As Little Rock-based Uniti Corp. seeks to branch away from dependence on a multimillion-dollar lease pact with its former parent company, Windstream Holding Inc., the Little Rock real estate investment trusts posted a loss of nearly $20 million entering the second half of 2019, the company announced Thursday (Nov. 7) after the close of market.
For the period ended Sept. 30, Uniti reported a third quarter net loss of $19.8 million, or 10 cents share, compared to earnings of $4.2 million, or a penny per share, in the same period of 2018. Quarterly revenues rose 4.2% to $263.3 million, compared to $252.6 million a year earlier.
The former Communications Sales & Leasing (CS&L), which changed its name to Uniti more than two years ago, reported funds from operations (FFO) of $59.7 million, or 30 cents per share. Funds from operations is a closely-watched measure in the REIT industry that takes net income and adds back items such as depreciation and amortization. Wall Street had expected Arkansas’ first publicly-held REIT to report a third quarter loss of one cent per share on revenue of $270.9 million, according to Thomson Reuters.
“We continue to see favorable demand trends in all of our business units. Uniti Fiber recently signed a contract with a major wireless customer to deploy 800 combined macro backhaul and small cell sites across its Southeast fiber footprint, adding $500,000 of monthly recurring revenue once all sites are delivered over the next three years,” said Uniti President and CEO Kenny Gunderman. “This agreement demonstrates the continued need for wireless carriers to densify their networks as they move towards a broader rollout of 5G wireless services.
During the third quarter, the Little Rock cell tower proprietor closed on its previously announced $319 million deal with Macquarie Infrastructure Partners (MIP) to acquire Bluebird Network LLC in the third quarter, securing approximately 178,000 fiber strand miles in the Midwest across Missouri, Kansas, Illinois, and Oklahoma.
It also completed the sale of its Uniti Fiber Midwest operations to MIP, while Uniti retained the ownership to the network. Uniti, which now has over 6 million miles of strand fiber across the U.S. said it is leasing the Bluebird fiber network and its Midwest fiber network back to MIP under a long-term triple net lease.
“We continue to evaluate several opportunities that will optimize our portfolio of premier infrastructure assets, including recycling capital and discontinuing certain non-core products and services. We are focused on driving high margin, low churn recurring revenues at all of our business units,” said Gunderman.
Still, the disappointing third quarter results led to Uniti’s stock falling to a 52-week low in Thursday’s trading session. The company’s quarterly financial snapshot also came after an earlier earnings report by Windstream when the Little Rock-based rural broadband operator posted adjusted earnings of $423 million.
UNITI-WINDSTREAM LEASE DISPUTE CONTINUES
Windstream’s earnings statement did not include a quarterly breakdown of its annual cash payment to Uniti as the landlord for the company’s telecom and fiber assets. Uniti and Windstream entered into talks earlier this summer on the master lease agreement after the latter filed voluntary petitions for reorganization in late February under federal Chapter 11 rules.
The controversial lease agreement provides for annual rent of $659 million to Uniti paid in equal monthly installments in advance, with an annual base rent escalator of 0.5%, according to securities filings. In a conference call on Thursday, Windstream President and CEO Tony Thomas briefly said the Fortune 500 telecom is prepared to moved forward with possible litigation if an agreement is not reached with the Little Rock-based REIT, which it spun off in April 2015.
However, Uniti upgraded its full-year revenue outlook for 2019 from $1.059 billion to $1.069 billion, noting that the forecast “assumes the Windstream lease continues in full force and effect, and that Windstream continues to make all lease payments on time.”
“We believe these initiatives will achieve greater revenue diversification and improve the overall quality of our customer base over time,” added Gunderman. “Regarding mediation proceedings with Windstream, negotiations with Windstream and certain of its creditors are ongoing.” In lieu of a mediated agreement between the closely-connect Arkansas telecom firms, a federal bankruptcy judge has schedule a trial on lease dispute in March 2020.
On Thursday, Uniti’s stock breached a new yearly low of $6.52 in heavy trading on the Nasdaq stock exchange as nearly 4 million shares traded hands, more than twice the daily average volume of 1.9 million. The Little Rock REIT’s 52-week high of $20.40 was touched exactly a year ago, several months before the stock price collapsed following Windstream’s Chapter 11 bankruptcy filing in early 2019.