Waste Management Climbs on REIT Conversion Speculation

Waste Management Inc. (WM) rose the most in 17 months after analysts at Credit Suisse Group AG said investors would benefit if the biggest U.S. trash hauler was converted into a real estate investment trust.

Waste Management increased 2 percent to $36.41 at 11:56 a.m. in New York. Shares of the Houston-based company earlier climbed 6.4 percent, the biggest intraday gain since Aug. 23, 2011. Republic Services Inc. (RSG), a Phoenix-based competitor, climbed 1.7 percent to $31.63.

Waste Management and Republic Services are “best suited” within the waste-disposal industry for conversion into a REIT, Credit Suisse analysts led by New York-based Hamzah Mazari said today in a report. Discussions with tax lawyers and accountants show landfills and their air rights qualify for REIT status, Mazari said.

The shares lost most of their gains after Lynn Brown, a Waste Management spokeswoman, said by phone today the company has no plans to do a REIT conversion.

Darcie Brossart, a spokeswoman for Republic Services, declined to comment.

Investors generally prefer REIT conversions because of future tax benefits and because 90 percent of taxable income must be distributed to shareholders, Mazari said. The effect of conversion on operational flexibility is less of a concern at Waste Management and Republic than at faster-growing competitors, he said.

“Nobody wants their garbage back, which means it can be in the landfill in perpetuity much like a perpetual real estate lease agreement,” Hamzah said in the note. “We believe tip rates at the landfill and transfer station revenue qualify as REIT income.”

To contact the reporters on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net; Rachel Layne in Boston at rlayne@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net