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The Deal: Crown Castle's Lead on Tower Deal May Rest on REIT

There is also the fact that REIT bond investors may be prohibited from buying securities issued below investment grade.

"A REIT typically only wants to issue bonds if it is investment grade," he said.

Moody's analyst Fraser noted that data center REITs DuPont Fabros Technology and CyrusOne are Ba1 and B1, respectively.

"It is not necessary for a REIT to be investment grade," he said.

In theory, a REIT structure should improve Crown's cost of capital to finance such a large asset purchase.

REITs enjoy substantial tax benefits, Fraser said, and a company's cash flow metrics should look a little better than the typical non-REIT that pays taxes.

Another benefit is that real estate investment trusts typically have a 39-year depreciation schedule, while non-REITs generally depreciate assets over 15 to 20 years.

"If you have a lower depreciation expense," he said, "this will boost your reported earnings."

Shifts in the market may also motivate Crown Castle to convert now.

REIT's high dividend yields appeal to equity investors, and often deliver higher valuation multiples.

"The window for that may be closing," Fraser said.

Tapering by the Federal Reserve could reduce Treasury prices and push yields higher. Investors who are now drawn to equity REITs could be drawn to government notes.

"You may see an outflow of investment from REITs to Treasuries," he said.

It could behoove Crown Castle to act now, while the markets are more receptive to REITs. Of course, the availability of AT&T's towers provides additional motivation.

Crown Castle declined to comment. AT&T did not respond to queries.

Written by Chris Nolter

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