CBS Corp. is paring down to its core media biz with plans to unload European and Asian billboards and convert its big U.S. outdoor advertising division into a REIT, or real estate investment trust. Wall Street loves REITs since they pay less tax than regular companies and must distribute at least 90% of profits to investors.
CBS didn’t announce details since first it needs a green light from the Internal Revenue Service. If it gets one, things will move forward in 2014, the company said. It didn’t discuss details of the transformation but will likely split-off or spin-off outdoor in conjunction with an initial public offering.
“We believe the moves we are announcing today will unlock the tremendous value of these unique quality assets,” said CBS CEO Leslie Moonves. “We have studied the benefits of converting our Americas operations into a REIT, and we are increasingly enthusiastic that this transaction — as well as the sale of our business in Europe and Asia — will achieve significant value for our shareholders.”
Investors are too. After a humdrum day of trading, CBS shares shot higher in the after-market, rising 8.2% to $41.05.
There’s been on-and-off speculation about am outdoor sale for years that heated up over the summer as French company JCDecaux and U.S. giant Channel Outdoor both said publicly they were interested. Moonves has maintained that CBS had no particular need to sell but was happy to consider offers, acknowledging the biz isn’t part of the core media and entertainment space. It may have settled on REIT after buyers declined to meet a reported $6 billion asking price.
RBC Capital Markets analyst David Bank said a sale may still be in the cards. “If I were them, I’d be pursuing parallel paths. Maybe this gets a potential buyer to have to raise their price.”
The REIT business will include the U.S., Canada, South America and Mexico. That business has been generally stronger than international, which CBS said will be presented as a discontinued operation as of December 31, 2012.
Total outdoor revenue for 2011 was $1.9 billion. It grew 4% from the Americas and dipped 2% in Europe.
CBS doesn’t break out the division but Americas’ revenue is estimated to be about double the business in Europe and China.
In 2012 third quarter, the most recent financials available, outdoor posted $486 million in revenue and $45 million in profits — respectively about 14% of CBS’ total revenue and 5.8% of operating profit.
CBS will announce fourth-quarter and full-year 2012 numbers on February 14.
REITS, traditionally used for hotels and other leased real estate, are becoming trendier among non-traditional players. Another big outdoor advertising firm Lamar has also filed with the IRS to become REIT. So has American Tower.