Tribune Asset Dump Boosted By Real Estate
Downsizing in the publishing space has occasionally created an opening for opportunistic real estate buyers, as demonstrated by the asset sales materializing out of Tribune.
July 8, 2008
Deals are unraveling almost as fast as they were put together once upon a time. But one sale process that can be counted on to progress into the near term is Sam Zell's Tribune play, which is motivated by the magnate’s need to pay down the debt accumulated in his LBO.
To be certain, some of his print assets—like the Long Island-based Newsday—fetched, or will fetch, a far more attractive multiple than other print companies are seeing in the current M&A environment. But industry pros anticipate that in the next round of divestitures Zell will turn his attention to company’s real estate, an area the veteran of the asset class will likely have little problem selling.
Indeed, Zell has already sold multiple Tribune real estate assets, and as he has reduced headcount across the Tribune properties, he is expected to put more on the market.
Tribune has already dispatched a studio lot in Los Angeles attached to Zell-owned CW Network affiliate KTLA for about $125 million, and in turn used that cash to fund the completion of its deal to buy the Los Angeles Times headquarters, which was promptly placed on the block.
The debt-laden and disbanding conglomerate also took in $30 million from Summit Development earlier this year for the sale of two properties that were once tethered to Tribune’s former Connecticut newspapers, the Greenwich Times and The [Stamford} Advocate, which were also sold through a separate $62 million deal to Gannett.
Assets that could still be sold include the corporate flagship headquarters in Chicago—the Tribune Tower—the headquarters for the Los Angeles Times and the Chicago Cubs’ Wrigley Field. And those are only the properties the company has acknowledged it may sell. Zell still owns the Orlando Sentinel, Hartford Courant and other Tribune entertainment and media assets with associated properties.
While Zell is motivated by the need to pay down debt, his approach could emulated by other publishing companies eager to raise capital. With activist stakeholders in The New York Times Co. and Media General growling for breakups or asset sales, perhaps the next media company to scatter itself to the winds will be one with desirable real estate that can separately enhance sale value. And if a media organization is poised to reduce headcount or relocate to less-pricey office space, then Zell’s mode of divorcing people from property prior to selling both assets provides a compelling model for the breakup process.
Take the McClatchy Company: It has announced plans for double-digit headcount reductions; subsidiary Miami Herald’s sizeable waterfront headquarters is located near the Biscayne Bay—coveted property rapidly being built into high-rise apartments. If and when headcount is significantly reduced, operations not central to its reporting of news—including printing, copy editing and subscription and advertising sales—in Miami could be shifted to other existing company outposts in surrounding counties, creating potential for its longtime base of operations to be re-zoned for new purposes.
For media companies looking to combat revenues that have taken a hammering year after year since the advent of the Internet, the time may be coming to shed attractive real estate to placate shareholders.
“That’s one of the first pockets you go to,” said Harrison Price managing director of Trenwith Group LLC, talking about divesting real estate assets to maintain share value. “You can’t stay ahead of that revenue drop” that’s been experienced over the last decade in the print industry.
Some divisions of print are more easily relocated than others; while editors, reporters and sales staff can be shifted to suburban offices, said an individual familiar with the Tribune's sale strategy, it is not such a trivial exercise to move the print production process itself.
However, the individual said that it remains possible for multiple publications to band together to share a print operation to reduce both costs and real estate utilized in the production process, should a paper shutter and sell sizeable headquarters to pursue a smaller space.
Regarding Tribune, it remains to be seen whether or not Zell's real estate assets will be significant enough to buoy him through 2009’s forthcoming debt calls, or if he will continue to shed newspapers at a time when they are not getting the most attractive multiples (bidding for Newsday reportedly increased its price by $70 million among New York media companies).
With that said, divesting real estate isn’t always a popular choice with workers, whether or not the public actually notes that the masthead’s address has shifted. For employees already unsettled by the upheaval of the original deal and the ensuing job cuts, relocation can be a final straw for some.
But at the same time, if given a choice, it’s better than more cuts. “There’s nowhere else to go,” Trenwith’s Price said, but added the caveat: “You’re not going to make any friends.”
Tribune artwork courtesy of Flickr user jimcchou, obtained through Creative Commons.
For more information on related topics, visit the following:
