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Edited Transcript of UNIT earnings conference call or presentation 12-Mar-20 8:15pm GMT

Q4 2019 Uniti Group Inc Earnings Call

Little Rock Apr 5, 2020 (Thomson StreetEvents) -- Edited Transcript of Uniti Group Inc earnings conference call or presentation Thursday, March 12, 2020 at 8:15:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kenneth A. Gunderman

Uniti Group Inc. - President, CEO & Director

* Mark A. Wallace

Uniti Group Inc. - Executive VP, CFO & Treasurer

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Conference Call Participants

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* Gregory Bradford Williams

Cowen and Company, LLC, Research Division - Director

* Philip A. Cusick

JP Morgan Chase & Co, Research Division - MD and Senior Analyst

* Simon William Flannery

Morgan Stanley, Research Division - MD

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Presentation

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Operator [1]

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Welcome to the Uniti Group's Fourth Quarter 2019 Conference Call. My name is Jonathan, and I will be your operator for today. A webcast of this call will be available on the company's website, www.uniti.com, beginning March 12, and will remain available for 14 days. (Operator Instructions)

The company would like to remind you that today's remarks include forward-looking statements, and actual results could differ materially from those projected in these statements. The factors that could cause actual results to differ are discussed in the company's filings with the SEC. The company's remarks this afternoon will reference slides posted on its website, and you are encouraged to refer to these materials during this call.

Discussions during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company's current report on Form 8-K dated today.

I would now like to turn the call over to Uniti Group's Chief Executive Officer, Kenny Gunderman. Please go ahead, Mr. Gunderman.

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Kenneth A. Gunderman, Uniti Group Inc. - President, CEO & Director [2]

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Thank you. Good afternoon, everyone, and thank you for joining. Please turn to Slide 4 in our presentation.

Before I review our operational performance for the fourth quarter and full year 2019, I'd like to, first, address our recently announced agreement with Windstream. The agreement, in principle, between Uniti and Windstream has significant strategic value for Uniti as it positions our company with a true national fiber footprint and ensures further upgrade and expansion of the network in the coming years with additional fiber deployments, backed by our commitment to invest up to $1.75 billion of capital in Uniti-owned, Windstream-leased assets, which will significantly enhance the value of our network today and at renewal.

We look forward to working with all involved parties as we focus on enhancing our competitive position, financial performance and the network Windstream leases from Uniti. As we've repeatedly said for some time now, we were committed to reaching a mutually beneficial outcome for both Uniti and Windstream, and we believe this agreement achieves that.

We're also announcing today that we've agreed to sell 486 of our 672 U.S. towers located across 32 states and are simultaneously entering into a strategic arrangement with a valued wireless infrastructure provider to continue to build towers in the U.S. Transactions similar to the sale of our Latin American Tower business and U.S. ground lease portfolios, and the sale of our Uniti Fiber Midwest operations realizes substantial value for Uniti and our stockholders, while recycling capital at a highly attractive valuation.

I'll provide more details on the Windstream agreement in this hour later in my prepared remarks.

As we begin 2020, I want to reiterate Uniti's priorities that we laid out last quarter. We continue to drive high margin, low churn recurring revenue in all of our business units, while deemphasizing some existing operations that do not fit our core strategy, such as our noncore, nonstrategic construction business, and our residential CLEC business called Talk America, all of which are nonreadable, low-margin, volatile and largely nonrecurring businesses. We're also continuing to transition revenue from short-duration lit contracts to long-duration dark fiber agreements and pursuing sale/leaseback in opco/propco opportunities, all of which substantially derisk our business.

Second, we have now completed most of our existing dark fiber, major dark fiber and small cell builds. This year will be pivotal for Uniti Fiber as we position -- as we transition from building large anchor wireless networks to accelerating the lease-up of that infrastructure with enterprise, E-Rate and government customers at attractive cash flow yields and substantially less CapEx. Our combined Uniti Leasing and Uniti Fiber networks are approximately only 30% utilized today, and collectively represent substantial lease-up potential.

Third, with the volatility associated with the Windstream litigation now mostly behind us, we can now prioritize, again, pursuing larger accretive opportunities in our proprietary M&A funnel. While we will continue to source and execute on attractive bolt-on acquisitions, we will, again, focus on transformative transactions with attractive flows that require very little to no incremental capital.

Lastly, we expect continued improvement in the quality and diversification of our revenues and cash flows as a result of the settlement agreement. Windstream will be substantially -- will be a substantially healthier tenant along with the already high quality of our non-Windstream customer base. Our $9 billion of revenue under contract and company-wide churn of less than 0.5% represents a solid base for a truer infrastructure valuation.

Turning now to our operational results. Uniti Fiber sales bookings in the fourth quarter were approximately $0.9 million of MRR, one of our highest levels of bookings activity ever. Approximately 60% of our sales bookings order came from the 4 national wireless carriers, primarily reflecting the previously mentioned contract with a major wireless carrier to deploy 800 combined macro backhaul and small cell sites over the next 3 years across our southeast footprint, adding $6 million of annual MRR once all sites are delivered.

We also signed a contract during the quarter with one of our major wireless carriers to deploy dark fiber to approximately 55% back to the tower sites over the next 2 years and further densify one of our existing southeast markets. This contract represents annual MRR of $0.5 million and a total contract value of $10 million. Both of these entities are highly synergistic with our existing network and will provide substantial lease-up potential over the next several years.

The remaining 40% of our sales bookings during the quarter came from local enterprises, government schools and wholesale. As we've previously mentioned, we continue to expect nonwireless bookings to comprise a substantial portion of our normal course bookings going forward as we continue to ramp the lease-up of our fiber networks. Uniti Fiber installed $0.7 million of MRR during the fourth quarter. For full year 2019, we installed $3 million of MRR, up 20% from 2018 levels.

During the fourth quarter, (inaudible) installs related to wireless, with 40% of gross installs coming from dark fiber backhaul and small cell projects, 45% related to nonwireless opportunities and 5% related to bandwidth upgrades. We remain on track in the third quarter to deliver E-Rate services with a large metropolitan school district in Florida, that will add over $100,000 of MRR.

Total churn for the quarter was $0.3 million, resulting in a monthly churn rate of 0.5% for Uniti Fiber. Disconnect churn was 0.4% for the quarter, primarily driven by lit backhaul disconnects. As we mentioned last quarter, we expect the churn in the fourth quarter to be comparable to the third quarter due to churn from lit backhaul sites converting to dark fiber. Most of the churn related to lit sites converting to dark fiber, that was expected to occur in the fourth quarter, is now expected to be realized in the first half of 2020, due to delays in our customers disconnecting the lit sites.

Coupled with several customers returning numerous sites with us at a discount, we expect churn to be somewhat elevated for the first half of this year. We expect churn to return to more normalized levels in the second half of 2020, with monthly churn averaging 1% for the full year.

At Uniti Leasing, we continue to build on the momentum we exited 2019 with and pursuing additional lease-up opportunities that utilize our existing fiber network as well as pursue larger-scale sale/leaseback and opco/propco transactions.

We continue to actively work several opportunities with a well-diversified customer base, that includes wireless carriers, national and regional cable providers and global content providers. As an example, we recently signed a 20-year dark fiber IRU with a large international carrier to deliver a customized and diverse long-haul dark fiber solution that utilizes both existing Uniti Leasing fiber as well as Unity-owned Windstream lease fiber. The initial deal is for 4 long-haul dark fiber routes that will span over 2,000 route miles and represents a total contract value of over $28 million.

We expect to deliver most of the initial routes by the end of the third quarter of this year, and continue to add several new route orders with this customer over the next 2 years.

With that, I'll now turn the call over to Mark.

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Mark A. Wallace, Uniti Group Inc. - Executive VP, CFO & Treasurer [3]

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Thanks, Kenny. I'll focus my remarks this afternoon in 3 areas: first, a brief review of our fourth quarter and full year 2019 performance; second, an overview of our 2020 outlook on a consolidated basis and for each business unit. There are a number of items of comparability of our year-over-year results, I'll try to highlight the key items in my remarks. Then last, I'll comment (inaudible) capital structure and path forward following the agreement in principle we've reached with Windstream.

Turning to Slide 5, for the fourth quarter, we reported consolidated revenue $169 million, consolidated adjusted EBITDA of $203 million, AFFO attributable to common shares of $102 million, and AFFO per diluted common share of $0.48. Net loss attributable to common shares for the quarter was $11 million or $0.06 per diluted share, and included approximately $15 million of transaction-related and other cost.

Starting with Uniti Leasing, our leasing segment revenues were $184 million, with adjusted EBITDA of $182 million, up 3% each, respectively, over the year-ago period. Non-Windstream revenues and adjusted EBITDA were $11 million and $202.9 million, respectively. They're expected to represent a growing share of Uniti Leasing's revenues going forward. We have the option to fund growth capital initiatives for Bluebird and other tenants on networks leased from us, and we deployed just under $8 million of capital associated with growth capital investment initiatives during the fourth quarter at an initial yield of approximately 9.25%. Windstream also made $41 million of improvements to our network with their capital during the quarter, bringing the cumulative amount since our spinoff to just over $770 million of tenant capital improvements.

Turning to Uniti Fiber, during the quarter, we turned over 490 dark fiber and small cell sites for wireless carriers, adding annualized revenues of $3.6 million. For the full year 2019, we turned over approximately 1,500 dark fiber and small cell sites across multiple markets, including Alabama, Florida, Georgia and Mississippi, representing annualized revenues of over $10 million.

Uniti Fiber reported revenues of $79 million, and adjusted EBITDA of $29 million, achieving adjusted EBITDA margins of 37% for the fourth quarter.

Core revenues and margins were consistent with our expectations. When compared to the same quarter last year, it's important to remember that our fourth quarter 2019 results did not include revenue or adjusted EBITDA relating to our Uniti Fiber Midwest operations, as they were sold to Macquarie as part of the Bluebird transaction, which closed on August 30.

Noncore revenues at Uniti Fiber consists primarily of construction services and were lower than expected by approximately $7 million. The decline was primarily attributable to timing delays associated with multiple construction projects.

As previously noted, we continue to deemphasize lower-margin, nonrecurring products and services that are not strategic to our fiber business. Uniti Fiber net success-based CapEx was approximately $40 million in the fourth quarter. We have now completed 11 of our 14 dark fiber and small cell builds, with completed -- with the completed projects achieving an aggregate initial anchor yield of 7%. We also incurred $1 million of integration CapEx and $2 million of maintenance CapEx, or about 2% of revenues.

Uniti Towers reported revenues of just under $3 million, and near breakeven adjusted EBITDA for the fourth quarter with $20 million of CapEx spend and the completion of construction of 44 towers. For the full year, we completed 240 towers and the acquisition of 2 towers in the U.S., bringing our completed and in-service tower count at year-end to 672 towers. We currently have approximately 270 additional towers in various stages of development.

Please turn to Slide 6. Turning now to our 2020 outlook, our guidance excludes any impact from the announced agreement in principle with Windstream as the effective date and the accounting treatment are uncertain at this time. Our outlook does include the announced sale of 486 of our U.S. towers, with an expected closing date in early April, and anticipate that the Windstream lease continues in full force to effect and that Windstream continues to make all these payments on time.

Our current outlook excludes future acquisitions, capital market transactions and future transaction-related and other costs, I specifically mentioned herein. Actual results could differ materially from these forward-looking statements. A reconciliation of our 2020 outlook to full year 2019 actual results are included in the presentation materials posted on our website today.

Our full year outlook for 2020 includes the following for each segment, starting with Uniti Leasing, we expect Uniti Leasing revenues and adjusted EBITDA to be $739 million and $727 million, respectively, at the midpoint, representing adjusted EBITDA margins of approximately 98%. As we continue to focus on lease-up opportunities that will leverage our existing network, we have begun investing in and building out a national sales team at Uniti Leasing, resulting in slightly higher SG&A expenses in 2020 when compared to 2019.

Non-Windstream revenues and adjusted EBITDA are expected to be $45 million and $36 million, respectively, up 58% from 2019 levels, resulting primarily from the full year impact of Bluebird.

Uniti Leasing sales funnel now represents $510 million of total contract value, up 40% from the prior quarter. In aggregate, the sales funnel represents $23 million of annual revenue, up about 35% from last quarter. The sales funnel is comprised of a well-diversified mix of both international and domestic carriers as well as content and cable providers. This year at Uniti Leasing, we are emphasizing both additional lease-up on our existing network as well as pursuing additional sale/leaseback and opco/propco opportunities. Our outlook assumes lease-up activity this year up to $4.5 million of annualized incremental revenue.

As I mentioned earlier in my remarks, we began deploying capital in the back half of last year, related growth capital investment initiatives. Our guidance anticipates that we deploy $28 million of net success-based CapEx at Uniti Leasing, principally related to Bluebird. The investment to the Bluebird network will earn an initial yield of 9.25% resulting in incremental annualized initial cash rent of over $2 million.

Moving to Slide 7, we expect Uniti Fiber to contribute $304 million of revenue, $117 million of adjusted EBITDA and achieve adjusted EBITDA margins of about 38% for the full year at the midpoint of our outlook.

As a reminder, our 2020 guidance does not include any revenue or adjusted EBITDA related to Uniti Fiber's Midwest operations, while prior year results included revenue and an adjusted EBITDA up to the closing of that transaction on August 30. Also, in the second quarter of last year, we reported $6 million of income related to Hurricane Michael insurance recoveries that was reflected in our prior year adjusted EBITDA and impacts year-over-year comparability.

We expect next -- net for Uniti Fiber this year to be about $90 million at the midpoint. Of the 3 remaining large dark fiber and small cell projects, we expect 2 of the projects to be completed in the first half of 2020, with the 1 remaining project completed by year-end. While lease-up of our anchor wireless build is a top priority for Uniti Fiber, it's also important to keep in mind that it can take 3 years to start to realize the full lease-up potential in larger markets. We have already deployed 28 local enterprise sales personnel in 7 markets, with a sole focus of pursuing high-margin, recurring, nonwireless opportunities. We expect to further deploy 4 local sales enterprise personnel in 1 additional market.

We expect Uniti Fiber's net success-based capital intensity to be about 30% this year, declining from 45% in the first half of 2020 to about 12% in the second half of this year. Going forward, we expect Uniti Fiber's net success-based capital intensity to be in the 30% to 35% range or lower, as we will continue to pursue a handful of greenfield dark fiber and small cell builds, but substantially manage down our capital intensity.

We generated maintenance CapEx this year of approximately $5 million and $7 million, respectively. We expect overall install activity levels this year to be consistent with 2019 at about $3 million of MRR. We expect to see a pickup in churn in the first half of 2020, with monthly churn of approximately 1% for the year. Almost half of the expected churn relates to lit sites disconnecting, with a significant a portion related to sites that utilize off-net services and are located outside our core southeast footprint. About 1/3 of the churn relates to the sites that are returning with several companies associated with slides converting from lit to dark fiber. As Kenny mentioned earlier, most of the churn related to lit backhaul converting to dark fiber backhaul sites that was previously expected to incur -- to occur in the fourth quarter of 2019 is now expected to occur in the first half of 2020 as a result of customer delays.

As a reminder, while the dark fiber sites are replacing, the lit backhaul sites are installed at a lower MRR, the contract links on those dark fiber sites is approximately 20 years versus an average remaining term of approximately 3 years for lit backhaul sites, resulting in a net increase in total remaining contract value and substantially more predictable cash flows.

Turning to Slide 8, as we noted earlier, we have signed an agreement to sell 486 of our U.S. towers for the cash consideration of approximately $190 million or 30x annualized tower cash flow. The deal includes an offtake agreement with the same party to continue to build towers in 2020 and sell those towers at an agreed-upon price. Uniti retains it to extend the offtake agreement to 2021.

(inaudible) transaction to close in early April, and have included operating results of the 486 towers to be sold in our 2020 guidance only up to the estimated closing date. The expected pretax gain on the sale of the 486 U.S. towers of $30 million is expected to be reported as a gain on sale of real estate and, accordingly, will be excluded from our reported revenues, adjusted EBITDA and AFFO.

For the full year 2020, we expect towers revenues to be about $78 million, with reported adjusted EBITDA of $4 million. During 2020, we expect to sell approximately 170 newly-completed towers through the offtake arrangement. The proceeds realized from those sales will be recognized as revenue and the related margin included in adjusted EBITDA.

Towers constructed for sale as part of the offtake agreement will not be reflected as capital expenditures, but rather will be class into held for sale.

Turning to Slide 9, for 2020, we expect full year AFFO to range between $1.85 and $1.91 per diluted common share, with a midpoint of $1.88 per diluted share. On a consolidated basis, we expect revenues to be $1.1 billion and adjusted EBITDA to be $818 million at the midpoint.

Our guidance contemplates consolidated interest expense for the full year of $421 million, excluding any deferred financing cost write-offs. That level represents an increase of $31 million from 2019 levels, primarily related to the incremental interest from our recent senior secured notes offering. Reported interest expense for 2020 will include an additional $73 million write-off of deferred financing costs in the first quarter of this year related to the payoff of our term loans.

We expect to wind down our consumer CLEC business, Talk America, by the end of June, with expected revenues of $1 million and adjusted EBITDA loss of $1 million for 2020. Consolidated SG&A, excluding amounts allocated to our business segments, should be approximately $38 million, including $9 million of stock-based compensation expense.

We expect weighted average diluted common shares outstanding for the full year to be approximately 220 million shares as compared to 202 million shares in 2019. As a reminder, guidance ranges for key components of our outlook are included in our appendix -- are included in the appendix to our presentation.

On Slide 10, we have provided a tabular reconciliation of full year 2019 results to our 2020 outlook, which summarizes some of my comments this afternoon.

Turning to our balance sheet, on February 10, we closed on an offering of $2.25 billion of 7.78% senior secured notes due 2025. The net proceeds from the offering were used to repay all of $2 billion of our outstanding borrows under our term loan facility, and $157 million of outstanding borrowings under our revolver. We also entered into an amendment and waiver with our vendors that weighs any default related to the company's financial statements for 2019, including a going concern opinion. The amendment and waiver became effective upon closing of the notes offering and related payment -- and related repayment of borrowings. At year-end, we had approximately $144 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity.

Our leverage ratio at year-end stood at 6.3x based on net debt to annualized adjusted EBITDA. Upon closing of the U.S. tower sale, we expect to -- we currently expect to initially use the net proceeds to repay borrowings under our revolving credit facility, but, ultimately, reinvest the proceeds in towers and fiber assets.

On February 28 of this year, our Board declared a dividend of $0.15 per share to stockholders of record on March 31, payable April 15. For tax year 2020, under our debt agreements, dividends attributable to our capital stock are allowed to be approximately $140 million or about $0.23 per common share, including the dividend declared on February 28. This represents our estimate of 90% of taxable income for this year, excluding capital gains.

We expect our Board will continue to evaluate our dividend policy as key developments in Windstream's reorganization occur and/or a poor Windstream's emergence from bankruptcy. Any decision to change our dividend policy will be made by our Board of Directors at the appropriate time.

With that, I'll now turn the call back over to Kenny.

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Kenneth A. Gunderman, Uniti Group Inc. - President, CEO & Director [4]

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Thanks, Mark. Please turn to Slide 11. We've agreed to sell 486 of our U.S. towers to prominent wireless infrastructure provider for approximately $190 million or 30x the annual tower cash flows associated with those towers. We believe this transaction realizes significant value for our stockholders as it represents an economic gain of approximately $23 million. Although we are selling most of the towers we own today, we're not exiting the tower business. Our focus will continue to be owning and operating a premier portfolio of communications infrastructure assets, while providing a wide variety of solutions for our wireless carriers and other customers.

This carefully structured transaction affords us the opportunity to continue building macro towers uninterrupted, but in a reduced CapEx manner at our choosing. We continue to view macro towers as an important part of Unity's unique full-service 5G offering to our wireless carrier customers.

This sale, in addition to the sale of our Latin American Tower portfolio, U.S. ground lease business and some of our Uniti Fiber Midwest operations, represents another tangible example of the inherent multiple arbitrage between our sum of the parts valuation based on private market values versus our public trading valuation.

Slide 12 provides a summary of the 20-year dark fiber IRU deal with a large international carrier that I spoke about earlier. I'd like to highlight that approximately 25% of the fiber sold in this deal represents Uniti-owned, Windstream-leased fiber, the full rights to which we are acquiring in our agreement in principle with Windstream. This is a good leading indicator of the future lease-up opportunity set, especially, since, historically, we've not been able to proactively market this fiber, including a particular carrier.

Beginning on Slide 13, I'll now provide a more detailed overview of our agreement with Windstream and the many long-term benefit it adds for Uniti, including making the master lease stronger, helping Windstream become a healthier tenant and acquiring attractive fiber assets, while, at the same time, making long-term fiber investments that are value-accretive to Uniti.

As it relates to making Windstream a healthier tenant, it's important to note that 90% of our capital is being used to acquire or build mission-critical fiber infrastructure at attractive yields to support our customer, which is consistent with our strategy. Further, we fully expect this agreement will enable a reorganization of Windstream and emergence from bankruptcy with ample liquidity and a deleveraged balance sheet at emergence, while positioning Windstream for sustainable growth and margin expansion.

Turning to Slide 14, our new MLAs with Windstream will be substantially enhanced for Uniti's benefit in a number of ways. First, our ability to add financial covenants to the lease as well as including both Windstream Holdings and Windstream Services as tenants under the lease, provides enhanced security versus our existing lease. Secondly, the annual aggregate rent will not change as we've consistently stated before.

Finally, we believe bifurcating the master lease into 2 separate leases that govern the ILEC and CLEC networks separately, unlocks value and strategic optionality for both Uniti and Windstream, while providing potential enhanced diversification for Uniti if Windstream's new owners decide to sell the CLEC or ILEC assets.

Slide 15 expands on the potential diversification opportunity for Uniti. Based on the midpoint of our 2020 outlook, Windstream represents 61% of our total revenue today. However, if Windstream were to sell its CLEC business and transfer the lease to a third party, and if you were to layer in the approximately $30 million of incremental EBITDA from the dark fiber IRUs we're acquiring, the revenue diversification shifts significantly to where Windstream would represent less than half of our total revenue, which, as you may recall, was the goal we originally set out to achieve before Windstream entered restructuring.

Turning to Slide 16. We're acquiring 450,000 fiber strand miles that are currently not owned by Uniti today, as well as gaining rights to sell or lease to third parties 1.8 million fiber strand miles that are part of the Uniti-owned, Windstream-leased network. Together, these additional 2.2 million fiber strand miles increases our leasable fiber available to third parties by approximately 90%.

This national network not only brings substantial lease-up potential, but also synergies with Uniti Fiber and Uniti Leasing. Importantly, the expanded footprint also greatly enhances our opportunity set for opco/propco and company-wide acquisitions.

As a framer referenced on Slide 17, we previously acquired a national network from CenturyLink in 2018, which has contributed lease-up of approximately $48 million of upfront IRU payments and $9 million of annual recurring revenue in a span of just 2 years. Our newly acquired assets and rights equate to 2.2 million fiber strand miles, or roughly 10x the capacity of the CenturyLink, and includes metro fiber and numerous Tier 1 and 2 and 3 markets, providing additional sale opportunities, such as small cells, fiber-to-the-tower and enterprise services, all of which are not able to be sold on utilizing the current CenturyLink routes, which are long-haul routes only.

In addition, we're acquiring dark fiber IRU contracts that currently generate approximately $30 million of revenue today and are comprised of a mix of well-diversified customers as detailed on Slide 18. This is high-quality revenue that is readable with 100% of the customers' on-net and approximately 75% of the acquired revenue from top 25 customers to our existing customers of Uniti. Similar to the existing lease-up on our Uniti Leasing network, this revenue is also near 100% EBITDA margins, with little to no incremental CapEx required.

Slide 19 illustrates the benefits of the GCI CapEx program. As part of its post-emergence business plan, Windstream has stated it intends to increase its fiber-to-the-home footprint with a plan to bring 1 gig broadband service to over 50% of its homes passed by 2028. This compares favorably to most other national ILECs today, which should enable Windstream to be much more competitive in most of its markets. Our GCI investments will enable these speeds, and the assets will immediately become Uniti assets and come with an initial 8% yield, which also compares favorably to most of our existing Uniti Leasing and Uniti Fiber contracts as highlighted on Slide 20.

In addition, we will have numerous additional lease-up opportunities during the 10-year initial term based upon our new contractual ability under the new MLAs to joint build new fiber with shared used to Uniti and Windstream as an anchored customer.

In summary, we're very pleased with the agreement and principle we've reached with Windstream. This agreement not only enables a restructured Windstream to emerge at a much lower leverage, thus, removing the biggest overhang Uniti has had historically, but is also a very strategic to Uniti, and substantially enhances our overall portfolio of assets and cash flows.

Turning to Slide 21, the quality of our portfolio of almost 7 million strand miles of owned fiber, over 2,000 small cell locations, either in service or in backlog, and approximately 670 macro towers continues to be highly underappreciated. We are one of the select few providers of these 3 critical components that are enabling the 5G revolution, and as a result, the opportunity set is tremendous for sustainable growth for many years to come.

Our infrastructure provides substantial, highly-predictable revenue and cash flow with material lease-up potential at attractive margins. When compared to other publicly-traded communications infrastructure REITs, as shown on Slide 22, many of our characteristics continue to compare favorably, and we believe that there is substantial valuation discount implied for Uniti as a result of Windstream's bankruptcy.

The initiatives I described earlier will continue to drive further improvement in many of these metrics.

With that, operator, we are now ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Greg Williams from Cowen.

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Gregory Bradford Williams, Cowen and Company, LLC, Research Division - Director [2]

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Kenny and Mark, I just had a question, a bigger question about what happened in the last few days. I think the worry is that the equity market is not being favorable. Possibly the debt market is drying up. Your means to access capital could be limited. Could you talk about if that's a concern of yours? And alternative means of accessing capital, whether it's PE intra funds or the tower sale, I guess, is one way you alluded to it?

And then my second question is just on the coronavirus concerns, in general. Have you talked to your customers, your businesses about any concerns going forward, whether it's leasing more fiber, delay of 5G, that sort of thing?

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Mark A. Wallace, Uniti Group Inc. - Executive VP, CFO & Treasurer [3]

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Yes. So this is Mark. I'll start with the question. So in terms of the capital, so our guidance doesn't anticipate any capital raise than actually with some of the U.S. towers. We actually expect, with no capital raise, we would delever based on the guidance that I gave today. Yes, of course, the capital markets, as you mentioned, have been pretty volatile over the last few weeks. We, obviously, track those closely, and stay in contact and have routine discussions with private capital sources as well. So we continue to monitor those, continue to have discussions and evaluate opportunities, but nothing to announce at this time and nothing included in guidance.

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Kenneth A. Gunderman, Uniti Group Inc. - President, CEO & Director [4]

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Yes, Greg. The only thing I'd add to that is, we've -- past year, 1.5 years, we've had limited need to access the capital markets anyway. And so we've managed to fund. And so as we look forward to another several quarters of potential volatility or more, we're certainly prepared for that. That's nothing new for Uniti, and we'll be just fine.

With respect to your question about the coronavirus, we're very focused on that. We've not seen any impact with our customers. We've not seen any -- certainly not with our wireless customers or any of our big wholesale customers. And we really haven't even seen any with any of our enterprise or small business customers, which, if I were to guess, that's where I would expect to see some impact, but we've not seen any yet.

We're going to continue to monitor it closely. And more importantly, or as importantly, we're very focused on making sure we're doing the right things with our employee base and taking all the precautions that are necessary there.

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Operator [5]

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Our next question comes from the line of Phil Cusick from JP Morgan.

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Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [6]

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Can you first expand on the strategic tower sale, what was the process like? And what can you say about the buyer?

And then can you talk more about the structure of investment for building towers going forward? It sounds like there would be some at least co-investment there?

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Kenneth A. Gunderman, Uniti Group Inc. - President, CEO & Director [7]

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Yes, Phil. So with respect to the process and the buyer, we're -- I'd rather not comment too much on that at this point. We're actually in the middle of a go-shop on that process. So I don't want to comment too much other than to say that our current buyer is a party that we know well, have worked with in the past, and it's one of the nontraditional capital sources that we've talked about many times as being a good source of, not only capital, but potential partnership for us. And so we're excited about that.

But with respect to the structure of the deal, it is important to reiterate, we're not exiting the tower business. We're really utilizing this sale as an opportunity to inject liquidity in a volatile capital market period, and this is a good way to add liquidity versus issuing expensive securities, and we're pleased to have the portfolio of assets in order to do that. But this offtake arrangement gives us the ability to continue investing and building towers, but effectively, immediately selling those to our partner at a premium, and so we're locking in a return as we do that. And we'll do that for sure through the 2020 period, and then we'll have the option of extending that beyond 2020 if we choose. So strategically, that gives us the ability, Phil, to continue offering macro towers as an important part of our infrastructure offering to our -- particularly our wireless carriers, but it also gives us the ability to do it in a CapEx-light manner if we choose to do so.

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Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [8]

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Got it. And then how should investors think about your dividend going forward?

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Mark A. Wallace, Uniti Group Inc. - Executive VP, CFO & Treasurer [9]

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Yes. So I think I referenced earlier that we're allowed to pay out under the dividend restrictions that we currently have in our debt agreements, $140 million this year. So right now, it sets -- or we just paid a dividend of $0.15 per share. So we'll announce the dividend going forward, but I would assume that we'll pay out the full $140 million during the year. So it -- right now, the dividend is set at $0.15 per share. Based on the current outstanding shares it's set to where we would actually pay a little bit higher dividend declared in the fourth quarter, paid in the first quarter of next year, similar to what we did last year.

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Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [10]

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Sorry, I wasn't clear. What about going beyond 2020? How should we think about the ins and outs of your ability to pay versus your desire to pay a dividend, and rather than using that for the tower investment, for example?

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Mark A. Wallace, Uniti Group Inc. - Executive VP, CFO & Treasurer [11]

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Yes. So going forward, I would expect that -- I mean, I would expect that we'll continue to pay a dividend. Currently -- and as I said earlier, currently, we're limited. Once we're outside of the limitations or in our debt agreement, I would expect that it would increase, primarily, at least for 2 reasons, primarily would increase for any capital gains distributions that they would be able to do. And it would also increase for any -- for the 10% of the taxable income, whether ordinary taxable income, that we're not able to distribute currently.

Whether -- what that means -- in addition to that, what that means in the overall dividend policy, we'll have to see -- we'll have to see at the time. But generally, I would say, yes, we'll continue to pay a dividend. We think it would be reflective in the future of those, at least those 2 items, if not more. And I think we'll want to try to pay a dividend that is comparable to peer groups and also has a, I'd say, a comparable payout ratio. So something that indicates a sustainable dividend and the ability to increase the dividend over time as AFFO grows.

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Operator [12]

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Our next question comes from the line of Simon Flannery, Morgan Stanley.

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Simon William Flannery, Morgan Stanley, Research Division - MD [13]

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On the tower transaction, why did you not sell all the towers? What was the kind of difference between the ones you're keeping and the ones you're selling? And then how do we think about the cash flow in this whole offtake. I understand it's not running through as CapEx, but will you incur the cost of building the tower, put it in inventory and then sell it. So how long does that take? And what might the working capital impact of that be?

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Kenneth A. Gunderman, Uniti Group Inc. - President, CEO & Director [14]

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So Simon, I'll let Mark answer the second part of your question. But with respect to the first part, a couple of things. One, we size the transaction to the amount of -- effectively amount of proceeds we wanted to raise. And then secondly, we have a -- as you might recall, we've got a portfolio of newly-built towers, ones that we've been constructing, but also ones that we've acquired over the past several years, either through direct transactions or as part of our bigger fiber transactions where we just brought lots and towers along with that. And so what we really monetized here are some of the newly constructed towers, which have really 1 -- largely 1 customer and some additional lease-up, but largely 1 customer. So it's a combination of those 2 things.

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Mark A. Wallace, Uniti Group Inc. - Executive VP, CFO & Treasurer [15]

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Yes. So regarding the working capital, the contracted structure is such that we'll have periodic closings throughout the year, such that from the time of completion to the time that we'll be able to sell the tower, it will be a relatively short period of time. So the working capital requirements will be reinvested and will be returned from the existing tower to reinvest it in new tower construction fairly quickly.

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Simon William Flannery, Morgan Stanley, Research Division - MD [16]

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Great. And just one follow-up. What's your best guess of the final settlement here, timing?

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Kenneth A. Gunderman, Uniti Group Inc. - President, CEO & Director [17]

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I think -- so good question, Simon. I think we're -- there's a -- the next hearing, I think, is in early April, and we expect that the settlement could be approved at that point.

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Mark A. Wallace, Uniti Group Inc. - Executive VP, CFO & Treasurer [18]

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Yes. I believe it's April 3 for the hearing to approve the 9019 settlement.

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Operator [19]

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This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Kenny Gunderman for any further remarks.

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Kenneth A. Gunderman, Uniti Group Inc. - President, CEO & Director [20]

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Thank you. I'd like to close by expressing my sincere gratitude to everyone that was involved in achieving this mutually beneficial outcome with Windstream, both for their tireless efforts and hard work, including our employees and those of Windstream. We appreciate your interest in Uniti Group and look forward to updating you further on future calls. Thank you.

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Operator [21]

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Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.