Windstream Completes Spinoff, Real Estate Trust CS&L Begins Trading Monday On Nasdaq

Windstream Holdings Inc. completed the spinoff of what is believed to be the first publicly traded real estate investment trust to solely focus on acquiring and leasing communication distribution assets, company officials said on Friday after the close of market.

The new REIT, called Communications Sales & Leasing Inc., or CS&L, will trade on the Nasdaq stock exchange under the symbol “CSAL,” and will be a member of the S&P 400 Midcap Index, officials said.

“Today’s successful spinoff will significantly advance our commitment to deliver value for shareholders,” Windstream President and CEO Tony Thomas said in a statement. “This innovative transaction has made Windstream a stronger company with less debt and increased capacity to invest in our network to provide advanced communication services to customers. I’m also excited about the growth prospects of CS&L.”

Added CS&L President and CEO Kenny Gunderman: “We are excited today to launch our new company, Communications Sales & Leasing. We have assembled a leadership team with deep experience in telecommunications, REITs, capital markets and mergers and acquisitions. We look forward to growing our company and generating solid returns for shareholders.”

Under the terms of the previously announced deal, Windstream on Friday distributed nearly 80.1% of CS&L shares to Windstream shareholders of record as of 4 p.m. CST on April 10, 2015. An ex-date of April 27 has been established by Nasdaq, so all trades through the close of business on April 24 carry the right to receive this distribution.

Windstream shareholders retained their Windstream shares and received one share of CS&L for every five shares of Windstream held. The spinoff is expected to be a tax-free distribution to Windstream shareholders and requires no action on their part. The two companies expect CS&L shares to be deposited into shareholders’ accounts by April 30. Windstream shareholders will receive cash in lieu of fractional shares for amounts of less than one CS&L share.

CS&L, which will begin active trading on Monday, also expects to pay an annual dividend of $2.40 per share, company officials said.

Besides Gunderman, Windstream board member, Francis X. “Skip” Frantz, is leaving Windstream’s board and will serve as chairman of CS&L’s board. CS&L also recently named Mark Wallace as senior vice president, chief financial officer and treasurer. Wallace formerly served as a managing director at Fortress Investment Group Inc., a global private equity, real estate and asset management firm.

As part of the spinoff, Windstream said it has repaid debt in an aggregate amount equal to $2.4 billion under its outstanding credit agreement. The Little Rock telecom has also received cash proceeds of $1.035 billion, which it said previously would be used to retire additional debt over the next 30 days.

Windstream will retain a 19.9% stake in CS&L that will be used within the next 12 months to retire additional debt. The former Alltel Corp. spinoff said it has also amended its $1.25 billion revolving line of credit to, among other things, extend the maturity date to April 24, 2020.

For its part, CS&L said it has completed its previously announced issuances of $400 million aggregate principal amount of 6% Senior Secured Notes due 2023 and $1.11 billion aggregate principal amount of the 8.25% Senior Notes due 2023. Those notes were issued to Windstream to retire outstanding debt.

CS&L also entered into financial arrangements for a $2.14 billion loan and a $500 million revolving line of credit to fund its ongoing operations and purchase communication distribution assets.

As a newly traded REIT, CS&L joins the growing real estate investment trusts that are being used for real property assets that produce rental income. Although they trade like stocks, the majority of a REIT’s taxable income must be returned to shareholders in the form of dividends. Popular with income investors, REITS are interest sensitive and have largely surpassed the broader market since the Federal Reserve has not raised interest rates in nearly a decade.

In 2014, Windstream obtained a private letter ruling from the Internal Revenue Service confirming that certain telecommunications network assets constitute real estate assets under applicable REIT rules.

With the close of the transaction, CS&L now owns 64,000 route miles of fiber, 235,000 route miles of copper, central office land and buildings across 29 states. CS&L will lease those assets back to Windstream through a 15-year, triple-net lease.

“We expect to diversify our tenant base by acquiring additional assets and leasing them to other local, regional and national telecommunications providers,” Gunderman said. “This (is) a great day for Communications Sales & Leasing, and we look forward to a bright future.”

At the close of business Friday, Windstream closed the week at $7.83, down 46 cents or 5.5% as more than 19.5 million shares traded hands, nearly twice the normal daily volume. The Little Rock telecom, which has a market cap of nearly $5 billion, has traded in the range of $7.23 and $13.30 over the past year.