Communications Sales & Leasing (CS&L) may not be pursuing every fiber asset that’s up for sale, but the service provider said the recent swath of acquisitions could lead to new opportunities for its real estate investment trust (REIT) business.
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Kenny Gunderman, CEO of CS&L, told investors during its third quarter earnings call that the fiber deals mean that fiber opportunities are on the rise.
“The pickup in M&A activity around fiber in particular has been very good for us,” Gunderman said during its third quarter earnings call, according to a Seeking Alpha transcript. “On the one hand there is more competition for assets, but on the other hand and certainly outweighing that is the activity itself is good in the sense that if we have more opportunities for partnering on sale leaseback and whole company acquisitions ourselves.”
Specifically, Gunderman said that Crown Castle’s recent acquisition of FPL Fibernet “validates our thesis on the mission critical nature of fiber, but it also, we think, reinforces the underlying net asset value of the fiber that we own, 4 million plus strand miles, 90,000 plus route miles.”
While CS&L could not reveal any specific companies it is talking to currently, the company said it has been seeing growing interest in its REIT structure.
This includes a mix of new entrants such as private equity companies and other fiber-centric service providers that are in the process of acquiring other companies to expand their network footprint.
“When you think about fiber acquisitions and whether it would be pure fiber companies or potentially companies that are a combination of fiber and ILEC businesses, there are a lot of opportunities for consolidation,” Gunderman said. “Many parties that we've talked to look at our structure as a way to provide a tax efficient separation of the underlying telecom real estate from the operations, but at the same time locking exclusive use of the underlying real estate and potentially getting a value or multiple arbitrage based upon how we can value the real estate versus how they would value it on their own.”
Having created two separate, but complementary divisions in Uniti Towers and Uniti Fiber, CS&L itself will continue to look for new M&A opportunities of fiber and tower assets.
In October, CS&L upgraded its senior secured credit agreement, allowing it to use an upREIT structure. This will give the company more flexibility to pursue acquisitions of other assets, including those that will bolster its Uniti Fiber subsidiary to target wireless backhaul and other wholesale opportunities.
Just this week, the service provider purchased NMS Holdings for $65 million. NMS currently owns and operates 359 wireless communications towers in Latin America with an additional 114 build to suit tower sites under development.
In conjunction with its NMS acquisition, the service provider created Uniti Towers, which will oversee its tower holdings.
CS&L said that it should be positioned to issue operating partnership units in M&A transactions as early as the first quarter of 2017.
Gunderman said that there are a number of common elements between the Uniti Towers and Uniti Fiber business lines that can satisfy current 4G and future 5G wireless deployments.
“Both have similar economics, including initial yields, average contract length and substantial lease up potential and the sales cycle with wireless carriers are very similar and therefore the bundling potential is substantial,” Gunderman said. “Today, we are currently providing fiber or tower infrastructure or both to all of the major wireless carriers in the U.S.”
Uniti Fiber, which was formed leveraging CS&L’s acquisitions of PEG Bandwidth and Tower Cloud, is already gaining momentum.
The service provider won a large dark fiber deal serving a large wireless operator, prompting it to expand its reach in three markets in Southeast Iowa and the Central and Northern Illinois regions, for example.
What’s interesting about this build is it is based on a leverage and extend model where Uniti Fiber is leveraging and extending existing fiber the company had in the ground.