Morningstar | Uniti Sells Latin American Tower Portfolio for $100 million; Maintaining $21 FVE
On Feb. 19, 2019, no-moat Uniti announced it is selling its Latin American tower portfolio, consisting of about 500 towers, to Phoenix Tower International for approximately $100 million in cash. The deal is expected to close by the end of the quarter. We think selling the portfolio was a smart move, and we believe Uniti received a fair price--it bought the bulk of the portfolio for $63 million two years ago. After modeling in the transaction, we have no change to our $21 fair value estimate.The move is not surprising, since Uniti announced on Jan. 15 it was evaluating a sale of the portfolio, but the timing is interesting, as it occurs on the heels of Windstream's trial loss in a debt default case that affects Uniti. We think the trial decision, if upheld on appeal, could drive Windstream into bankruptcy. Since Windstream comprises about two thirds of Uniti's revenue and over 85% of its EBITDA, such an outcome could lead to solvency concerns for Uniti.
Latin American towers were not a growth area for Uniti nor part of its core business, which consists of U.S. infrastructure. The towers segment accounts for less than 2% of total revenue, and half of the firm's towers are in the U.S. and not part of this sale. More importantly, the move provides Uniti with additional cash. We don't think Uniti has any liquidity concerns presently, and we don't expect any changes to its Windstream lease before an appeal is decided. However, if Uniti ultimately has to take a haircut on its Windstream revenue stream, concerns could arise quickly. In our base case, we model a 15% haircut on Windstream revenue beginning in 2020, and we think the firm could comfortably withstand that. However, if the haircut is closer to 25%, we see the potential for financial peril, so we think saving cash or reducing debt prior to the decision would be wise. In that vein, we also think Uniti should cut its outsize dividend immediately. We are modeling a 35% dividend cut in 2019 in our base case.
Uniti Group is a real estate investment trust engaged in the acquisition and construction of infrastructure in the communications industry. The company's four lines of business are: Uniti Fiber, which is a provider of infrastructure solutions, including cell site backhaul and small cell for wireless operators and ethernet; Uniti Towers, which constructs and leases space on communications towers to wireless service providers and other tenants; Uniti Leasing, which is engaged in acquiring communications assets, such as fiber, data centers, consumer broadband, coaxial and upgradeable copper; and Talk America Services, LLC, which provides local telephone, high-speed internet and long distance service.
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