October 6, 2014
In November 2011, Penn National Gaming, owner of the Hollywood and Argosy casino chains, announced plans to split itself into two public companies: it would transfer its real property to a newly created Real Estate Investment Trust, or “REIT,” a tax-exempt, passive real estate investment vehicle, and distribute the REIT’s shares to Penn National shareholders in a tax-free spin-off. The new REIT would generate income by leasing the transferred property back to Penn National.
Much has been made of the number and variety of companies taking advantage of the IRS’ expanding definition of “real estate,” by reconfiguring themselves as a REIT. Companies choosing REIT status are often rewarded by the markets. In fact, an IRS ruling allowing one telephone company to organize a REIT to hold its real property led to an increase in the share prices of all telephone companies. By contrast, the markets punished Civeo Corporation for deciding to invert to Canada rather than reorganize as a REIT.
Penn National’s restructuring plan took a year to complete. Following “a series of internal corporate restructurings,” characterized by CEO Peter Carlino as, “the most difficult thing we have ever done,” Penn National successfully spun off a REIT called Gaming and Leisure Properties. For all of Penn National’s suffering, its REIT conversion was by no means the longest or most complex. The intricacy of REIT conversion makes it difficult to pinpoint when a REIT conversion starts and when it is complete, and many of the REIT conversions presently underway have been in the planning stages for years. For purposes of this survey, we have dated each conversion to the year when the company announced its intention to convert.
The survey results, below, cover all REIT restructurings and new REIT elections by public companies with market capitalization over $1 billion announced between January 1, 2009 and September 30, 2014.
|Year of Announcement||2009||2010||2011||2012||2013||2014|
|Number of Announcements||1||1||2||5||2||4|
|Market Capitalization of Converting Cos (b)||$16.38||$1.16||$40.63||$29.05||$30.85||$16.6|
|Announced||Company||industry||mkt cap (b)||transaction||shareholder approval sought?||legal adviser|
|2011||American Tower Corp||cell towers||$37.15||merger||yes||Sullivan & Worcester LLPGoodwin Procter LLP|
|2013||Crown Castle Int’l Corp||cell towers||$26.84||conversion||yes||Cravath, Swain & Moore LLPSkadden, Arps, Slate Meagher & Flom LLP|
|2009||Weyerhaeuser Company||forest products||$16.38||conversion||yes|
|2012||Equinix||data centers||$11.26||conversion||yes||Sullivan & Worcester LLP|
|2014||Windstream Holdings Inc||telecom||$6.45||spin-off||no||Skadden, Arps, Slate Meagher & Flom LLP|
|2012||W.P. Carey & Co. LLC||real estate||$6.36||merger||yes||DLA Piper LLPClifford Chance|
|2012||Iron Mountain REIT Inc||warehousing||$6.31||merger||yes||Sullivan & Worcester LLPLatham & Watkins LLP|
|2014||Lamar Advertising REIT Co||outdoor advertising||$4.66||merger||yes||Goodwin Procter LLPEdwards Wildman Palmer LLP|
|2013||Corrections Corp. of America||prisons||$4.01||conversion||yes||Wachtell, Lipton, Rosen & KatzSkadden, Arps, Slate Meagher & Flom LLP|
|2014||CBS Outdoor Americas Inc||outdoor advertising||$3.57||spin-off||no||Latham & Watkins LLP|
|2011||Gaming & Leisure / Penn||hotel and motels||$3.48||spin-off||no||Wachtell, Lipton, Rosen & Katz|
|2012||Geo Group Inc||prisons||$2.74||merger||yes||Skadden, Arps, Slate Meagher & Flom LLPAkerman LLP|
|2012||Gaylord / Ryman||resorts||$2.38||merger||yes||Bass, Berry & Sims PLCSkadden, Arps, Slate Meagher & Flom LLPHogan Lovells|
|2014||Life Time Fitness||sports clubs||$1.92||spin-off||N/A||Skadden, Arps, Slate Meagher & Flom LLPFaegre Baker Daniels LLP|
|2010||Sabra Healthcare REIT Inc||health services||$1.16||merger||yes||Fried, Frank, Harris, Shriver & Jacobson LLPVenable LLPO’Melveny & Myers LLP|