The Journal’s Heard on the Street column has a valuable look at The New York Times Company’s financial straits today.
The NYT signed a sale-leaseback deal on its new headquarters building. A sale-leaseback is a real estate transaction where an owner-occupier sells its building to an investor who rents it back to the firm for a set term, usually fifteen to thirty years. Its a common way of transferring real-estate risk off a balance sheet or of just cashing in on a non-core asset.
The latter is what the Times is doing here, and it’s doing it because it has two bond issues maturing in the next year or so that it was unlikely to have the cash for.
The Journal’s interesting take is to look at the transaction as a loan and to compare the cost of financing to what it’s replacing:
Under the deal, the publisher pays $24 million in rent for year one. That’s the equivalent of an interest cost of 10.7%…The Times plans to use the money to immediately pay off $250 million in bonds not due until next year, replacing debt costing 4.5% with financing costing more than twice that.
Basically, this is the Times buying a few years of time in hopes that it will survive what looks to be a depression for the economy and an apocalypse for newspapers.
The Journal says that’s why the company ended its dividend. The $35 million in new annual costs added by its new rent payment and its usurious loan from a Mexican oligarch neatly line up with the $35 million it’s saving from the dividend elimination.
In other words, the Times is taking that dividend money and betting on its future—something it should have done years ago.
It is supreme irony that the Times should wind up having to sell its ownership interest in the new Times building. It seems like only yesterday that the city of New York took by eminent domain the block on which that building was constructed, and turned it over to the Times as a subsidized deal. The moral is that redevelopment may use government power to take property from one citizen to give it to another, but the iron laws of the market still work. Redevelopment is thus nothing but a private development venture that takes advantage of the public by using public finds for private gain.
#1 Posted by Gideon Kanner, CJR on Sat 14 Mar 2009 at 01:54 AM