Windstream said today that it plans to retain 19.9% ownership of the real estate investment trust that it plans to spin off next year. Retaining partial ownership was not in the company’s initial plans for the REIT announced in July, but the company said it was making the change in order to free up additional funding for investment in its network.
On a conference call with investors this morning, Windstream CEO Tony Thomas, appointed just under a week ago, said the move also will enhance the value of both Windstream and the REIT, which the company is now calling “Communications Sales & Leasing” or CS&L.
“By improving Windstream’s credit profile, CS&L benefits by having a stronger anchor tenant,” said Thomas.
The Windstream REIT
As originally planned, CS&L will own Windstream’s copper and fiber network assets, while Windstream will retain ownership of transport equipment such as routers, switches and optical network systems. Windstream will use the equity it is retaining in CS&L to retire debt, Thomas said.
In addition, Windstream will further reduce its debt by shifting $150 million in debt to the REIT. The REIT can afford to take on the additional debt, according to Windstream, which said the REIT’s debt level will be in line with other REITs.
Windstream’s new plan also calls for converting Windstream Corporation into a limited liability corporation – a move the company said was necessary to avoid a potential tax liability of up to $800 million at the time of the REIT spinoff. That move will require shareholder vote, but Thomas said he expects shareholders to approve the move.
The increased free cash flow that Windstream expects to generate from its new plan will be used for fiber network expansion and transitioning to IP network infrastructure, said Thomas. He also noted that the company’s plan for the REIT to purchase network assets from other communications service providers has been well received.
“I have had discussions with many potential partners and . . . I’m very optimistic about the REIT’s opportunities,” he said.
It may be too soon to gauge investor reaction to the news. After an initial drop this morning, Windstream’s share value began to climb and at the time of writing was still climbing.
