REIT Investors Need to Pay Attention to This Scary Lawsuit

Wall Street can be a complicated place where it is sometimes hard to figure out exactly who is benefiting from what. That's a vague warning, but the relationship between bankrupt telecom Windstream (OTC: WINMQ) and infrastructure real estate investment trust (REIT) Uniti Group (NASDAQ: UNIT) helps to highlight the problem.

Here's what you need to know about the recent lawsuit this pair of intertwined companies agreed to settle, and why it should be viewed as a warning about existing and future REIT spin-offs.

Many companies own the properties they operate. This provides a benefit because they don't have to worry about rent and they know the asset is theirs to do with as they see fit (by adding expansions, for example). However, these buildings sit on the balance sheet and tie up capital that could potentially be used in other ways. It is easy to argue that selling such assets to raise cash that could be invested in the company's revenue-generating operations would be a better use of shareholder capital. Other times, selling such assets is simply a way (perhaps one of the only ones available) to raise the cash needed to reduce leverage.

Source Fool.com