Communications Sales & Leasing has finally made its first move since being spun off from Windstream as the industry's first network REIT. And it's not a triple net lease of some ILEC assets either, but rather the acquisition of a network builder and operator. CS&L is buying PEG Bandwidth.
PEG Bandwidth focuses on fiber-to-the-tower in areas outside the major metro areas, and 80% of its revenues are from the big wireless carriers. It has three main areas of focus: the MidAtlantic region from upstate New York down through Virginia, a Midwestern footprint centered on Illinois, and a Gulf Coast footprint in Mississippi, Louisiana, and eastern Texas. They have largely flown under the radar as compared to other regional fiber assets, but the company operates 15,000 route miles of fiber hooking up nearly 3,000 towers across those regions.
CS&L will be paying $409M to acquire PEG, consisting of $315M in cash, 1M shares of stock, and 87,500 shares of 3% Series A convertible preferred stock. For that price they gain not just all that fiber, but an operating fiber business they can use to expand on both organically and inorganically. Much of the fiber is adjacent to or overlapping with the territories that came from Windstream, and thus they might be able to use some of those resources on a wider basis. Windstream might easily become a tenant on parts of the new footprint, and CS&L might find itself looking to use some of those former Windstream assets themselves if they can work out evolving terms with the carrier.
When intereviewed CS&L's Kenny Gunderman here on Telecom Ramblings back in August, he suggested that they might make a move like this. But I didn't really expect this to be the first acquisition they made. As a network REIT, I thought another triple net lease type of acquisition would be the most likely. I had been thinking PEG might be a target this year, but I hadn't figured on this possibility.
Now that CS&L has made a move, it's likely they will be making more than one. So the question is, who might be next? Hmmm..
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