Uniti’s Fiber Focus

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Uniti Group (NASDAQ: UNIT), a Little Rock, AR-based REIT, is a prototypical communications infrastructure company. Uniti owns and manages fiber and copper networks, towers and related real estate assets for connectivity and transport services used by communications service providers, Enterprise and government customers.

Originally spun off from Windstream in 2015, Uniti operates as a REIT with network assets along with Talk America, a small consumer competitive local exchange carrier gained from Windstream. With the spinoff, Uniti won from Windstream a long-term exclusive master lease agreement that drives the largest portion of Uniti’s leasing revenues.

Windstream filed for bankruptcy in 2019, after a dispute with an activist investor. That action created uncertainty for Uniti who in turn sued Windstream.

On June 26, the U.S. Bankruptcy Court for the Southern District of New York approved Windstreams’ Chapter 11 reorganization plan. The plan approval includes ratification of a settlement between Uniti and Windstream, pending certain regulatory approvals.

Under the settlement, Uniti will pay Windstream about $490 million in cash and purchase fiber assets from Windstream for another $285 million.

Uniti also agreed to invest up to $1.75 billion through 2030, to improve its network for use by Windstream.

Kenny Gunderman, Uniti President and CEO, said, “We are pleased that the Court has approved Windstream’s plan of reorganization. We expect Windstream will emerge from bankruptcy later this year with a significantly improved financial position, resulting in a stronger and healthier tenant. Our settlement agreement with Windstream adds significant strategic value for Uniti as it further expands and enhances the value of our national network, strengthens Windstream’s competitive position, and provides Uniti a clear path forward.” 

He added, “… the effects of [COVID-19] on all of our businesses remain minimal, and we continue to focus on driving high margin, low churn, recurring revenue.”

Through 1H20, Uniti reported consolidated revenues of $533 million, up one percent from $525 million in 1H19.

The company is guiding to full-year 2020 revenues of $1.05 billion, down slightly from the $1.06 billion in 2019. The flat revenue outlook reflects its tower business reduction and Talk America termination. 

Of its four operating segments, Uniti Leasing is the big revenue generator, accounting for $370 million or almost 70 percent of sales in 1H20. Uniti Leasing owns, acquires, constructs and leases communications real estate assets including fiber, coax cable and copper networks to CSPs on an exclusive or shared basis. Windstream is its largest customer. 

Most of the leased fiber assets are in Windstream territory throughout the Midwest and southern states. Uniti Leasing also offers capacity on its coast-to-coast long-haul fiber routes.

At the end of 2019, Uniti Leasing controlled 84,100 fiber routes miles and 229,100 copper route miles in 33 states.

Uniti Fiber accounted for $157 million or 29 percent of 1H20 revenues. This operating segment provides fiber infrastructure solutions and services including cell site backhaul and small cell connectivity for wireless carriers, and Ethernet, wavelengths and dark fiber for wireline carriers, Enterprises, educational institutions, and government agencies. 

Uniti Fiber helps its customers improve their network reach and quality, increase capacity and manage operating costs with a variety of custom and off-the-shelf solutions. At year-end 2019, Uniti Fiber, operated 35,600 fiber route-miles across 15 northeastern and southern states. 

Uniti Towers segment operates a traditional tower company leasing model. Uniti Towers amassed a portfolio of 672 towers in 33 states, mainly in the Midwest and south.

Since early 2019, however, the company has been systematically divesting its tower assets, first exiting the Latin America market then selling substantially all of its U.S. ground leases.

On June 1, 2020, Uniti Towers sold 90 percent of its U.S. tower business to Melody Investment Advisors for roughly $220 million while retaining a 10 percent investment interest. Uniti Towers accounts for one percent of total revenues.

Consumer CLEC Talk America provided local telephone, high-speed internet and long-distance services to customers in the eastern and central United States. With Windstream in bankruptcy and no longer supporting the CLEC business, Uniti terminated Talk America’s operations at the end of 2Q20. 

by John Celentano, Inside Towers Business Editor

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