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In a strategic move to unlock the value of the assets, CBS Corporation (CBS - Analyst Report) decided to convert its CBS Outdoor operations in North America and South America into a real estate investment trust (“REIT”) and divest its Outdoor businesses in Europe and Asia, which will be reflected as a discontinued operation in the books as of Dec 31, 2012.

Investors welcomed the initiatives, facilitating the shares of this media and entertainment conglomerate to craft a new 52-week high of $42.55 yesterday, and surging 7.9% before closing at $40.95. It seems that CBS Corporation’s step is in line with billboard operator, Lamar Advertising Co.’s (LAMR) intention of converting into a REIT, announced last August.

CBS Outdoor unit fetched $1,383 million in revenues during the first nine months of 2012, and accounted for approximately 12.8% of the total revenue generated during that period.

As per management, the planned conversion is subject to the approval of the Internal Revenue Service. If everything flows smoothly, CBS Corporation will be well poised to convert the Outdoor Americas division into a REIT in 2014 that would augment its value more than the company’s core business unit.

Investors seeking high dividend yields are increasingly favoring REITs. Solid dividend payouts are arguably the biggest enticement for REIT investors as the U.S. law requires REITs to distribute at least 90% of their taxable income in the form of dividends to shareholders. No income taxes are imposed on the profits distributed by REITs.

Before qualifying as a REIT, CBS Corporations’ Outdoor business in Americas has to fulfill some criteria. The criteria include - a company must obtain 95% of its income from dividends, interest, and property income; must invest not less than 75% of its total assets in real estate; generate a minimum of 75% of its gross income from rents or mortgage interest; should not have over 25% of its assets invested in taxable REIT subsidiaries.

We believe CBS Corporation’s decision regarding Outdoor business would augur well for the company, as it would lower its dependency on advertising, which remains vulnerable to the economy’s health. CBS will remain focused on increasing subscription based revenue channels. We expect the company’s growth momentum to continue based on the reverse compensation from affiliates, strong demand of its content, digital distribution, syndication sales and retransmission consent.

Currently, we maintain our Neutral recommendation on CBS Corporation. However, the stock which competes with News Corporation (NWSA - Analyst Report) and Walt Disney Company (DIS - Analyst Report), holds a Zacks Rank #2 (Buy).

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