April 23 (Bloomberg) -- Lamar Advertising Co. joined CBS Outdoor Americas Inc. in obtaining a ruling from the Internal Revenue Service that clears the way for its conversion to a real estate investment trust.
Lamar’s income from renting space on outdoor displays qualifies as rent from real property, a necessity for REIT status, the Baton Rouge, Louisiana-based company said today in a statement. New York-based CBS Corp. said last week that its outdoor-advertising unit received a similarly favorable ruling.
The IRS has been looking more closely at companies wanting to become REITs after an increasing number of nontraditional property businesses sought approval for the tax status. Companies including data-center owner Equinix Inc. and Iron Mountain Inc., which rents storage space and maintains paper and electronic records, have been waiting for almost a year for IRS decisions on the fate of their REIT conversions.
“It’s clearly a positive sign that decisions are again being made,” said Adam Markman, an analyst at research firm Green Street Advisors Inc. in Newport Beach, California. “You can’t assume because billboards have qualified that everything else will as well.”
Iron Mountain, based in Boston, and Redwood City, California-based Equinix disclosed last June that the IRS was scrutinizing their REIT eligibility as the agency considers narrowing the legal definition of real estate.
Companies want to be REITs in part because of the tax advantage and the access to capital enjoyed by property trusts. REITs, whose primary income streams are from real estate, don’t pay federal income taxes. In exchange, they’re required by federal law to distribute at least 90 percent of their taxable earnings to shareholders in the form of dividends.
Lamar fell 1.7 percent to $51.16 in New York. Its shares rose 5.2 percent on April 16, the day CBS announced its IRS ruling. Equinix gained 3.2 percent and Iron Mountain climbed 3.8 percent the same day.
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