Bloomberg reports that Adams Outdoor Advertising and Fairway Outdoor Advertising are exploring the possibility of converting from corporations to a REIT.  They may merge and possibly go public as well.  By converting they would join Lamar, Outfront Media and Landmark Dividend as REITs.

A real estate investment trust (“REIT”) is a company which owns income producing real estate.  Reit’s must dividend 90% of income to shareholders.   Many dividend 100% of income to shareholders.  Many REIT’s are publicly traded.  REITs were authorized by Congress in 1960 to allow large and small invstors to enjoy rental income from commercial property.  Over time companies which are not strictly in real estate, but which derive income from real estate (e.g. Lamar, Outfront, Landmark) have become REIT’s as well.  A REIT must have

• 75% of assets in real estate, cash or government securities
• 75% of gross income from rent, mortgage income or real estate invesments
• dividends equal to 90% of taxable income.

Insider asked Fairway Board Member Steve McNeely of Tantara Capital to talk about the issues surrounding becoming a REIT.

Do you think Adams and Fairway would merge if they become REITs  

Yes, we would have to do that to attract the appropriate attention in the market. That was also the reason we were interested in Regency…to add scale and sizzle.

Insider’s take:

Lamar and Outfront demonstrate that an out of home company can operate successfully as a REIT so there’s no reason why Fairway/Adams can’t be a successful REIT.   McNeeley is right that you must manage capexp carefully when you’re a REIT.  Dividending 90% of net income leaves little money to finance internal capital growth.  And even though most out of home companies have negative net income due to high depreciation, the REIT market expect a consistent, predictable and high dividend.

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