SBA Communications announced yesterday that it has authorized its Board of Directors “to take all necessary steps for it to qualify as a real estate investment trust (“REIT”) for tax purposes.” SBA intends to be taxed as a REIT commencing with its taxable year ending December 31, 2016.
“We are pleased to announce this plan for conversion because we believe REIT status is the optimal structure for our business given the real estate nature of our assets,” stated Jeffrey A. Stoops, SBA’s President and Chief Executive Officer. “We believe a REIT structure will provide many opportunities for creating long-term shareholder value. We have been working on this plan for approximately two years. We expect our conversion to a REIT to have little to no effect on our operations, as we have been operating in compliance with REIT rules since prior to the beginning of 2016. We intend to continue our focus on maximizing long-term adjusted funds from operations per share through growth and disciplined capital allocation.”
In connection with its REIT conversion, SBA proposes to merge with and into a newly formed, wholly owned subsidiary to ensure the effective adoption of certain charter provisions that implement standard REIT-related ownership limitations and transfer restrictions related to its capital stock. SBA expects to hold a special meeting of shareholders in the fourth quarter of 2016 for the purpose of voting on the proposed merger. SBA will file a proxy statement/prospectus on Form S-4 with the Securities and Exchange Commission, which will describe the merger and REIT conversion. The REIT election is subject to the completion of all necessary steps of the aforementioned conversion plan.
SBA’s determination as to the timing and amount of future dividend distributions will be based on a number of factors, including REIT distribution requirements, investment opportunities around its core business and its existing federal net operating losses (“NOLs”) of approximately $1.15 billion as of December 31, 2015. SBA may use these NOLs to offset its REIT taxable income, and thus any required distributions to shareholders may be reduced or eliminated until such time as the NOLs have been fully utilized. SBA does not expect that it will be required to make any distribution of accumulated earnings and profits (commonly referred to as a “purging” dividend) in connection with its REIT conversion.
Principal advisors to SBA related to the REIT conversion are Skadden, Arps, Slate, Meagher & Flom LLP and Greenberg Traurig, P.A. SBA received an opinion from Skadden, Arps, Slate, Meagher & Flom LLP that it will qualify as a REIT as of January 1, 2016.