CBS is reportedly mulling over a sale of its historic Television City studios in Los Angeles.
According to the Los Angeles Times, the site near Fairfax could fetch as much $500 million to $750 million as developers hunt for more space in the city to build upon.
For CBS, a possible real estate transaction represents another in a string of asset sales which includes the CBS Radio-Entercom deal announced earlier this year. Barclays analyst Kannan Venkateshwar sees the sale as part of a trend for CBS.
“Over the last 5 years, CBS' organic cash flow growth has trailed its EPS growth on the back of increasingly negative working capital trends and higher buybacks. Buybacks have been sustained at the present level partly on the back of asset sales (Outdoors, Radio) and that context, the sale of real estate assets forms part of a trend,” wrote Venkateshwar in a research note.
The idea of CBS considering a sale of its studios arrives as the network emerged as the winning bidder for troubled Australian broadcaster Ten, for which CBS originally bid $25.6 million. According to Variety, Lachlan Murdoch, co-executive chairman of 21st Century Fox, then swooped in with a bid of $28 million and eventually raised it to $43.9 million before CBS reportedly countered with $40 million.
Venkateshwar said that the deal for Ten suggests CBS stock may be more costly than it appears.
“The deal to buy Ten in Australia, while not big, is notable as CBS was Ten's biggest credit during the bankruptcy process with ~$632mm in receivables over time. Thus, while CBS looks cheap on EPS at ~12x, we believe its FCF multiples are more relevant. On that basis at 17.5x, CBS is the most expensive stock in media,” wrote Venkateshwar.