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Crown Castle Seeks Conversion to a REIT

Crown Castle International Corp. (CCI), an owner of mobile-phone towers, plans to convert to a real estate investment trust, a move that will probably increase payouts to shareholders.

Crown Castle expects to begin operating as a REIT starting Jan. 1, the Houston-based company said today in a statement. REIT status would provide tax advantages and have “little to no effect” on operations, Ben Moreland, Crown Castle’s president and chief executive officer, said in the statement.

“A REIT structure will lower our weighted average cost of capital and provide additional opportunities for creating long-term shareholder value,” he said.

REITs are subject to lower taxes and pay higher dividends than other companies. Crown Castle is seeking the change as the U.S. Internal Revenue Service scrutinizes the eligibility of nontraditional real estate operations. Iron Mountain Inc. and Equinix Inc., two technology companies planning to convert to REITs, said in June that the IRS was reviewing them and weighing whether to narrow the legal definition of real estate.

Crown Castle has the precedent of other tower companies being REITs on its side, including American Tower Corp. (AMT), said Jonathan Schildkraut, an analyst at Evercore Partners.

“I don’t really see an issue,” Schildkraut said.

To qualify as a REIT, a company has to invest at least 75 percent of its assets in real estate and obtain 75 percent of its gross income from rents or interest on mortgages from financing property, according to the National Association of Real Estate Investment Trusts, a Washington-based trade group. REITs sell equity and debt to fuel growth, and must return at least 90 percent of their taxable earnings to shareholders in the form of dividends.

Dividend Timing

Crown Castle owns, operates and leases towers and other infrastructure for wireless communications in the U.S. and Australia. The company doesn’t expect to make any dividend distributions before its conversion. It will base the timing and amount of shareholder payouts on investment opportunities around its core businesses and federal net operating losses of about $2.7 billion, according to the statement.

Crown Castle rose 2.7 percent to $72.45 at the close of trading in New York. Crown Castle has increased 0.4 percent this year, compared with a gain of 1.5 percent by the S&P 500 Telecom Services Index.

The REIT proposal is subject to approval by the board of directors. The law firms Skadden, Arps, Slate, Meagher & Flom LLP and Cravath, Swaine & Moore LLP are advising Crown Castle.

To contact the reporter on this story: Elizabeth Dexheimer in New York at edexheimer@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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