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Cumulus Media Sells Tower Portfolio For $213 Million
- Thread starter Y2kTheNewOldies
- Start date
I know station groups are at the point of turning over sofa cushions looking for loose change, but as many groups who have already sold their towers will attest; down the road they will really regret this deal.
In the business world, the only reason you buy something is for the opportunity to sell it later at a higher price. That time is now for tower property. Yes that means you've basically sold all of the value from your boat anchor AMs. But that will make it easier to simply shut them down when the time comes. But holding on to something forever is not a good idea. The mentality at Cumulus post-bankruptcy is "no emotional attachment."
I think they're looking seriously at all of their real estate in the same way that other companies are. They don't need as much studio space as they did pre-pandemic, so that's more money available for other things. Entercom has said the same thing. They could easily sell all of their buildings for lease-backs if they wanted to. Lease-backs can be tax deductible.
Personally, I'm not a big fan of sell and lease back deals unless you're planning to move at some point in the not-too-distant future anyway.
I've always believed you keep everything you own that makes at least $1.00 in net profits. Having said that, my opposition to selling and leasing back is based on the assumption that ownership of towers can be monetized. That's not always true. Not every tower is going to have willing tenants, and tower maintenance isn't cheap over the long haul. Cumulus is getting a nice chunk of change for its towers and, from what I've read, the tower company paid between 30% and 40% of market value because Cumulus will not be paying rent for a substantial number of years. So, this may well be a deal that benefits both parties, though I'm sure it involves some risk, and time will tell whether it truly works out for both.
AM towers are of little use to non-station tower owners because they are typically on low ground, like sea level, and because unlike FM and TV, the tower is the antenna. It can be done, but trying to mount things like Cell/PCS clients on an AM tower is an expensive PITA. I'm sure most of the towers Cumulus sold had their FM stations. Sure, some companies will force the tower buyer to include purchasing the AM towers too, but really they're a throw-in.
It's unfortunate that most of the larger groups don't see their FM and TV towers for what they could be; Non Traditional Revenue sources. They may think that number in the offer is generous, but down the road they'll wish they hadn't sold valuable assets so cheap.
In their view, it's not part of their core business.
Remember that Cumulus is being run by the lenders, so they're selling off assets to get their money back.
As far as the AM towers, they looked at the ones sitting on valuable land, and sold the land before making this deal.
The remaining AMs are on less valuable plots of land.
Agreed. It's often a sign of a desperate cash raise. Short term thinking like this made Jack Welch famous as CEO of General Electric. But he lived long enough to see GE crumble into a much smaller company than it was when he took over -- largely a direct result of Welch's decisions at the helm.
TheBigA said:
Um, no. When I buy a washing machine, I buy it because the machine has utility for me. I'll probably give it away for someone to scrap in 10 years.
The same is generally true of all business equipment. A company buys some gear, and generally continues to use it until it either wears out or becomes obsolete, and sells for much less than the purchase price.
The problem with selling the towers is that it becomes a perpetual liability.
The only way it works financially for Cumulus, on a 10 year or 20 year timeline, is if Vertical Bridge is both substantially more efficient at maintaining the towers, and they are willing to set a lease payment that is lower the amortized cost of Cumulus maintaining the towers, while allowing a profit margin for Vertical Bridge. I wouldn't take those odds.
That's why I said "In the business world..." Your example is in the consumer world. Two different things.
Remember the lenders own the company. They're not thinking long term. They're trying to sell assets for quick money to pay for their loss.
But towers are not "gear" as they are part real estate, part the existence of permits and part the actual installation.
In business, we rent or lease if the money used for a purchase could produce higher rates of return in our core business. Stations and groups are not in the real estate business. If the value of owned property can be better used elsewhere, we sell the property and lease it back. And that also reduces the paperwork involved with ownership, converting everything into a single monthly or periodic bill.
Property management is generally not part of radio managers' skill-set. Avoiding capital being tied up in property is a good decision in many cases.
You didn't read my post. From the part you even quoted: The same is generally true of all business equipment. Your assertion that all business assets are bought to appreciate is insane.
Yes, like I said, a desperate cash raise.
Towers are obviously "gear", and moreover the most important piece of gear a broadcaster owns. No tower = no license = no revenue. One of the biggest challenges facing AM licensees is the landlord for the tower site declining to renew the lease, and being unable to find a suitable replacement, or having to spend hundreds of thousands of dollars in setup costs, plus a lease payment, to diplex.
Yes I understand the concept, and the philosophy is wrong for assets like these.
It makes sense to lease when an asset is used temporarily, or can easily be changed out. If the station puts on events 20 days a year, it wouldn't make sense to buy 20 portable toilets. Rent them. And things like studio space are easily changed out. Moving the studio and sales office from Oak Street to Washington Street is not a huge deal, so if the landlord-tenant relationship goes south, both parties can easily walk away.
Tower sites are not the same, because they are subject to regulations, both zoning and FCC. If, in 2030, Vertical Bridge is having financial dire straits and asks to double the lease payments, Cumulus won't be able to say no. That's a problem for Cumulus, but it won't be a problem for Mary Berner because she will be long gone before that piper gets paid.
Perhaps a better analogy would be company computers or other "business equipment." Not washing machines. Towers and tower land are not the same as company computers or radio consoles. Towers and tower land fall into a category with other company property, such as studios and of course the broadcast license. Once again, two different things. I don't lump all "business assets" in the same category. Companies don't buy office equipment with the intent of selling it at a profit.
Your previous comment made it sound as though this was being done by corporate management for traditional company purposes. It's not. This is a post-bankruptcy operation. It's not a "desperate cash raise," but getting the lenders their investment back, approved by the bankruptcy judge. The intent is very different. There are long term consequences to a Chapter 11 bankruptcy. Some people think half of the debt was magically wiped out, but that's not what happened. The debt was converted into equity, and now the lenders want to turn equity into money. At some point they'll sell the remaining parts of the company and the new owners will decide if they want to buy back the towers or other sold assets. Selling the towers isn't a permanent thing. The new owners could buy them back. But it would be after the lenders have sold their controlling interest in the company.
I agree with BigA and David; this is a good deal for Cumulus.
In a "normal" economic environment for commercial radio, Cumulus is probably somewhere around a $200 million EBITDA per year company. Once things return to normal, Cumulus' net leverage should be at or even below 3.5x. That's pretty good when one considers the fact Cumulus' leverage ratio was north of 5.0x coming out of Bankruptcy.
When one compares income loss from third-party tower tenants and pro forma rent expense from the leaseback side of this transaction net of operating expense savings, Cumulus basically will receive 14x that number in cash proceeds.
Many companies in many industries, especially companies with highly levered balance sheets, would sell assets for 14x cash flow in a heartbeat!
What we've witnessed over the past 18 months is why, in some instances, there is tremendous value in Lenders being able to receive a controlling equity stake via a Chapter 11 reorganization. Pre-bankruptcy, I think Cumulus would have been very hesitant to divest underperforming major market stations and its tower portfolio. Now, execs know that if they do not take fiscally prudent measures, they'll most likely be fired. Some these recent actions should have occurred several years ago. Instead, the Dickeys were too busy ruining the country stations in their portfolio and throwing money into idiotic side ventures.
In a "normal" economic environment for commercial radio, Cumulus is probably somewhere around a $200 million EBITDA per year company. Once things return to normal, Cumulus' net leverage should be at or even below 3.5x. That's pretty good when one considers the fact Cumulus' leverage ratio was north of 5.0x coming out of Bankruptcy.
When one compares income loss from third-party tower tenants and pro forma rent expense from the leaseback side of this transaction net of operating expense savings, Cumulus basically will receive 14x that number in cash proceeds.
Many companies in many industries, especially companies with highly levered balance sheets, would sell assets for 14x cash flow in a heartbeat!
What we've witnessed over the past 18 months is why, in some instances, there is tremendous value in Lenders being able to receive a controlling equity stake via a Chapter 11 reorganization. Pre-bankruptcy, I think Cumulus would have been very hesitant to divest underperforming major market stations and its tower portfolio. Now, execs know that if they do not take fiscally prudent measures, they'll most likely be fired. Some these recent actions should have occurred several years ago. Instead, the Dickeys were too busy ruining the country stations in their portfolio and throwing money into idiotic side ventures.
There's a lot of this going on now. Viacom-CBS is selling off a lot of property, including Television City in LA and the famous Black Rock headquarters building at 51W52nd Street. They built both of those buildings over 50 years ago. Now it's time to cash out.
But the sale to the Vertical folks is mostly for FM sites. AM, as mentioned before, is not particularly useful for tower leasing companies. The towers are too short, and there is no need for multiple towers and expensive, expansive real estate to mount a few cellular antennae or some police radio antennas.
Which brings us to the reason for sale of AM sites: they don't usually go to multi-purpose leasing companies (although some do). They go for business and housing development: real estate. The cases of WMAL and the former WGMS in DC, WBBM in Chicago, KABC and KHJ in LA all show that the towers were torn down and the land sold for huge sums... far more than the value of the station.
So we are looking at two situations: AMs that are sitting on valuable land and FMs that are on towers that will be ongoing vertical real estate.
FM stations often have multiple towers to choose from. In some markets, nearly all sites are leased, and there are no issues (Miami, Houston, many in Dallas, all the good ones in Chicago, nearly everything of consequence in LA) so FM leasing just means hanging an antenna or plugging into the shared one. The tower and the land below are not part of the radiator.
You are optimistic to think that the value of FM stations will be worth saving ten years from now. AM sites are going fast because the stations are near valueless now. Just look at how many directional stations have gone to a leased site, with a single tower and power below 500 watts non-DA at night.
Except for a few privileged signals (maybe 175 in the top 100 markets), AMs are mostly useful to get an FM translator on the air; reducing the power and coverage of the AM is irrelevant as the AM had and will have no other value.
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