share – slightly less than the positive share price reaction on the day Windstream announced the spinoff."
Key findings of Windstream's REIT Gambit: A Heavy Reading Reality Check include the following:
- Windstream is the first through the door with a spinoff that appears to create some incremental shareholder value, although the strategic rationale for the spinoff is unclear
- The spinoff does not reduce leverage, as Windstream simply swaps one fixed cost (interest) for another (rental)
- Other telcos are likely to follow suit, although REIT spinoffs do not make sense for those with large net operating losses or retained earnings, or concentrated share ownership
- The most promising REIT spinoff candidate appears to be Frontier Communications, though the company has highlighted the regulatory and strategic challenges a spinoff would entail
Windstream's REIT Gambit: A Heavy Reading Reality Check is available as part of an annual single-user subscription (12 issues) to Heavy Reading Insider, priced at $1,995. Individual reports are available for $900 (single-user license).
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About Heavy Reading
Heavy Reading (www.heavyreading.com), the research division of Light Reading, offers deep analysis of emerging telecom trends to network operators, technology suppliers, and investors. Its product portfolio includes in-depth reports that address critical next-generation technology and service issues, market trackers that focus on the telecom industry's most critical technology sectors, exclusive worldwide surveys of network operator decision-makers that identify future purchasing and deployment plans, and a rich array of custom and consulting services that give clients the market intelligence needed to compete successfully in the global telecom industry.
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SOURCE Heavy Reading