Just a week after taking the helm of Windstream, newly minted CEO Tony Thomas has moved to put the companies network REIT spinoff back in the spotlight. The company is providing an update today on the transaction and what they hope it to accomplish.
The new entity to be spun off, apparently to be called CS&L (Communications Sales & Leasing), will own ‘certain telecommunicationsn network assets’ of course, which includes both Windstream’s fiber and copper networks. Windstream will still operate the assets, which will be rented back to them via an exclusive triple-net lease, and they will therefore still be paying for all maintenance, repairs, insurance, and real estate taxes. The REIT will just focus on ownership, and also explicitly on acquisitions to add more tenants and assets.
That potential for future acquisitions is probably the biggest potential effect the industry will see from this plan. Just what other network operators might be interested in using Windstream’s REIT platform to do the same thing is an open question. I can spin many scenarios in that direction, but in the end it all comes down to what the REIT’s balance sheet and borrowing power will look like, and how much benefit others see in not rolling their own network REIT. We won’t know that until after the spinoff actually takes place, although the company sounds very optimistic about the possibilities.
Windstream expects to hang onto some 19.9% of the REIT in the short term, selling off its shares opportunistically over about a year and using the proceeds to pay off additional debt. The other 80.1% will be distributed to shareholders. I’m actually a bit surprised that they don’t intend to keep more direct ownership of the new entity, and I wonder how not doing so might affect them a decade or two down the road.
They’ll be having a shareholder meeting in February about it all, which will also include a 1-for-6 reverse stock split and steps to convert the company to an LLC for yet more tax purposes. Might as well get it all out of the way at once I guess.
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