Published Nov 22, 2022.

Freight railroad says acquisition to eliminate uncertainty in future lease costs

Norfolk Southern Corp. said it plans to acquire Cincinnati Southern Railway, a railway line that it currently leases from the city of Cincinnati, for around $1.62 billion.

The Atlanta-based railroad said the link is one of the highest-density segments of the company’s network, with as many as 30 trains a day traveling the route. The purchase of approximately 337 miles of railway line that extends from Cincinnati to Chattanooga, Tenn., eliminates uncertainty around future lease costs, Norfolk Southern said.

Norfolk Southern will also own around 9,500 acres of land that sits under the rail infrastructure that it maintains and operates.

The acquisition wouldn’t add revenue but, by avoiding higher lease payments, the deal should improve the company’s operating ratio, said Christian Wetherbee, Citigroup transportation analyst.

Operating ratio is a key metric for railroads that measures the proportion of operating revenue consumed by operating expenses.

The deal is subject to approval from the voters of Cincinnati and the U.S. Surface Transportation Board, the economic regulator overseeing the country’s freight railroads. Norfolk Southern said the transaction is projected to close in the first half of 2024.

“This is a historic opportunity to deliver great value to citizens of Cincinnati and realize a substantial return on the investment and foresight of our predecessors,” Cincinnati Mayor Aftab Pureval said.

The Cincinnati Southern Railway trustees have proposed placing the proceeds of the sale into a trust, with its investment returns transferred annually to the city to fund the rehabilitation of existing infrastructure such as roads, bridges, parks, and recreation facilities.

Freight railroads currently face uncertainty on the labor front, with four out of 12 unions still at the negotiating table to get revised deals on working conditions by a December deadline. If the parties are unable to come to an agreement by then, workers will be allowed to go on a strike.

Source: WSJ.