Shares of Windstream jumped Tuesday after the broadband and communications company said it will move some of its assets into a real estate investment trust, reducing its debts.
The Little Rock, Arkansas, company said it hopes to complete a tax-free spinoff of the REIT during the first quarter of 2015. The plan is subject to regulatory approval but Windstream said it has received some guidance from the IRS about the move.
Shares of Windstream Holdings Inc. rose $1.28, or 12.2 percent, to $11.81 in afternoon trading.
The REIT will own Windstream's fiber and copper network and other fixed real estate assets and will lease those assets back to Windstream. Windstream said the move will reduce its debt by about $3.2 billion.
Windstream said the REIT will be able to expand its network and make acquisitions to diversify its assets. It said the REIT will raise $3.5 billion in new debt and use that to repay the parent company's existing debt.
Windstream stockholders will receive shares of the REIT as part of the spinoff. Windstream said it will pay annual dividends of 10 cents and the REIT will pay 60 cents. Windstream currently pays $1 in annual dividends.
Citi Investment Research analyst David Phipps said the move will be good for Windstream's credit and said other companies in the sector could execute similar transactions. He said the company is reducing its annual dividend payments by $542 million.