• Adams/Fairway considering REIT conversion

    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.

    Steve McNeeley, Tantara Capital

    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.

    Any guess as to the combined assets?  Bloomberg referred to $750 million of combined debt.
    Sorry can’t talk about that one…the debt comment is a bit misleading as the capital structure of the two are very different.
    What are the financial benefits from converting to a REIT versus remaining a corporation or LLC.
    REITs don’t pay tax if they meet the REIT IRS requirements and dividend 90% of their income plus usually trade at a premium as Gilliand points out. That said, you must manage your capex requirements very carefully

    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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