Windstream Holdings Inc. (NASDAQ: WIN) has provided an update on its real estate investment trust (REIT) spinoff. The company expects to retain 19.9% of shares in the REIT and distribute the remaining amount to its shareholders. While much of the news has been known here, the reality is that this ultra-high-yield dividend will be different than what long-term holders have been accustomed to.

Previously, Windstream had announced its plans to spin off certain telecommunications network assets into an independent, publicly traded REIT in order to accelerate network investments. This REIT will lease use of the assets to Windstream with an initial estimated rent payment of $650 million per year.

It is also worth noting that without the LLC conversion, Windstream would incur a tax liability of roughly $600 million to $800 million, based on current estimates, at Windstream Holdings that would be triggered upon execution of the spinoff.

There is a change coming on the dividend front, and this could be a part of the lack of enthusiasm that was seen initially after the announcement. At the separation, the expected annual dividend per share in the aggregate for the two companies was put at $0.70 (per current Windstream share). That will still generate a high yield, but investors have been receiving the equivalent of an annualized $1.00 per share since the end of 2006 via its $0.25 in quarterly payments. Windstream said that it plans to maintain its current dividend practice through the close of the transaction.

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Windstream has already received a favorable private letter ruling from the Internal Revenue Service, and the company also said that it has obtained a majority of the regulatory approvals required from state commissions. In its new structure, Windstream expects to reduce debt by approximately $4 billion.

For the REIT, Windstream will operate and maintain the assets and deliver advanced communications and technology services to consumers and businesses. The REIT will focus on expanding and diversifying its assets and tenants through future acquisitions.

Tony Thomas, president and CEO of Windstream, said:

Given the importance of the REIT formation to Windstream’s future performance, the Board of Directors and I are intently focused on completing the spinoff, and it remains a strategic priority. … This refined structure allows Windstream to reach our leverage goals faster to strengthen our competitive position, which we believe is appropriate and prudent given the fast changing telecom industry and rapidly evolving customer needs. By improving Windstream’s credit profile, the REIT benefits from having a financially stronger anchor tenant and retains the financial flexibility to grow and return capital to its shareholders.

Gabelli lowered its price target to $9.45 from $12.30 on Wednesday. Also Barron’s pointed to the Gabelli call and said that the valuation looks stretched.

One last thing worth noting on forward dividend payments: the $1.00 per year (based on the lower share price now) would have equated to yield of 11.6%. The new $0.70 equivalent for the two companies would be about 8.1%. That is far under the prior payout, but it is still a very high dividend yield, even for a REIT structure. Windstream was recently featured in our 9 High-Yield Dividends for Risk Takers due to its high yield.

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Shares of Windstream were down about 4% at $8.56 just after the opening bell on Thursday. The stock has a consensus analyst price target of $10.13 and a 52-week trading range of $7.18 to $13.30.

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