In a strategic move to unlock the value of the assets,
) decided to convert its CBS Outdoor operations in North America
and South America into a real estate investment trust ("REIT")
and divest its Outdoor businesses in Europe and Asia, which will
be reflected as a discontinued operation in the books as of Dec
Investors welcomed the initiatives, facilitating the shares of
this media and entertainment conglomerate to craft a new 52-week
high of $42.55 yesterday, and surging 7.9% before closing at
$40.95. It seems that CBS Corporation's step is in line with
Lamar Advertising Co.
's (LAMR) intention of converting into a REIT, announced last
CBS Outdoor unit fetched $1,383 million in revenues during the
first nine months of 2012, and accounted for approximately 12.8%
of the total revenue generated during that period.
As per management, the planned conversion is subject to the
approval of the Internal Revenue Service. If everything flows
smoothly, CBS Corporation will be well poised to convert the
Outdoor Americas division into a REIT in 2014 that would augment
its value more than the company's core business unit.
Investors seeking high dividend yields are increasingly
favoring REITs. Solid dividend payouts are arguably the biggest
enticement for REIT investors as the U.S. law requires REITs to
distribute at least 90% of their taxable income in the form of
dividends to shareholders. No income taxes are imposed on the
profits distributed by REITs.
Before qualifying as a REIT, CBS Corporations' Outdoor
business in Americas has to fulfill some criteria. The criteria
include - a company must obtain 95% of its income from dividends,
interest, and property income; must invest not less than 75% of
its total assets in real estate; generate a minimum of 75% of its
gross income from rents or mortgage interest; should not have
over 25% of its assets invested in taxable REIT subsidiaries.
We believe CBS Corporation's decision regarding Outdoor
business would augur well for the company, as it would lower its
dependency on advertising, which remains vulnerable to the
economy's health. CBS will remain focused on increasing
subscription based revenue channels. We expect the company's
growth momentum to continue based on the reverse compensation
from affiliates, strong demand of its content, digital
distribution, syndication sales and retransmission consent.
Currently, we maintain our Neutral recommendation on CBS
Corporation. However, the stock which competes with
Walt Disney Company
), holds a Zacks Rank #2 (Buy).
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