BATON ROUGE, La. – For Lamar Advertising Co., 2014 is shaping up to be the REIT time.
Following approval by the Internal Revenue Service late last month of its plan to convert billboards and other fixed OOH assets into a real estate investment trust (REIT), the company stated its first-quarter 2014 earnings to reflect REIT accounting and scheduled corporate votes for conversion at the end of May.
And, as far as company operations go, Lamar’s been running at a REIT since the first of this year.
Lamar received the go-ahead for the REIT move on April 23 with a favorable private-letter ruling from the IRS. The company requested the action in November 2012, but waited as the federal agency sorted out similar REIT rulings for, among other requests, CBS Corp.’s spinoff of OOH assets into CBS Outdoor Americas.
The IRS approval means Lamar will proceed to merge its operations – now in a public-stock company traded on the NASDAQ (ticker symbol: LAMR) – to a new wholly owned subsidiary with publicly owned REIT shares. REIT income is generally not taxed at the corporate level, but with individual shareholders receiving annual distributions of income.
The company already divided its business late last year into sectors to include its outdoor-advertising assets as REIT property. Other Lamar business, such as transit advertising and properties in Canada and Puerto Rico, will be in taxable REIT subsidiaries (TRS).
Lamar will then distribute at least 90% of income from its REIT assets to REIT shareholders, while TRS operations will be subject to corporate income tax.
Lamar Financials
The move created somewhat of a split financial personality last week, as the company reported its first-quarter results to show performance both as a public-stock company and as REIT.
Lamar’s first-quarter 2014 net revenues came in at $284.9 million, up 3% from the same time last year. Operating income of $31.1 million leapt far ahead of the $19.1 million in 1Q 2013; while this year’s first quarter showed a net loss of $4.8 million, it moved up significantly from the $10.3 million net loss at the same time last year.
Lamar also offered quarterly calculations of REIT-related figures, including Adjusted Funds from Operations (AFFO) that measures residual cash flow for REIT shareholders — basically, the amount left after subtracting capital expenditures (such as maintenance) from net income and depreciation.
Lamar’s first-quarter 2014 AFFO totaled $58.8 million, a 17.2% increase from the same time last year. (The $58.8 mililon is not adjusted for lower tax expenses Lamar will have as a formally approved REIT.)
Lamar may increase its AFFO totals in the near future with acquisitions. Company CEO Sean E. Reilly told investment analysts last week that Lamar will probably spend $75 million-$100 million in 2014 on what he called “smallish acquisitions” of OOH assets in the $10 million-$25 million range. And, there may be potential for bigger plays.
There are a handful of acquisitions that we think make sense for Lamar operationally and financially, and we feel confident that, over the next couple of years, those will break loose,” he said. “Those tend to be in the range of $250 million to $500 million. And again, there’s a handful of those; we’ll just see how it develops.”
May 12, 2014
