Windstream, Frontier get boost with tax-avoiding trusts
Rural telecom Windstream gained 12.4 percent Tuesday after it announced plans to convert part of itself into a real-estate investment trust, an increasingly popular way for companies to avoid federal taxes.
The company employs about 800 workers in the Rochester area.
Such REIT conversions are just the latest way for companies to avoid U.S. taxes. These moves follow the rise of so-called tax inversions, where companies transfer business to overseas units based on countries with lower tax rates, which have attracted negative attention from the White House.
Investors are bullish on how REIT conversions could be the latest way for U.S. companies to reduce their U.S. tax burdens, and therefore boost profit. Shares of Windstream closed at $11.83, up $1.30.
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Windstream said it plans to spin off its fiber and copper networks as a separate publicly traded company, which will be classified as a REIT. The REIT, then, doesn't pay federal taxes as long as it distributes 90 percent or more of its income to investors as taxable income in the form of dividends. Windstream will then rent the use of the assets from this separate unit. The move allows the company to avoid federal taxes at the corporate level. The Internal Revenue Service issued a positive letter regarding the transaction, Windstream said Tuesday.
The move is so lucrative investors are betting other telecoms will follow. Shares of Frontier Communications rose 14 percent to $6.79, while Verizon rose 0.4 percent to $51.97. Both companies have a significant employment presence in the Rochester area.
Another high profile REIT conversion was American Tower. The company is a top owner of mobile phone communication towers.
It's hard to blame companies to want to turn themselves into REITs. The Vanguard REIT exchange-traded fund is up more than 18 percent this year, topping the 8 percent gain by the Standard & Poor's 500.