Concerning REIT Conversion News Hits Lamar (LAMR), Penn National Gaming (PENN)
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With Iron Mountain Inc. (NYSE: IRM) getting hit 14% after-hours on negative IRS REIT conversion news, Lamar Advertising Co (NASDAQ: LAMR) and Penn National Gaming Inc. (NASDAQ: PENN) are also lower.
IRM disclosed this evening:
As previously announced in June 2012, the Board of Directors of Iron Mountain Incorporated (NYSE: IRM) unanimously approved a plan (the “Conversion Plan”) for the Company to pursue conversion to a real estate investment trust (“REIT”) under the U.S. Internal Revenue Code of 1986, as amended (the “Code”). The Company is in the process of implementing the Conversion Plan, pursuant to which the Company would elect REIT status no earlier than its taxable year beginning January 1, 2014.
As part of the Conversion Plan, the Company submitted requests for private letter rulings relating to its conversion to a REIT (collectively, “PLRs” and each a “PLR”) to the U.S. Internal Revenue Service (the “IRS”). The PLR requests have multiple components, and the Company’s conversion to a REIT will require favorable rulings from the IRS on a number of technical tax issues, including the characterization of the Company’s racking structures as real estate.
The Company has recently been informed by the IRS that the IRS formed a new internal working group (the “Working Group”) to study the current legal standards the IRS uses to define "real estate" for purposes of the REIT provisions of the Code and what changes or refinements, if any, should be made to those current legal standards. The Company believes that the formation of, and the study undertaken by, the Working Group will impact the anticipated timing of a definitive response from the IRS to some, if not all, of the Company’s pending PLR requests as well as PLR requests submitted to the IRS by other companies that involve similar issues. In particular, the Company believes that the IRS is unlikely to provide a definitive response to the Company’s pending PLR request regarding whether the Company’s racking structures constitute “real estate” for REIT purposes (the “Racking Structure Request”) until the Working Group concludes its study. While the Working Group’s study is pending, however, it is possible the IRS may address some of the other components of the Company’s pending PLR requests, though the Company cannot predict when the Working Group will complete its study and provide definitive responses to the Company’s PLR requests.
Prior to the Company’s learning of the formation of the Working Group, the IRS informed the Company that the IRS was "tentatively adverse" to providing a PLR that the Company’s racking structures constitute "real estate" for REIT purposes. The Company understands that the designation of "tentatively adverse" can have one or more meanings under IRS procedures, including (1) the IRS being undecided pending receipt from the taxpayer of additional facts or additional analysis on technical points of law or (2) the IRS having a full understanding of the underlying facts and a solidified view as to applicable law and reaching a tentative adverse conclusion as to how the law applies to the taxpayer’s facts. Due to the preliminary nature of an initial “tentatively adverse” designation, it is not unusual for the IRS to later issue a favorable PLR after an initial “tentatively adverse” designation.
As part of standard IRS PLR procedures when the IRS makes an initial "tentatively adverse" designation, the Company requested, and the IRS convened, a "conference of right" at which the Company explained its position on its racking structures to the IRS. The conference included a discussion among representatives of the Company and the IRS of legal authorities, including prior IRS rulings, relevant to the characterization of the Company’s racking structuress well as important factual details relating to the Company’s racking structures, including the Company’s racking structure permitting, design and construction.
The Company is not certain why the IRS was tentatively adverse on the Racking Structure Request, but, after consultation with the Company’s outside tax advisors, the Company believes one or more of the following are the most likely explanations: (1) the IRS was simply undecided, under current legal standards, on whether the Company’s racking structures are properly characterized as "real estate" for REIT purposes, (2) the IRS sought greater clarity of the underlying facts and additional input on technical points of law, and/or (3) the IRS did not want to issue a ruling, either favorable or adverse, on the Company’s racking structures until the Working Group completed its study.
The Company believes that it made a compelling case in its PLR request and during the conference of right on the characterization of its racking structures as real estate. The Company highlighted that its racking structures are permanent structures that are affixed to the foundation of the building shell; like the interior walls, floors and ceilings of a building, the Company’s racking structures are constructed to integrate with a specific building shell and the associated building systems and to remain permanently in place. The Company believes that under current legal standards the Company’s racking structures are “real estate” for REIT purposes; however, the Company can provide no assurances that the IRS will agree.
Furthermore, the Company believes that, once the Working Group completes its study, the IRS will analyze whether the Company’s racking structures constitute “real estate” for REIT purposes under the existing legal standards or any changed or refined legal standards that may be developed by the Working Group. It is possible that the IRS will not modify its current legal standards, or that any modification made will not be material to the Company’s PLR requests, including the Racking Structure Request. As previously stated, the Company believes that its racking structures constitute “real estate” for REIT purposes under current legal standards. If the IRS changes or refines the legal standards in a way that is material to the Company’s PLR requests, the Company expects that the IRS would grant it an additional conference if the IRS is “tentatively adverse” to the characterization of the Company’s racking structures as “real estate” under the new standards.
The Company anticipates that the formation of the Working Group, and the study undertaken by the Working Group, will likely delay a definitive response to some, if not all, of its pending PLR requests, and it can provide no assurances on the length of any such delay. The Company continues to move forward with other aspects of the Conversion Plan, including legal restructuring initiatives, the implementation of enterprise reporting system upgrades and testing of REIT-critical systems. The Company continues to work on the Conversion Plan to ensure readiness to elect REIT status beginning January 1, 2014; however, the Company can provide no assurance that it will be able to elect REIT status as of January 1, 2014, or at all.
In addition, the Company anticipates amending or refinancing its revolving credit and term loan facilities in the second or third quarter of 2013. The Company also may access the debt markets prior to the end of the third quarter of 2013, and the Company would expect to use the net proceeds of any such issuance for refinancing existing debt or other general business purposes. This Current Report on Form 8-K (this “Current Report”) does not constitute an offer to sell or the solicitation of an offer to buy any securities. Any offering, if made, will either be made pursuant to a prospectus and an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), or transactions exempt from registration under the Securities Act.
IRM disclosed this evening:
As previously announced in June 2012, the Board of Directors of Iron Mountain Incorporated (NYSE: IRM) unanimously approved a plan (the “Conversion Plan”) for the Company to pursue conversion to a real estate investment trust (“REIT”) under the U.S. Internal Revenue Code of 1986, as amended (the “Code”). The Company is in the process of implementing the Conversion Plan, pursuant to which the Company would elect REIT status no earlier than its taxable year beginning January 1, 2014.
As part of the Conversion Plan, the Company submitted requests for private letter rulings relating to its conversion to a REIT (collectively, “PLRs” and each a “PLR”) to the U.S. Internal Revenue Service (the “IRS”). The PLR requests have multiple components, and the Company’s conversion to a REIT will require favorable rulings from the IRS on a number of technical tax issues, including the characterization of the Company’s racking structures as real estate.
The Company has recently been informed by the IRS that the IRS formed a new internal working group (the “Working Group”) to study the current legal standards the IRS uses to define "real estate" for purposes of the REIT provisions of the Code and what changes or refinements, if any, should be made to those current legal standards. The Company believes that the formation of, and the study undertaken by, the Working Group will impact the anticipated timing of a definitive response from the IRS to some, if not all, of the Company’s pending PLR requests as well as PLR requests submitted to the IRS by other companies that involve similar issues. In particular, the Company believes that the IRS is unlikely to provide a definitive response to the Company’s pending PLR request regarding whether the Company’s racking structures constitute “real estate” for REIT purposes (the “Racking Structure Request”) until the Working Group concludes its study. While the Working Group’s study is pending, however, it is possible the IRS may address some of the other components of the Company’s pending PLR requests, though the Company cannot predict when the Working Group will complete its study and provide definitive responses to the Company’s PLR requests.
Prior to the Company’s learning of the formation of the Working Group, the IRS informed the Company that the IRS was "tentatively adverse" to providing a PLR that the Company’s racking structures constitute "real estate" for REIT purposes. The Company understands that the designation of "tentatively adverse" can have one or more meanings under IRS procedures, including (1) the IRS being undecided pending receipt from the taxpayer of additional facts or additional analysis on technical points of law or (2) the IRS having a full understanding of the underlying facts and a solidified view as to applicable law and reaching a tentative adverse conclusion as to how the law applies to the taxpayer’s facts. Due to the preliminary nature of an initial “tentatively adverse” designation, it is not unusual for the IRS to later issue a favorable PLR after an initial “tentatively adverse” designation.
As part of standard IRS PLR procedures when the IRS makes an initial "tentatively adverse" designation, the Company requested, and the IRS convened, a "conference of right" at which the Company explained its position on its racking structures to the IRS. The conference included a discussion among representatives of the Company and the IRS of legal authorities, including prior IRS rulings, relevant to the characterization of the Company’s racking structuress well as important factual details relating to the Company’s racking structures, including the Company’s racking structure permitting, design and construction.
The Company is not certain why the IRS was tentatively adverse on the Racking Structure Request, but, after consultation with the Company’s outside tax advisors, the Company believes one or more of the following are the most likely explanations: (1) the IRS was simply undecided, under current legal standards, on whether the Company’s racking structures are properly characterized as "real estate" for REIT purposes, (2) the IRS sought greater clarity of the underlying facts and additional input on technical points of law, and/or (3) the IRS did not want to issue a ruling, either favorable or adverse, on the Company’s racking structures until the Working Group completed its study.
The Company believes that it made a compelling case in its PLR request and during the conference of right on the characterization of its racking structures as real estate. The Company highlighted that its racking structures are permanent structures that are affixed to the foundation of the building shell; like the interior walls, floors and ceilings of a building, the Company’s racking structures are constructed to integrate with a specific building shell and the associated building systems and to remain permanently in place. The Company believes that under current legal standards the Company’s racking structures are “real estate” for REIT purposes; however, the Company can provide no assurances that the IRS will agree.
Furthermore, the Company believes that, once the Working Group completes its study, the IRS will analyze whether the Company’s racking structures constitute “real estate” for REIT purposes under the existing legal standards or any changed or refined legal standards that may be developed by the Working Group. It is possible that the IRS will not modify its current legal standards, or that any modification made will not be material to the Company’s PLR requests, including the Racking Structure Request. As previously stated, the Company believes that its racking structures constitute “real estate” for REIT purposes under current legal standards. If the IRS changes or refines the legal standards in a way that is material to the Company’s PLR requests, the Company expects that the IRS would grant it an additional conference if the IRS is “tentatively adverse” to the characterization of the Company’s racking structures as “real estate” under the new standards.
The Company anticipates that the formation of the Working Group, and the study undertaken by the Working Group, will likely delay a definitive response to some, if not all, of its pending PLR requests, and it can provide no assurances on the length of any such delay. The Company continues to move forward with other aspects of the Conversion Plan, including legal restructuring initiatives, the implementation of enterprise reporting system upgrades and testing of REIT-critical systems. The Company continues to work on the Conversion Plan to ensure readiness to elect REIT status beginning January 1, 2014; however, the Company can provide no assurance that it will be able to elect REIT status as of January 1, 2014, or at all.
In addition, the Company anticipates amending or refinancing its revolving credit and term loan facilities in the second or third quarter of 2013. The Company also may access the debt markets prior to the end of the third quarter of 2013, and the Company would expect to use the net proceeds of any such issuance for refinancing existing debt or other general business purposes. This Current Report on Form 8-K (this “Current Report”) does not constitute an offer to sell or the solicitation of an offer to buy any securities. Any offering, if made, will either be made pursuant to a prospectus and an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), or transactions exempt from registration under the Securities Act.
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