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Towers? We Don't Need No Stinking Towers

Topics of general interest that just don't fit anywhere else.
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Bryce
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Towers? We Don't Need No Stinking Towers

Post by Bryce » Tue Feb 25, 2020 8:02 am

To Reduce Debt, Cumulus Considers Selling 250 Tower Sites.
http://www.insideradio.com/free/to-redu ... f5210.html

Of course they will enter into lease deals with the new owners. Interesting way to raise quick cash as money woes continue to haunt them.


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km1125
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Re: Towers? We Don't Need No Stinking Towers

Post by km1125 » Tue Feb 25, 2020 10:31 am

Is there any case where a once-successful business sold their "mission critical" assets and leased them back and then continued to be successful or grew into a much larger company??

Seems like in every case where I've seen this done in the past, all it did was stave off Ch11 proceedings for a few more years. Great way to raise some quick money, but your operational costs have to increase significantly. (and forever)



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audiophile
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Re: Towers? We Don't Need No Stinking Towers

Post by audiophile » Tue Feb 25, 2020 6:04 pm

It defies the economic common sense, unless the rent is near zero but they're not that smart.


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MWmetalhead
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Re: Towers? We Don't Need No Stinking Towers

Post by MWmetalhead » Tue Feb 25, 2020 8:11 pm

Let's do a quick illustrative example:
Let's say the average annualized going rate for tower rent for the 250 tower sites in question is $100,000/yr. per user. Let's say Cumulus only has one antenna of its own per tower to keep things simple. Let's say 100 of the 250 tower sites have two third-party lessees who lease space at a much lower height, and those users pay Cumulus $50,000/yr. each.

American Tower's gross profit margin is about 70 percent. Let's assume a buyer can purchase the Cumulus sites with adding little to no incremental SG&A expense (below the Gross Profit line expense). Let's assume American Tower is willing to pay 10x cash flow.

If American Tower were to purchase all 250 sites using the economics from the above example:
- They presumably would charge Cumulus the $100,000/yr. rate for all 250 sites. Annual revenue generated by American Tower from Cumulus = $25,000,000.
- American Tower would also receive the benefit of the $50,000/yr. rates from the 200 third-party users who currently occupy space on the Cumulus sticks. Thus, 200 x $50,000 = $10,000,000.
- That adds up to $35,000,000 in annual revenue for American Tower. Remember, their margin in this example is 70%. So, $35,000,000 x 70% = additive cash flow of $24,500,000.

A 10x multiple applied to $24,500,000 = $245,000,000 in sale proceeds for Cumulus.

Now, let's see what happens to Cumulus' P&L statement on a pro forma basis:
- $245,000,000 of debt is retired early. Assuming a 7% interest rate, that will save Cumulus $17,150,000 a year.
- Cumulus loses out on the revenue stream from third-party tower lessees. That will *cost* Cumulus $10,000,000 a year.
- Cumulus will now need to pay tower rent to American Tower. That will *cost* Cumulus $25,000,000 a year.

Net negative cash flow impact to Cumulus = ($17,850,000). It will take them over 13.7 years to "outrun" the $245 million in proceeds.

I believe there is about $1.1 billion in debt on Cumulus' balance sheet, and I believe their Adjusted EBITDA is somewhere around $230 million. Leverage ratio = 4.8x.

If the $245 million in proceeds are used to pay down debt, then Cumulus would be left with $855 million in Debt against pro forma EBITDA of $195 million. Leverage ratio = 4.4x.

So, under this illustrative example, based purely on the economics, it would not be a bad deal for Cumulus. That said, it wouldn't be a transformative deal, either.

My example, of course, is simplistic. Who knows how close my illustrative monetary figures are to reality. The other question is this - for how long would any buyer(s) enter into tower site leases with Cumulus as lessee? 20 years? 30 years? Longer? What type of rate step-ups or reopeners would be included in such agreement?

The point of my example is to suggest that there parameters under which this *could* be a decent deal for Cumulus. It's not going to be a make-or-break moment, though, for Cumulus' long-term viability.


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audiophile
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Re: Towers? We Don't Need No Stinking Towers

Post by audiophile » Wed Feb 26, 2020 6:53 am

Renting is economic waste.

Cumulus tower sites are not worth 245 million, unless the property can be sold at lot of them, but then you lose monthly income.

There is no way they have 250x $100,000 clients.


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audiophile
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Re: Towers? We Don't Need No Stinking Towers

Post by audiophile » Wed Feb 26, 2020 7:08 am

Tower sites:
WWCK = zero renters
WJR = zero renters
WHNN = one renter
WIOG = zero renters
WTRX = zero renters


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Colonel Flagg
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Re: Towers? We Don't Need No Stinking Towers

Post by Colonel Flagg » Wed Feb 26, 2020 10:29 am

Add to this the age and condition of many Cumulus tower sites...WWCK's FM tower is 56 years old, and structurally maxed out. The WTRX towers are 73 years old. I could cite many other similar examples in the deep south, and west.

The late Bob Liggett (RIP) was the guy who knew how to monetize tower sites. These penny stock corporations, and their hired bean counters? Not so much.


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MWmetalhead
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Re: Towers? We Don't Need No Stinking Towers

Post by MWmetalhead » Wed Feb 26, 2020 7:58 pm

Like I said, it was an illustrative example. The real life economics could be much different. I was merely suggesting that depending on the numbers, there are scenarios where this would be an economically sensible deal for Cumulus.

There are also certainly scenarios where this would be a foolish move on Cumulus' part.

The lenders at this point might not even care how this affects Cumulus' long-term viability. If they see Cumulus as a slowly fading company that really has no right to exist due to having no sources of competitive strength, they will mandate Cumulus to find ways to spin off & monetize assets (in Sears-like fashion). $75 million or $100 million here or there in debt paydowns from asset sales might be OK in their eyes.

If $200 million or $300 million is left unpaid after the carcass is picked nearly clean - big deal. They knew allowing an undiversified company in a fading industry with no promising digital assets to "start over" with 5.5x debt leverage out of the gate was a risky move. If the goal was to maximize Cumulus' chances for long-term survival, that leverage ratio would have been no greater than 4.0x for sure and possibly no greater than 3.0x.

As an aside, Cumulus' Q4 earnings report was rather mediocre. Surprised? I'm sure as hell ain't.


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thekman
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Re: Towers? We Don't Need No Stinking Towers

Post by thekman » Mon Mar 02, 2020 8:14 pm

I actually thought this subject heading was going to have something to do with Jay Towers.



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WOHO
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Re: Towers? We Don't Need No Stinking Towers

Post by WOHO » Wed Mar 04, 2020 11:50 pm

So, let's say that the company that buys all of the Cumulus towers realizes that 25% of their AM towers are worth more in real estate and trash the AM towers and sell the land under them. What does Cumulus do for their AM stations? Most would go dark, except, I hope, they would keep their 50KW stations, but even then, we see how some end-up tripled-up and not the same coverage they once had. It's a risky deal unless Cumulus thinks that they can exist in an Alexa, cellphone world? What about PEP for EAS if they get lost in the shuffle? I would hate to see WJR lose their Art Deco building and tall-ass tower and end-up fighting zoning somewhere to get a too short tower? But then again, Cumulus has mismanaged their AM stations and their putrid ratings show it.



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MWmetalhead
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Re: Towers? We Don't Need No Stinking Towers

Post by MWmetalhead » Mon Aug 10, 2020 7:04 pm

Cumulus on its quarterly earnings call this morning announced it entered into a definitive agreement with Vertical Bridge to sell all towers, related fixtures and associated land for $213 million.

About two-thirds of the value was allocated to the towers (Cumulus entered into a sale-leaseback arrangement) and about one-third of the value was allocated to the surrounding real estate.

Audiophile was right; Cumulus received very little third-party rental income from the sites. That amounted to only $2.3 million per year. That income will now go to Vertical Bridge. $0.8 million is offset by annual expense savings (taxes, insurance, upkeep, etc).

Cumulus will pay just $13.5 million in tower rent in year one to Vertical Bridge (I suspect there are minor step-ups after the first year, probably 1.5% or 2% per year). That rate is much cheaper than my illustrative example from February 25.

Cumulus says its net debt - presumably, funded debt obligations less cash - will be in the ballpark of $700 million once the transaction closes in full. Not bad! I believe they came out of Bankruptcy with about $1.3 billion in debt on their balance sheet.

Once the COVID-19 related disruption fades (I do think a little will permanently "stick"), CMLS is probably a $200 million to $215 million per year EBITDA company. A Net Leverage ratio near 3.5x isn't terrible. It's not great, but it isn't terrible. That's firmer financial footing than Entercom and much firmer financial footing than Beasley.

Overall, I would say this transaction represents a good outcome for Cumulus and a very good outcome for its Senior Secured Lenders.


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Mike Oxlong
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Re: Towers? We Don't Need No Stinking Towers

Post by Mike Oxlong » Thu Aug 13, 2020 6:12 am

I'd like to steer this conversation slightly off topic. Not too much. Hope y'all don't mind but I'm curious.

After reading the thread, I went to Google and poked around a bit. From what I looked at, It seems Verizon pays about $45,000 a year to have an antenna on a tower or on top of a tall building. Looking at the numbers MW has posted, the thoughts crossed my mind. Obviously it's not an option for AM. But putting an FM antenna on top of a tall building or cell tower, instead of on the side of an existing broadcast tower? $45,000 a year sounds a heck of a lot cheaper than what Cumulus would be paying to rent on the towers they sold.

And to quote WOHO:
"So, let's say that the company that buys all of the Cumulus towers realizes that 25% of their AM towers are worth more in real estate and trash the AM towers and sell the land under them. What does Cumulus do for their AM stations? Most would go dark"

Would renting out the "dark" towers to cellphone companies be a good investment for the folks buying the towers? Seems from what I found every antenna you see on a cell tower is bringing in around $45K. Most cell towers seem to have about 10 flat panel cell antennas on them. So that's about a half a million a year per tower in rent from cell phone companies.

I was just pondering as I read the thread. Please feel free to tell me what it's not genetic that my eyes are brown.



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