OOH…Here’s One Thing
Get Up (REIT)
by Jim Johnsen,
Managing Director, Johnsen, Fretty & Company
https://youtu.be/n9QBXCE4PJU?si=rxFmX9bCVRlxhf3f
“Bobby, should I take ’em to the bridge? (Go ahead)
Take ’em on to the bridge (take ’em to the bridge)
Can I take ’em to the bridge? (Yeah)
Take ’em to the bridge? (Go ahead)
Hit me now
Come on ” … James Brown
Okay Johnsen, the guy was a legend, but what up? upREITS is what up. So damn good they are like a sex machine. Sorry, Johnsen, you lost me…okay then, let me hit ya.
You have worked very long and very hard to build a terrific outdoor advertising company generating $4MM of pretax income for you. Your depreciation is all chewed up, so you are shipping $1.6MM to the IRS and your greedy state government (assuming you are playing straight down the middle of the fairway, btw). So with a little blood, sweat, and tears, you are putting $2.4MM in your jeans each year.
Someone comes along and offers you $50MM for your business. Interesting. If you say yes, you will take the $50MM, pay $15MM in taxes, and keep $35MM. Beverly Hills here we come. Not so fast. Now the hard part comes. You have to get it reinvested in something not too risky that replicates $2.4MM, remember? $35MM at 5% is $1.75. Pay some tax on that, and you are left with $1.35MM. Damn, why did you sell at all?? (besides the fact that one might like to enjoy a little r&r before sailing off into eternity)
Okay, now the sex machine. You sell instead into an upREIT for $50MM. You take no cash. Hold on a minute, Slick J, what did you say? That’s right, you take “tracking” shares in the buyer instead. After a year, you can cash these shares out anytime and turn them into cash (and of course pay the taxes). But if this buyer pays a 5% dividend, you’re now taking in $2.5MM of cash dividend income each year. After tax, something like $1.9MM. And the best part is, you can take that quarterly wire transfer in from a beach in Hawaii if you like. The second best part…there is a good chance that the $50MM of shares you hold in your account, and the $2.5MM of dividend income you are receiving, go up over time, all while your tan is getting better.
Lastly, if you want to hold on to those shares until you break on through to the other side, your heirs will get a sweet step-up in basis and will never have to pay tax when they sell them. Pretty sexy if you ask me.
JJ
jfco.com
Securities transacted through StillPoint Capital Member firm FINRA/SiPC