Yieldco Trend Continues

With continued record low interest rates, investors are still searching for yield. This has created an incentive for the sell side to offer investments focused on generating yield for investors.  This has happened on a number of fronts. REITs are getting bigger and more differentiated, renewable energy portfolios are being spun off as separate yieldco securities, MLPs are becoming more mainstream. Certain industries such as land based casinos have the potential to split their businesses into operators and REITs as evidenced by GLPI.

In the latest yieldco twist, the IRS is allowing Windstream to form a REIT with certain assets.  This move would clear the way for other telecom companies to spin off certain assets into REITs, which would provide an yieldco vehicle for investors and free up their balance sheets for other developments (M&A, network investments, etc). This is more than something such as AMT, Windstream could spin off a more diversified group of assets.

Some of this development reminds me of the income trust craze that happened in Canada several years ago.  The end eventually came when the Canadian federal government narrowed the definition of what could be held in an income trust after it was rumoured that BCE/Bell would spin off an income trust.  There was a growing concern from government that income trusts were meaningfully eating into revenues, and even a concern from corporate Canada that the income trust craze was causing the tax tail to wag the business dog.

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