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CSAL - Communications Sales and Leasing


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A much unloved REIT spin-off of Windstream's network assets. The stock has been more than cut in half and now yields over 15%.


CSAL is trading as if its parent company and sole customer (but not for long as it signs new deals) Windstream is at imminent risk of bankruptcy. Yet the vicious selloff appears totally unwarranted:


- WIN is in the midst of an impressive turnaround that the market is yet to catch on to. I expect a much more upbeat outlook from them for 2016 when they report later this month. They are doing all the right things (selling assets to deleverage, using secured debt capacity to cut interest costs, improving their network, etc). The market will soon come around (similar to CTL).

- Even if I am wrong and the steady low single digit decline (which has actually halted in the last couple of quarters sequentially, but let's ignore this for now) in WIN's revenues continues, they have plenty of levers to reduce capex and maintain the lease payments to CSAL. Play with the numbers. It is almost impossible to come up with a bankruptcy scenario in the next few years barring some kind of economic catastrophe.

- CSAL has already inked one deal diversifying around 10% of their revenues away from WIN. They have a pipeline of 100 deals and the depenendence on WIN is set to steadily decline in the quarters and years ahead.


What is the risk here? The plunge in the share price raises CSAL's cost of capital and makes doing non-dilutive new deals more difficult. True. But the current dividend is sustainable as long as WIN doesn't fall off a cliff. In the meantime we can afford to wait and collect a 15% yield. What's not to love?



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  • 3 weeks later...

Clearly not a very popular idea, but this one is up almost 40% since I posted. For what it's worth, still looks pretty undervalued. Recent WIN earnings confirmed that things are slowly turning around there. CSAL has a growing deal pipeline, too, and a higher equity price makes it easier for them to get these deals done. Meanwhile, CSAL still yields 11.5%. There is just no reason for such a distressed valuation. If it traded at 8% like GLPI (a similar triple net lease mostly dependent on a single tenant) we get a $30 share price. And remember the dividend will grow over time as they execute on deals. The first of these, PEG, is set to close in April.

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