Uniti Group pares 2Q losses, announces fiber deals to grow national footprint

Little Rock-based Uniti Group trimmed second quarter losses from a year ago as the real estate investment trust (REIT) continued to grow its national fiber network with two new investment deals announced Thursday (Aug. 9).

For the period ended June 30, the publicly traded REIT reported a second quarter net loss of $5.6 million, or 3 cents per share, compared to a net loss of $18.3 million, or 11 cents per share, in the same period of 2017. Quarterly revenues rose to $247.3 million, up 16.1% from $213 million in 2017.

Uniti, formerly Communications Sales & Leasing (CS&L), reported funds from operations (FFO) of $109.4 million, or 62 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 second quarter earnings of two cents per share on revenue of $250 million, according to Thomson Reuters.

In conjunction with its second quarter earnings report, Uniti also announced it has entered into an agreement to acquire fiber assets from CableSouth for all cash consideration of $31 million. In the transaction, Uniti will acquire 607 route miles or approximately 43,000 fiber strand miles located across Arkansas, Louisiana and Mississippi.

Upon the expected close of the deal in the third quarter, Uniti said it will enter into an agreement with Milan, Tenn.-based CableSouth to leaseback 34,000 fiber strand miles on a triple-net basis and have exclusive use of 9,000 fiber strand miles. Company officials said CableSouth fiber assets run adjacent to Uniti Fiber’s southern network footprint.

The initial lease term will be 20 years with four 5-year renewal options at CableSouth’s discretion. Annual cash rent will initially be $2.9 million with a fixed annual escalator of 2%, company officials said. The transaction is subject to certain closing conditions and is expected to close in the third quarter of 2018.

Uniti said it has also executed a dark fiber lease with an unnamed national telecom on existing Uniti Leasing fiber. That deal, which is expected to close in the fourth quarter, is for 20 years covering approximately 9,900 route miles or 41,000 fiber strand miles with expected annual revenue.

“We are excited to announce two transactions today that demonstrate the continued momentum we are experiencing across all of our verticals,” said Uniti President and CEO Kenny Gunderman. “The fiber acquisition and leaseback transaction with CableSouth Media represents our first purchase from a cable provider and another acquisition of an attractive fiber portfolio with lease-up potential. The lease with a national MSO on previously acquired fiber reinforces the value of Uniti Leasing’s growing portfolio.”

Over the past year-and-a-half, Uniti has been on in acquisition spree to further break away from its financial ties to former parent Windstream. 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.

Just over a year ago, 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. In May, Uniti closed on a deal to purchase fiber assets from Los Angeles-based U.S. TelePacific Holding Corp. in an all-cash deal worth $95 million. That deal will allow Uniti to acquire and leaseback to TelePacific some 38,000 fiber strand miles located across California, Nevada, Texas and Massachusetts.

Based on the two acquisitions announced Thursday, Uniti has updated its full year revenue outlook from $1.007 billion to 1.013 billion. Yearly net income is now expected to jump 71.4% from 7 cents to 12 cents per share. At the close of business Thursday, Uniti shares ended up 45 cents, or 2.5%, at $18.43. Over the past 52 weeks, Uniti shares (NASDAQ: UNIT) have traded in the range of $13.81 as a low and $23.42 as a high on the Nasdaq stock exchange.