post 2 of the Cooperman question notes information on the Windstream reit.....
look at this from credit Suisse:
Other telcos will evaluate REIT spin off, but no rush. We believe AT&T
and Verizon are evaluating a similar strategy, but have the advantage of
waiting to see how the Windstream transition plays out. Given the RBOCs'
strong balance sheets and solid operational performance, there's less
pressure to implement such a strategy immediately.
The more I look at this reit structure, it makes all the sense in the world for both Sprint and Dish, as well as the industry in general.....that is would result in unlocking Sprint value to the tune of about $20 a share......might explain why bashers and shills are SO busy bashing Sprint and pumping TMUS...as noted it you take Spectrum plus network plus cash less debt, you get $8.25 per share....and that really gives no value for the ongoing enterprise with 55 Million customers......
so yes, the current valuation is ludicrous, media and analyst bashing is disingenuous and eye-brow raising at the least......a serious value unlock is coming one way or another....
Note this as reported in Fierce telecom:
Financial analysts said that while other large telcos like AT&T (NYSE: T) and Verizon (NYSE: VZ) could look at a REIT spinoff, it would likely be more complex.
Credit Suisse said in a report that although AT&T and Verizon are looking at a similar structure, it would not likely happen in the near-term.
"We believe AT&T and Verizon are evaluating a similar strategy, but have the advantage of waiting to see how the Windstream transition plays out," wrote Credit Suisse in a report. "Given the RBOCs' strong balance sheets and solid operational performance, there's less pressure to implement such a strategy immediately."
if you read the 7 posts of the thread you can see the general framework of how it can be done, and it's 90% in dividends.......and no, analysts actually felt it might be able to be done...for example this from credit Suisse:
REIT spin off an option for AT&T and Verizon. Today, Windstream
announced that it will spin off certain network assets into an independent
REIT. The transaction is expected to create value for shareholders by
generating additional free cash flow from the tax shield of the REIT structure
and interest cost savings from better credit ratings. Additionally, the REIT
assets could attain a higher multiple as a REIT than under the Windstream
umbrella. We believe both AT&T and Verizon will consider a similar
a vehicle that contains 1) a massive pool of Spectrum as a greatly appreciating asset and 2) a flexible Network that allows for creative Spectrum/Network sharing in use by numerous parties such as carriers, MVNO's or anyone with need of Spectrum/Network access, all without the usual operational risk associated with a single carrier.....and that pays out 90% of income as dividends....
41 Billion spectrum
5 Billion cash
18 Billion network
64 Billion total
31 Billion debt
33 Billion net
4 Billion shares
8.25 value per share PLUS 55 Million customers creating 8.5 Billion revenue per Quarter
telecom poster of the year. Garners highest ratings for factual presentation, general content, readability, originality and most number of bashers bewildered. See how easy that is.
The REIT would have to distribute 90% of its income in dividends, hence making it attractive as an income vehicle for investors including the fact it holds appreciating spectrum assets.
If we assume an equal distribution of shares Sprint and Dish (unlikely, but just to keep the numbers simple as it can get mind boggling), you have 8 Billion shares and at least 55 Billion dollars in hard assets after netting out the debt. Such a novel instrument likely commands some premium to just the hard assets, and depends on the anticipated pay out and so forth, but set that aside the just in hard assets it's about 7.00 a share.....
So all total the value is 13.00 core Sprint and 7.00 REIT for a total of 20 dollars per share....... conservative. And quite a value unlock.
The more I look at this, the more sense it makes, can it be done, anyone's guess, but certainly the Windstream REIT set the stage as it IS being done there, the IRS letter ruling opened the door to that, AND Sprint/Dish partnership ideas have long been talked about, The COOPERMAN Question, just took it to the next level......as I said at the start of the thread one might expect Cooperman to ask a question that MATTERS.
Good luck longs, I think we're about to fly.
"debt holders will not go along....."...surely you jest, the debt suffers as well from the same operational risk, or as you put it quagmire, anything which would remove that risk enhances the value, not to mention the possibility of some enticement.....some fool will argue default benefits debt, get real, look, Sprint could drag on for many many years with little chance of that, partly due to the greed of those who continue to want to issue more debt backed by so much actual hard collateral.......so no, don't buy that argument at all, it's ludicrous in fact....anything else?
41 Billion Spectrum
5 Billion cash
18 Billion Network
64 Billion Total
31 Billion debt
33 Billion net value
4 Billion shares
8.25 per share value
Trapped Value proposition. Above does not include even include the value of 50+ million paying customers.
Value Unlock structural argument equates to 20.00 to 22.00 per share value.
This should all suffice to show just how much value is locked in Sprint. It shows what the cash flow scene SHOULD look like with a more efficient structure, you can see how the margins line up nicely with that of VZ, who has that margin advantage due to scale. Sprint can get that same benefit proportionately with an efficient structure. As noted in the last post.
And also, note well, that the 13.00 per share is just the portion associated with core Sprint, not the share compensation for existing holders in the new REIT. Note the Windstream deal structure for instance.
As to the new REIT, a simple look would be to give each share of Sprint one share of the REIT, and note well that in my model here, there has to be at least one if not more major partners in the REIT, starting with DISH, who has a similar locked value problem with their Spectrum, not to mention they must get the spectrum into use on a use it lose it basis per FCC regs.
So Dish becomes a major partner, and considering their contribution which would be about 25 Billion (by some estimates) of Spectrum would have to receive a substantial number of shares, the structure from there out as far as share exchange percentages, is a wild card, as per usual it would be complex.
But basically you have Sprint contributing a hard 60 Billion in assets (conservative number, but per balance sheet) and Dish 25 Billion, so you have 85 Billion in assets less the 30 Billion sprint Debt (which would be refinanced at a lower rate in the REIT), netting out the 30 Billion in debt leaves Sprints contribution at 30 Billion...so one presumes there might be some parity in the Sprint/Dish ownership, more a true JV partnership Sprint/Dish.....
The REIT would then IPO and raise cash, such as for future spectrum needs, income would come via lease back to Sprint and Dish as well as others who need spectrum/access. This includes, everyone. To be continued....
The COOPERMAN Question - post 5
Sprint as it is currently structured:
8.5 Billion in revenue for last quarter
2.3 Billion selling, gen, admin costs
4.8 Billion cost service
898 Million Depreciation
396 Million Amortization
510 Million debt service
Basically, you have revenue of 8.5 billion and it costs about 8.9 Billion including debt service, and including depreciation which isn't cash.
Here's what happens under a restructuring:
8.5 Billion in revenue
2.2 Billion selling, gen, admin (this is taking out the 1.5 Billion a year as per CEO comments, 375 Mil. per Q)
4.3 Billion cost service (this is dropping out the long discussed duplicative costs of multiple networks, the savings due to NV in reduced backhaul, reduced roaming, lower electric, lower cost per GB and per min, this as per info gleaned from cc's and presentations over the years, equated to about 2 Billion a year or 500 Million per quarter, in the REIT model much cost would simply move to the REIT, reflected then in the lease back to Sprint, in other words I take that as a wash, though in the Windstream model the cash flow actually improves, and it might well do so here as well)
0 Debt service (debt exchanged to REIT as more than offset by Spectrum/Network)
0 Depreciation/ Amortization (these likewise shift to the REIT as Sprint no longer owns the network and Spectrum, except note that each shareholder gets 1 for 1 shares in the REIT, so essentially SB still owns a significant part of the new REIT, ie. it works for SB as well)
Now you have 8.5 Billion in revenue and it costs about 6.5 Billion, net is a plus 2.0 Billion. This aligns very nicely with the margins of VZ for example who makes 31 Billion a quarter and nets about 7 Billion.
Now you will have to start netting out taxes out of that 2 Billion a quarter. It works to earnings of about .33 per share, put a 10 multiple on it and you get a share price of about $13 per share
The general idea is move the network asset off the balance sheet into a REIT, essentially taking with it, DEBT. The debt is thus separated from direct operational risk of the core company, and is backed by a hard asset. Hence the cost of the debt service is lower within the REIT and is removed completely from the original core company.
In the case of Sprint, if such were done, and assuming multiple parties use the Spectrum/Network, such as Sprint itself, Dish, Google, Lightsquared, et. al. The income is assured, and the REIT is attractive to investors because it must pay out 90% of income as dividend payments, the REIT is also backed by the appreciating asset of Spectrum. Even AT&T and VZ could make use of such a vehicle.
This by the way, is the anomaly with Sprint at present. Sprint has 30 Billion in debt, that debt is backed essentially by two things, income from 50 Million paying customers AND 41 Billion dollars worth of spectrum (that's the balance sheet number, it is arguably worth much more given recent auctions and if one considers its value if further built out, ie. a use-based valuation, note my post on how highly VZ and T are valuing their spectrum).
Point is, Sprint is backing their debt by 1) income from 50 million customers and 2) Network Assets/Spectrum, and not getting fair VALUE for EITHER. The operational risk is perceived high in part DUE to the debt service, and the debt service is high DUE in part to the operational risk. It's a catch 22. If you really think about it, the current structure is INCREDIBLY inefficient.
As I have said before, perhaps there is some reason why the above could not be done. I am neither an expert in M & A, nor do I have the requisite team of experts to hand to hash out all it would take to put this together, it's massive. That said, the COOPERMAN question is beyond curious, and the advantages of such a structural change are all-too-obviously incredible to be cast off without consideration.
Other structural change benefits:
1) completely changes the playing field regarding a TMUS/Sprint merger, opening the door to such
2) get the 2.5 spectrum into full use
3) move the burden of additional spectrum purchases over the REIT
4) creates a vehicle that enhances the whole industry
5) unlocks terrific shareholder value
6) frees up core Sprint and SB, to engage in M & A combinations with Sprint in other directions such as content that would at present be too unwieldy
Rural telecommunications company Windstream Holdings Inc. updated its plans for its intended real-estate investment trust spinoff, now expecting to distribute 80% of the shares to stockholders.
Windstream will keep 19.9% of the shares in the REIT and distribute the remaining 80.1% to stockholders, the company said. Retained shares will be sold during a 12-month period following the spinoff and net proceeds will be used to retire debt.
And from Channel Partners:
In July, Windstream announced an agreement to spin off its telecom network assets into an independent, publicly traded REIT under a tax-free transaction that the company said will enable it to lower debt and boost cash flow. The REIT will lease assets to Windstream through a long-term triple-net exclusive lease with an estimated rent payment of $650 million annually.
The COOPERMAN Question also know as "TCQ" is the full walkthrough on the value unlock of Sprint Spectrum, Network, and 50+ Million subscribers.......resulting in a 20.00 per share valuation....I have not seen one argument effectively refuting the numbers, or the premise......