CS&L reports small 2Q loss, continues acquisition spree to grow telecom asset base

Communications Sales & Leasing Inc.’s on Thursday (Aug. 11) reported that its second quarter earnings fell into the red as the state’s only publicly traded Real Estate Investment Trust (REIT) continues its acquisition strategy to disconnect from former parent Windstream Holding Inc.

For the period ended June 30, CS&L reported a loss of $2.9 million, or two cents per share, compared to earnings of $4.8 million, or three cents per share, in last year’s abbreviated second quarter. Revenues for the second quarter of 2016 were $188.6 million.

CS&L reported funds from operations (FFO) of $99.6 million, or 65 cents per share. Quarterly revenue came in at $174.7 million. Funds from operations is a closely watched measure in the REIT industry. It takes net income and adds back items such as depreciation and amortization.

The roster of three analysts who cover CS&L forecasted the Little Rock REIT to report first quarter earnings of 65 cents per share on revenue of $189 million, according to Thomson Reuters.

CS&L’s second quarter was highlighted by Windstream’s decision to sell off its remaining stake in the state’s newest publicly traded concern to pay down debt in June. CS&L also announced a mid-summer deal to acquire St. Petersburg, Fla.-based Tower Cloud Inc., a leading provider of data transport services, focusing on infrastructure solutions to the wireless and enterprise sectors, including fiber-to-the-tower backhaul, small cell networks, and dark fiber deployments.

“We expect to close the transaction before the end of the third quarter of 2016,” the company said.

In the first quarter, CS&L completed its $409 million acquisition of PEG Bandwidth LLC, a Lewisville, Texas-based operator of dark fiber and cell site backhaul assets for mostly rural telecom carriers and enterprises. That deal was the first acquisition for CS&L since it was spun off from Windstream in April 2015. PEG has an extensive fiber network consisting of over 300,000 strand miles in the Northeast/Mid-Atlantic, Illinois and South Central regions of the U.S.

At the end of the first quarter, CS&L also announced it had entered into a $3 million deal with its former parent company to acquire 32 wireless towers owned by Windstream as well as operating rights for 49 wireless towers previously conveyed to the trust in its spin-off from the Little Rock telecom in April of last year.

The Little Rock REIT also has invested another $3 million in wireless tower assets, including the acquisition of Summit Wireless Infrastructure LLC. Summit is a wireless infrastructure provider in Mexico and was recently awarded an agreement to construct wireless towers for a major international wireless carrier. In connection with this transaction, Summit CEO Lawrence Gleason has joined CS&L as a senior vice president.

CS&L said it expects full year 2016 net income attributable to common shares to range between 8 cents and 10 cents per share. AFFO is expected to range between $2.58 and $2.60 per diluted common share, and normalized FFO is expected to range between $2.48 and $2.50 per diluted common share for the same period.

In the second quarter, PEG’s operations contributed $13.8 million and $5.5 million in sales and earnings before taxes in the second quarter, officials said.

On the operations side of the business, CS&L continues to bulk up its board of directors. On Tuesday, the company named Andrey Frey, a partner with global investment firm Searchlight Capital Partners to its board of directors, which now has six members. Searchlight played a key role in the debt-to-equity portion of complex deal to sell off Windstream’s stake in the Arkansas REIT.

In Wednesday’s session, CS&L shares (NASDAQ: CSAL) closed at $30.52, down 30 cents. Over the past 52 weeks, the company’s stock has traded in the range of $15.13 per share and $31.24 per share.