Uniti Group, the telecom real estate investment trust (REIT) spun out from Windstream several years ago, has been doing a lot of targeted fiber builds since the spin-off. At an investor conference today, Windstream CFO, Executive Vice President and Treasurer Mark Wallace illustrated how the company capitalizes on anchor tenant fiber builds by detailing the company’s experience with a specific fiber build in Tallahassee, Fla.

Anchor Tenant Fiber Builds
“In 2011, we started with our anchor customer only,” said Wallace in reference to the Tallahassee example. To meet the needs of that customer, Uniti Group deployed 74 route miles of fiber, initially billing $37,000 monthly for 32 circuits. The yield was 14%, calculated as the annual gross margin divided by net capital expenditures.

A typical anchor tenant is a wireless carrier, which typically needs the fiber to provide cellsite backhaul. Once the fiber is deployed, Uniti Group looks for more customers.

In the Tallahassee example, “by acquiring additional wireless customers and many additional enterprise customers in that same market, we’ve been able to increase [revenues and other metrics] substantially,” Wallace said.

Today, Uniti Group operates 197 route miles in Tallahassee and now earns $287,000 in monthly recurring revenues for 360 circuits, generating a 33% yield.

Source: Uniti Group

“This is an example of how you can have an initial build in a marketplace and over time see substantial improvement in the economics,” said Wallace. “This is just one example but there’s many more I could include.”

Uniti Group apparently expects to see similar economics for the seven dark fiber projects the company currently has under construction.

Because Uniti Group – originally known as Communications Sales & Leasing — is a REIT, its holdings consist in large part of dark fiber and other physical layer network assets, as those are the only types of telecom assets that can be put into a REIT. Assets such as transmission equipment and routers are not “REITable.” The advantage of putting assets into a REIT is that the owner gains certain tax advantages.

Initially, Uniti Group had a single customer – Windstream, which spun out a large portion of its fiber and copper assets to Uniti Group and now leases those assets back from Uniti Group.

A key goal for Uniti Group is to reduce its reliance on Windstream, which currently generates 67% of Uniti Group’s revenues.  Uniti Group has diversified through several key acquisitions and through fiber builds such as the one in Tallahassee.

Wallace said Uniti Group could achieve its goal of having no more than 50% of its revenues come from Windstream by mid-2019 if it succeeds in “executing’ on its “M&A pipeline.” The company has some relatively large and some smaller deals in the pipeline, and will need some large ones to achieve that goal, he said.

Wallace made his comments at Barclays High Yield Bond & Syndicated Loan Conference, which was also webcast.

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