Zayo considers its REIT options following Crown Castle’s Lightower deal

Business executives shaking hands
Financial analysts agree that Zayo is in a good position to pursue a REIT path.

Zayo said it will continue to look at its options to become a REIT following Crown Castle's acquisition of Lightower. 

Zayo
Dan Caruso

“I think we have created that optionality for ourselves in the future, if we were close to being able to qualify for REIT that we have the maneuverability in our organizational structure to achieve that,” said Dan Caruso, CEO of Zayo during the earnings call according to a Seeking Alpha transcript. “For the time being, we are going to see how it plays out with the Lightower transaction not having closed yet. So, I think there is some time to see that how that plays out and we will continue to explore it on our end and create as much optionality as we possibly can.”

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Jay Brown, president and CEO of Crown Castle, told investors during its second quarter 2017 earnings call that it sees 80-85% of the assets and revenues it is acquiring from Lightower as being a good fit for a REIT structure.

“Lightower has been able to attract a diverse customer base while maintaining an almost equal split of revenues between carrier and enterprise customers,” Brown said. “Importantly, this approach has also resulted in the vast majority of Lightower's assets and revenues qualifying for REIT status.

Zayo’s comments were well received by financial analysts, who agree that Zayo is in a good position to pursue a REIT path.

“CCI's recent commentary about the REIT-able assets of Lightower and FPL FiberNet provides a positive precedent for ZAYO if it chooses to pursue that path,” said Jennifer Fritzsche, senior analyst for Wells Fargo, in a research note. “ZAYO's Communications Infrastructure business is not significantly different in asset composition to those acquired assets by CCI.”

Here’s a breakdown of Zayo’s key metrics:

Communications Infrastructure: Driven by gains in its Fiber Solutions and Enterprise Solutions segment, which reported $190 and $137 million, Zayo’s total Communications Infrastructure segment revenue was $509.1 million.

Looking forward, Zayo said it expects further higher contributions to Communications Infrastructure revenues from Fiber Solutions and the Colo segment.

Net Bookings: Zayo reported record net bookings of $7.5 million. The service provider said it expects gross installs on steady growth path pipeline and bookings remain sufficient to remain on upward trend attaining $8.5 million threshold.

Financials: Zayo reported $638 million in consolidated revenue, including $509.1 million from the Communications Infrastructure segments and $128.9 million from the Allstream segment. The company reported net income of $23.2 million, including $11.3 million from the Communications Infrastructure segments and $11.9 million from the Allstream segment.