CS&L expands into Latin America, announces third quarter loss of $4.1 million

Communications Sales & Leasing on Monday announced plans to expand its wireless tower network into Latin America even as the Little Rock-based real estate investment trust (REIT) reported another quarterly loss before this week’s opening bell.

For the period ended Sept. 30, CS&L reported a loss of $4.1 million, or three cents per share, compared to earnings of $8.9 million, or six cents per share, in last year’s third quarter. Revenues for the third quarter of 2016 were $200.2 million.

CS&L reported funds from operations (FFO) of $99.7 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. Wall Street had expected Arkansas’ first publicly-held REIT to report third quarter earnings of 62 cents per share on revenue of $198.6 million, according to Thomson Reuters.

In addition to its quarterly earnings report, acquisition-hungry CS&L announced a deal to acquire privately-held Network Management Holdings LTD, which owns and operates 359 wireless communications towers in Latin America with an additional 114 build to suit tower sites under development.

“This portfolio is a very attractive investment for our tower business with nearly 90% of the revenues from the major wireless carriers, and approximately 60% from existing CSAL customers,” said CS&L CEO Kenny Gunderman. “This portfolio further positions us to benefit from growth opportunities in Latin America as the wireless carriers continue to deploy mission critical communication infrastructure.”

According to company officials, NMS’ portfolio spans three Latin America countries with 313 towers in Mexico, 55 in Nicaragua and 105 in Colombia. Once the plans to expand the network are complete, the Hollywood, Fla.-based company is expected to generate approximately $7.9 million of annual revenue, including pass through costs, and $4.4 million of annual tower cash flow, as defined in the purchase agreement.

The initial consideration for the 359 wireless towers in operation is expected to be approximately $65 million. Under the terms of the purchase agreement, CS&L will acquire the towers under development when construction is completed. CS&L intends to initially fund the transaction through borrowings under its revolving credit facility.

The NMS transaction is subject to customary terms and conditions, including changes in the currency exchange rate between the U.S. dollar and both the Mexican peso and Colombian peso, within certain limits. The deal is expected to close in the first quarter of 2017, officials said. In addition, CS&L’s tower business will now operate under the name Uniti Towers and will be led by Lawrence Gleason as president.

During the third quarter, CS&L closed the acquisition of Tower Cloud for $188 million in cash and the issuance of 1.9 million common shares. As previously announced, Tower Cloud and PEG now operate as a unified organization under the Uniti Fiber brand, which contributed $25.2 million of revenues and $9.3 million earnings for the third quarter of 2016.

In order to fund its aggressive growth plans, CS&L on Oct. 21 repriced $2.1 billion in term loans outstanding under its senior secured credit agreement, and also amended certain provisions of its credit agreement to allow CS&L the flexibility to operate through an Up-REIT – Umbrella partnership real estate investment trust – structure. The umbrella partnership allows CS&L to more easily buy and sell properties and more easily convert property into a private or public security.

“We believe the Up-REIT structure will facilitate future acquisition opportunities by providing us the ability to issue operating partnership units as a tax-efficient equity linked acquisition currency, and we are very pleased with the strong demand and support from our investors,” said CS&L CFO Mark Wallace.

For the full year, CS&L said it expected yearly 2016 net income attributable to common shares to range between one- and three cents per diluted share. AFFO is expected to range between $2.60 and $2.62 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.

At the close of business on Friday, CS&L shares (NASDAQ: CSAL) were down 24 cents at $25.50. Over the past 52 weeks, the Little Rock telecom asset operator’s stock has traded in the range of $15.13 on the low end and a high of $32.73. Shares were down more than 7% in Monday morning trading.