Civeo Plunges After Choosing Move Over REIT Conversion

Civeo Corp., a Houston-based owner of worker housing in Canada and Australia, lost about half of its market value after saying it won’t seek to become a real estate investment trust.

Changing the company’s tax address to Canada instead of pursuing a REIT conversion is in the best interest of shareholders, Civeo said in a statement today. Civeo, which was spun off this year from Oil States International Inc., also said it expects weaker results in its Canadian operations in the fourth quarter and that revenue and margins “are expected to be materially lower in 2015.”

Companies that own property or have real estate operations have surged after disclosing they’re looking at becoming REITs, which pay no U.S. corporate income tax in exchange for distributing 90 percent of taxable income to shareholders. Civeo, which generates 90 percent of its earnings outside the U.S., said conversion wouldn’t cut its levies in Canada and Australia, where it has most of its business.

“The board unanimously concluded that a number of factors would make a REIT conversion less attractive for Civeo and its shareholders, given the significant upfront costs of a REIT conversion and the financial and operational efficiencies that could be gained through the migration of the company to Canada,” Chairman Douglas Swanson said in the statement.

Civeo fell 50 percent to $12.84, the most since the shares began trading in May. The company’s market value plunged to $1.37 billion from $2.72 billion last week, according to data compiled by Bloomberg.

REIT Qualifications

Civeo said a REIT conversion would cost $720 million. To qualify as a REIT, a company must 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.

U.S. tax laws allow a company to move its address out of the country without penalty if the company has substantial business activities in the other area. In its statement, Civeo described the move as a “self-directed redomiciling.” The company also said the Treasury Department’s recent proposed limits on corporate address changes known as inversions aren’t expected to affect Civeo’s move.

Civeo estimated revenue of $200 million to $210 million for the fourth quarter, and $900 million to $920 million for the full year.

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