Uniti posts tax cut-aided profit of $20.5 million, announces $95 million fiber deal

Uniti Group Inc., the fast-growing spin-off of Windstream Holdings Inc., announced Friday (March 1) a year-end, tax cut-aided profit of $20.5 million, and closed the books on a challenging year by acquiring another 45,000 miles of fiber assets that will help the Little Rock investment trust expand its broadband footprint.

For the period ended Dec. 31, the Little Rock-based real estate investment trust (REIT) reported fourth quarter net income of $20.5 million, or 12 cents per share, compared to a net loss of $6.1 million or four cents per share, in the same period of 2016. Quarterly revenues rose slightly to $172.2 million, compared to $169.9 million a year ago.

Uniti, formerly Communications Sales & Leasing (CS&L), reported funds from operations (FFO) of $113 million, or 64 cents per share. 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 fourth quarter earnings of one cents per share on revenue of $2 million, according to Thomson Reuters.

For the full year, the Little Rock-based REIT reported a net loss of $212,000 or four cents per share, compared to earnings of $24.9 million, or 16 cents per share. Yearly revenue rose nearly 62% to $770.4 million, compared to $476 million in the same period of 2016.

Uniti officials said of the $20.5 million in profit in the fourth quarter, the Little Rock REIT received a $28.2 million income tax benefit related to the impact of the corporate tax cut approved by Congress in December. That tax windfall grew to $36.2 million for the year.

“We deployed over $1 billion of capital during 2017 with the acquisitions of Hunt, Southern Light, and NMS and investments in our organic growth initiatives. We expanded our customer relationships, successfully executed on our integration strategies, converted to an UpREIT structure, and favorably repriced our term loans,” said Uniti President and CEO Kenny Gunderman. “We continue to expect a multi-year investment cycle for communication infrastructure. Deployments of infrastructure for 5G technologies, the FirstNet network in the U.S., and continuing expansion of the Red Compartida wholesale network in Mexico provide tremendous opportunities for our businesses.”

In conjunction with the release of the company year-end results, Uniti said it entered into an agreement to by fiber assets from Los Angeles-based U.S. TelePacific Holding Corp. in an all-cash deal worth $95 million. In the deal, Uniti will acquire and leaseback to TelePacific some 38,000 fiber strand miles located across California, Nevada, Texas and Massachusetts.

In addition, Uniti will acquire and have exclusive use of 7,000 fiber strand miles located in Texas, which are adjacent to Uniti Fiber’s southern network footprint. Uniti will also have non-exclusive rights to market, on behalf of TelePacific, certain of the fiber assets in California and Massachusetts.

In the past year, Uniti has acquired three privately-held fiber network companies to further break away from its financial ties to former parent, Windstream Holding. In July, Uniti completed the acquisitions of Mobile, Ala.-based Southern Light LLC and Hunt Telecommunications LLC to bulk up the company’s reputation as a data backbone provider.

The deal for Southern Light, which offers data transport services along the Gulf Coast region serving a dozen attractive Tier II and Tier III markets across Florida, Alabama, Louisiana, Georgia and Mississippi, was value at about $700 million. The smaller Hunt deal, worth $170 million, gave Uniti to a data network of 140,000 fiber strand miles and 2,600 fiber route miles in Louisiana.

In January 2017, Uniti completed a deal to acquire privately-held Network Management Holdings LTD, which owned and operated 359 wireless communications towers in Latin America with an additional 114 build to suit tower sites under development. That deal was worth $65 million.

However, Uniti shares and credit profile caught some Windstream downdraft from a federal lawsuit in New York City pitting Little Rock telecom giant against a Wall Street hedge fund that is alleging the company violated bond agreements related to the REIT spin-off.

At the end of the third quarter, when United reported a net loss of $4.1 million, Gunderman reminded investors and Wall Street analysts that the Little Rock real estate landlord was not a party to Windstream’s litigation with Aurelius Capital, known in Wall Street circles as a “vulture fund” that seeks to force weak companies into bankruptcy and then take over and sell off the most attractive assets.

However, credit ratings giant Moody’s downgraded Uniti in early November to B2 with a negative outlook, noting that Arkansas REIT gets 70% of its revenues by serving as the landlord for properties where its former parent is the main leaseholder.

At the close of market Thursday, Uniti shares were down 50 cents at $15.30 on the Nasdaq stock exchange. Over the past 52 weeks, the company’s shares have traded in the range of $13.81 for a low and $29.23 as high.