Here Comes CS&L, the Network REIT is Born

April 28th, 2015 by · 32 Comments

Yesterday Windstream followed through on the plans it unveiled 9 months ago, and spun off its network assets into a Real Estate Investment Trust in a tax-free move yesterday. The new entity trades under the ticker CSAL, and has had a bit of a rough going while the markets figure out just what to do with it. 

Meanwhile, Windstream proper gets to be $4B less in debt than it was, and thanks to a one-for-six reverse split will have a rather higher stock price as well. The company hopes to use the CS&L spinoff not just to save money, but to enable greater investment in its network. The specifics of how that will occur are an open question as yet, one that we will get more color on as the year goes on I assume.

But I think speculation will quickly turn to whether CS&L is able to find additional assets out there to bring into its fold. What happens over the next few quarters will tell us just how attractive the network REIT concept really is to the industry as a whole.  Are there ILECs, RLECs, or CLECs out there that would like to do a similar sale/leaseback and would like to share the ride?


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Categories: CLEC · Fiber Networks · ILECs, PTTs

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32 Comments So Far

  • Anonymous says:

    We’ll see how this plays out, but as I said last year, this deal is pure financial alchemy.

    • Rob Powell says:

      And Alchemy doesn’t have unanticipated side effects? 🙂

      • Anonymous says:

        Net effect of deal: WIN is now like a giant fart — you know it’s there but it’s not tangible. Instead, the giant turd of assets is sitting w/CSAL.

        I think the biggest side effect is that WIN’s hapless board of directors just made it 10x more challening for another teleco to buy WIN because, as noted above, virtually all WIN’s tangible assets sit with CSAL. How would another teleco even buy WIN? What would they buy? Would they have to buy CSAL too?

  • mhammett says:

    I’m never a fan of sale\leaseback or financial exploits. This (unless they actually run it independently and purchase other assets), NNN real estate, HFT, etc. are all pointless.

  • Anonymous says:

    I’m curious what En_Ron, who was a fan of this arrangement, has to say now that this deal is done.

  • en_ron_hubbard says:

    Anonymous (whichever Anonymous you are),
    First thing– I never owned Windstream because of the headwinds I think they face. My prior comments related to the logic of the move to split, which were largely tax efficiency and therefore cash flow and valuation accretive. This seems to have been borne out– the value of the entity the day before the split was ~ $4.7 Billion and the day after the split the aggregate value of the now two entities was $5.1 billion, for a 15% increase in shareholder value. Perhaps that should speak for itself.

    As to headwinds, I would guess that residential POTS is in a slow (but perhaps accelerating) secular decline. Just looking at one factor– increased reliability of wireless networks– is significant. Using a poll of one– me– I hardly ever use my home landline and when I give out a number to be reached at it is almost always my mobile #. Other factors are at work and I view Windstream as a melting ice cube. That said, the split gave shareholders extra options and was FCF enhancing when viewed from 10,000 feet– so still a fan of the basic concept.

    • en_ron_hubbard says:

      My typo checker was on coffee break when I made that post. The post split combined value was $5.4 billion, not $5.1. That was calculated at a WIN pps of $10.20. As I look at my screen so far today WIN is up another 10%.

      • Anonymous says:

        I didn’t mean to suggest you were a fan of Windstream, just splitting the company.

        I agree that the market has responded favorably to this transaction, but I will remind you what I said last August:

        “Every dollar of value WinREIT enjoys, WIN should lose. Now, that may not immediately happen b/c some analysts will convince gullible investors in some HumptyDumptyian & Rumpelstiltskinian way that the naked emperor has clothes and that they’ve figured out a way to spin straw into gold, respectively.

        If WIN was a wrinkly old piece of fruit to use En_Ron’s characterization, it still is. This transaction does nothing to hydrate it.”

        Full comment, among others:

        I still see this as pure financial alchemy.

  • en_ron_hubbard says:

    ” I still see this as pure financial alchemy.”

    That is as may be but many aspects of our financial system might be described in that way– stock splits, reverse mortgages, creation of money through the banking system, etc, etc. For old WIN shareholders the only relevant question is has this transaction created incremental value. So far it has (in a significant way)

    View this another way– countless companies spin of or sell assets or split up their assets into separate packages in order to crystallize underappreciated value. This is really no different and has as additional logic the creation of a tax free entity.

    • Anonymous says:

      en_ron, agree the market sees this differently than I do.

      How would another telco buy WIN? What exactly would they be buying? Could another telco even buy WIN?

      • en_ron_hubbard says:

        As it now exists, WIN is really no different than a CLEC that relies on connection through a provider of last mile service EXCEPT the cost of provision has been fixed for a number of years. What would you be buying– customer cash flow. Should someone buy it? At some price yes and the market is indicating this sort of price. Would I buy it– no — because I don’t like the growth profile.

        Let me take a stab at another way of looking at what has gone on here. Pretend you own a fruit stand and a book store– would you be better off insisting that they be sold together or separately? The universe of buyers who might want both these assets is surely smaller. Yes? I think that’s the essence of it– that and the tax aspect.

        • Anonymous says:

          You actually had me until you got to the fruit salad metaphor.

          I can buy and read a book w/o a fruit salad. Can’t really buy WIN w/o also having access to CSAL. In fact, it’s really not clear (to me at least) what hardware WIN actually owns and what access WIN has to CSAL’s “infrastructure” to make changes to the WIN network.

          This is more like buying a Gillette Fusion blade without buying (or owning) a Gillette Fusion razor.

          I can go out and buy all the Gillette Fusion blades I want today, but they’re pretty worthless to me w/o the razor.

          For me at least (which we know I’m in the minority right now) this WIN/CSAL break-up is about as unnatural as Gillette spinning off its razor division into a separate entity but keeping the blade division.

          The fruit salad and the book have absolutely nothing to do with one another. CSAL & WIN are inextricably linked in a way that the fruit salad and the book can never be (unless you were making the pages out of fruit fiber).

          • en_ron_hubbard says:

            Last comment– you can provision service across your geography if you have guaranteed access to last mile access at a fixed price.

            The metaphor was intended to illustrate a larger point– that value can be created by separating assets and creating a larger universe of buyers. In this case it would be income oriented buyers (CSAL) and growth (?) investors (WIN). It was an imperfect metaphor.

            That you disagree with the market conclusion is nothing to be ashamed of. View it as an opportunity and go out and short them both. That would not make you a bad person.

        • Anonymous says:

          Pre REIT, one company existed. Post REIT, two companies exist. What value is added other than thru tax code? All positions required to run a telecom company still needed, but will positions be added to REIT?
          If this is positive, then why did WIN come up with the idea?
          Why not T or VZ?
          And the stock market likes it today, who knows about next week.

          • en_ron_hubbard says:

            last, last, comment,

            I think you are conceptually wrong and you clearly believe you are right. Again, this should represent an opportunity for you– be proactive and back your views by putting on a short. If you had done that this a.m. you would probably be getting a margin call, but time will reveal all. Best.

            • Anonymous says:

              (this is original anonymous to this thread)

              en_ron, I will respond to your comment (to the other anonymous) about my strong belief about this transaction.

              We should be clear that not a single incremental dollar of revenue is produced through this transaction. In fact, in all likelihood, total costs will go up. Under this arrangement you now have two executive teams, two boards of directors, two independent sets of outside counsel, two auditors, etc.

              Beyond cosmetics, this transaction achieves nothing. They haven’t done a single thing for the customer. It doesn’t enhance customer experience, customer service, customer quality, etc. There is not a single network improvement that you can point to with this transaction. This transaction doesn’t enhance margins, brand equity or anything else.

              Which entity is actually regulated? Are both entities now regulated?

              When you really think about this transaction it makes less and less sense on so many levels.

              Of course, now that I-bankers popped their cherry with this one, it’s only a matter of time before we see more.

  • Anonymous says:

    Although I agree with my fellow-anonymous’ comments, the last comment you responded to wasn’t me.

    My decision to short both would not be motivated out of ethics.

    Although I certainly believe this is alchemy*, I’ll wait for someone like Bill Ackman or other activist investor to point it out. Securities can go up and up for a long time before rational thought sets in.

    (*Actually, this is worse than alchemy. By breaking up the parts in this manner, I-bankers substantially reduced the probability that the company would be aquired. Eliminating any takeover premium destroyed value through this transaction.)

  • en_ron_hubbard says:

    Rob– would it be possible to curtail Anonymous posters and insist people use real names like en_ ron_hubbard? It’s really confusing.

    • anon2 says:

      I was the second one. My questions were really meant as questions, not as an argument. The REIT comes at a time when they also changed management. To me, it looks like desperation, irregardless of what the market looks like. Full disclosure, I could care less about the stock market. Pretty sure that someone makes money in the market whether it goes up or down. I’m not one of them….

  • schmuckinsurance says:


  • Anonymous says:

    i love rob’s support of anonymousNESS.

    The only thing that should matter on this forum is content. I’ve posted for years under anonymous (and other pseudonyms) here. Some has been good, some bad, some right, some wrong.

    Each comment should stand on its own merits.

    • en_ron_hubbard says:

      But let me ask this– how do you feel about idiot Anonymous postings which can be attributed to you? Just pick a unique moniker and stick with it– it’s still “anonymous’– doh!

      Fake CarlK’s I understand.

      • Fake CarlK says:

        I resemble that remark.

        • CarlK says:

          Listen you ahole you’re fooling no-one. I know you’re not me….. at least I think I do. Rest assured, given my connections to cheap Chinese programmers, I will find out who you really are and I will sign you up for a 20 year commitment to the Netflix “MegaBundle”. Just try to get out of that!!!!!

          • Anonymous says:

            Listen up CarlK– it was me who posted as the Fake CarlK. I never thought I’d be caught and I still don’t no matter how many Chinese programmers you put on the case. So suck on you Marblehead.

      • Anonymous says:

        en_ron, I understand your point, entirely. At times I will use a pseudonym throughout a discussion. There is one topic Rob covers where I use the same name all the time. On other topics, I don’t think I’m going to make a lot comments so I just use the anonymous name that autopopulates when I post a comment.

        Regardless of the topic, I try to post a reasoned comment although sometimes I miss the mark. (In the case of CSAL I haven’t 😉 )

        Rob’s created a nice loyal community here and with the exception of a few, most people’s comments are relevant & on-point.

        As far as someone mistaking my anonymous comment for another anonymous commenter, well, that’s my problem or the person who reacts to it. But I don’t think that’s sufficient reason to change.

  • Anonymous says:

    uh, I hope I have better things to comment on anything FakeCarlk or Carlk or the Carlk (that posted) that is really not CarlK b/c the real one always had his goofy mug.

    So, short answer, no

    • CarlK says:

      Bastard, I know it was you. What you mean, goofy mug? Why are you hiding from me behind an Anonymous/ I’m a real nice guy and really want to get to know you. Maybe we could do lunch or something? BTW I am serious about the Chinese programmers.

  • A Nun and A Moose says:

    XO management must be elated that this thread has usurped their Peyton Place thread.

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