I don't think you would see a JCP chapter 11 anytime soon...the company might be bleeding but they still have the liquidity to survive.
The market is still digesting the deal/IPO valuations...But if you're long from $46 I doubt I have any words of encouragement.
I re-visited the prospectus today. Few take aways
1. The debt offering from Cyrusone ($525 mm notes) issued back in November will be sent over to CBB. The proceeds (around $514 mm) will be used by CBB's board to pay down debt (2023 notes, 2017, and I believe another portion of the debt). The extent of the amount is unknown at the present time, however expect management to come out with an announcement sometime soon...the remainder of the proceeds (if there are any) can be used to pay a special div/buyback shares/or held in cash. Cyrusone's liquidity will now consist of their credit facility+IPO proceeds. Wrap- if you're reading this then you were right about IPO proceeds, I was confusing it with the debt offering. However- the debt offering gives CBB $515 mm to retire debt vs. $315 from the IPO.
The retirement of aprox 500 mm in debt could increase CBB's telco EBITDA by 20% alone in 2013.
2. The current shares outstanding for CONE is 19.53 million. Fully diluted with the operating units is 62 million. CBB owns 42.46 mm operating units+about 1.8 million shares of the common stock. Giving them a total ownership of 71.6%.
What is interesting is that CBB cannot convert, sell, or transfer their operating unit ownership for the first 12 months. So essentially, CBB cannot monetize their stake in CONE until January 18th, 2014. Management has made it clear that it intends to monetize the stake down the road, but I expect them to hold it beyond 2014 even though the shares can be converted at that time.
3. In the prospectus, Cyrusone clearly states that at the midpoint of the offering ($17) CBB's operating unit stake is worth $746 mm. The shares are currently trading at $22...giving the OP stake a value of somewhere north of $925 mm+9.8% they own of the common stock. Keep in mind this stake cannot be converted into common shares until 2014. If these shares could be converted/and were about to be converted today you would have seen CBB's stock trade closer to $7.
4. Valuation of CONE- Companies like Coresite and Dupont Fabros have common+OP outstanding. I ran valuations on these companies and you can see the market is putting a large premium on the database centers that are growing 20-30%...think CoreSite, Rackspace, Equnix.
I expect CONE to have about a 1.45-$1.61 in fully diluted FFO. The industry is trading between 16.5x-20x fully diluted FFO.
Value the CONE stake by reading the fine print of OP units+CBB's telco business.
I get a valuation sum of the parts between $1.6-$1.8 billion going forward. Around $8 a share.
Marcato is the big player here, they go activist on a lot of companies...wouldn't be surprised if they demanded a div if the company doesn't announce one sometime soon.
should be coming soon...I just think Google Finance or Yahoo etc have Feb 4th up...don't see a formal announcement saying Feb 4th.
Yeah the quarter closed prior to the IPO...the call could shed some light on debt reductions and future dividend plans/buybacks.
You would be using EBITDA or FFO on CONE's valuation...those two are the most commonly used industry metrics on these database centers. Net Income is generally not used as heavily across the industry due to high interest expenses/d&a etc... But if you use EBITDA- the interest expense gets passed through.
CONE's bottom line/post IPO performance will indeed feed CBB's income statement via the 71.6% interest...Thus by feeding to the overall performance of CBB via the 71.6%- the share price of CBB will obviously rise accordingly.
My valuations show a value of CBB telecom at $400-$500 mm based on a conservative telco industry multiples (1.5x EBITDA).
+ 71.6% interest in CBB which should IPO at a market cap between $992mm-1.16 billion
Lets say it IPO's at the low end of $16 on Friday, (.716*992)+($450 mm for the telco)= 1.16 billion...16% immediate upside.
I expect CONE to be worth $1.5-1.75 billion standalone based on FY'13 financials...providing a larger upside for CBB's stake.
Last point- CBB's management on the q3 conference call made it clear they are not ready to monetize their 71.6% stake in CBB anytime soon- meaning they believe in the future of CONE's growth.
I'm curious- what are you valuing CBB telecom business at?
Sentiment: Strong Buy
Yes- CONE takes with it the 500 mm 2022 notes...but the database center industry is capital intensive (just look at all the secondary/debt offerings from competitors). Also- most analysts and experts would be valuing CONE based on EBITDA...so you so called "hit to the bottom line" from the interest expense is an irrelevant point at the moment.
You'd be looking at an industry multiple of 10-12x EBITDA....CONE will be coming in at around $120-130 mm EBITDA for FY'13...they're growing EBITDA in the 15-20% range and have doubled their EBITDA since 2010. Cyrusone one 2010 EBITDA was $42 mm...and got bought out at an 11x multiple from ABRYpartners that year.
FFO would be another metric used in the valuation of CONE. Industry multiples (Digital Realty, Dupont Fabros) currently trade and have traded historically at 15-17x multiple. CONE will have FFO of $90-100 mm FY' 13...$90 mm/62 mm (fully diluted shares)= $1.45 FFO. You do the math. I see a FFO/EBITDA industry multiple expansion while CONE continues to generate top line growth.
No pot of gold at the end of the rainbow to the unsophisticated eye. Hope you're not short !
Sentiment: Strong Buy
Yes to the 20% reduction in debt from the proceeds of Cyrusone...but you're missing that CBB will retain a 9% stake in the common shares of Cyrusone and the rest (roughly 62%) will be held via operating units....CONE will have 62 mm fully diluted shares...of which CBB will own 71%.
You reap the benefits via CBB's 71% stake in CONE+Teleco company.
Looked through some of the 13F's yesterday. Few take aways
Marcato Capital- 16.9 million shares (They held 14.2 Million shares at the end of October)
Blackrock- 18.5 million shares (Filed January 31st)
Morgan Stanley- 12 million (Feb 1)
Marcato just presented at the harbor investment conference...they think Cyrusone could be worth over $34
Right- I'm invested in another company that just converted and if you dig through they make it pretty clear that raising debt is a possibility if the company can't meet the dividend payouts...so I wouldn't be surprised if CONE issues more debt going forward (mainly to fund the expansion)...Last time I checked, the yield on CONE was something small like 2-3%. The purpose of constructing the company into a REIT is for valuations, avg REIT is at about 22x ffo...as well as stretched TEV/EBITDA multiples...The forward multiple on the database center REITS TEV/EBITDA is about 17x!
CONE is trading at about 12-13x TEV/EBITDA.
As for your accounting question- I'm pretty sure when valuing a company you take out the capex from EBITDA and therefore work your way down to get the FCF...i've run the numbers on CBB and have ended up with the company generating a FCF of over $100 mm 2013....(they had previously used the FCF to fund Cyrusone) and before that they used 100% of their FCF for stock buybacks and debt reductions.
I haven't looked at WIN so can't really answer the rest of it. If you read Fitch's report on CONE they've estimated the company has enough liquidity to fund the expansion for the next 12-24 months...and then I bet they'll tape the credit markets. Adding on debt and issuing new shares isn't uncommon the data base space...capital intensive business.
Well congrats so far on being on the right side of the trade...but I think time will eventually tell what happens to the company.
I saw your question but couldn't find the link back to it.
This was an IPO...not a spinoff. In a traditional spinoff you get shares of the spinned off company. In this case, CBB still owns a stake in the CONE.
Are you short? I'd love to see your thesis as to why you think CBB should be knocked down to this $2-3 level that your looking for.
The market knocked CBB down to $5.20 last week when it was expecting CONE to be valued at $1.054 billion (midpoint of the $16-18 IPO)...now CONE has a market cap of $1.3 billion.($21 a share)...and CBB is trading at under $5.
These are the blips in the market that often exist on days with major events.
No...Lonestar is in around $4.50...and I suspect Mick McGuire and Marcato are in around $5.50...they crossed the 5% in october. Wouldn't be surprised if they're buying on the dips.