Earnings Call Transcript - UNIT Q1 2020

Operator, Operator

Welcome to Uniti Group's First Quarter 2020 Conference Call. My name is Ann and I will be your operator for today. A webcast of this call will be available on the company's website, www.uniti.com beginning May 11, 2020 and will remain available for 14 days. At this time, all participants are in a listen-only mode. Participants on the call will have the opportunity to ask questions following the company's prepared comments. The company would like to remind you that today's remarks include forward-looking statements and actual results could differ materially from those projected in these statements. The factors that could cause actual results to differ are discussed in the company's filings with the SEC. The company's remarks this afternoon will reference slides posted on its website and you are encouraged to refer to those materials during this call. Discussions during the call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company's current report on Form 8-K dated today. I would now like to turn the call over to Uniti Group's Chief Executive Officer, Kenny Gunderman. Please go ahead, Mr. Gunderman.

Kenny Gunderman, CEO

Thank you. Good afternoon everyone and thank you for joining. Please turn to slide four in our presentation. Before I review our operational performance for the first quarter, I'd like to first discuss how Uniti has been impacted and is responding to the COVID-19 pandemic. First and foremost, Uniti is focused on the health and safety of our employees, customers and vendors and is vigilantly following federal and state suggested guidelines. As a result, approximately 70% of our employees are working from home. Our remaining employee base remains active working in the field with first responder designation, maintaining our network, servicing existing customers and installing services for new customers. We're taking every precaution to keep these employees safe while remaining active, especially since our customers are demanding our mission-critical service now more than ever. In fact, our installation activity in the first quarter was quite strong and that momentum has continued into the second quarter. Also, our network continues to perform well. And although we've seen a decrease in IP traffic due to stay-at-home orders, wireless carrier traffic has increased by 20% with no degradation in the performance of our network. To date, we have not seen any order or service cancellations from customers as a result of COVID-19 and the only discernible negative effects thus far are small and timing-related. For example, approximately 50 physical locations must remain closed and the timing of installs relating to permitting delays. There's also the potential for another 50,000 to 75,000 of MRR delay related to new bookings from enterprise sales depending on how long businesses and our markets continue to be impacted by COVID-19. Conversely, we have seen a more than offsetting increase in requests from numerous critical industries including health care customers and government entities for communications infrastructure upgrades and builds as more providers turn to telemedicine and other high bandwidth usage technologies to serve their patients and customers. We also recently built and turned up an emergency command center in New Orleans within 24 hours for the Department of Defense to help support treatment and response efforts in that region. Importantly, demand and installation activity from our wireless customers is very robust and we currently expect that trend to continue. In short, our business has proven highly resilient and truly mission-critical. Looking forward to a post COVID-19 world, we believe there are many trends that will prove positive for our business. On the demand side, we believe distributed work environments are likely to persist, creating greater urgency for 5G bandwidth and network security. Other high bandwidth functions such as telemedicine, corporate video conferencing and virtual educational instruction will be more widely accepted sooner than expected. With respect to installs, this crisis has highlighted the significance of our infrastructure at the federal, state and municipal levels like never before, which we believe will result in more fluid access to permitting. For example, some permitting agencies are already adopting new technologies that allow them to accept digital submissions, which we believe will be a significant positive for Uniti in the industry moving forward as it allows for a more streamlined and efficient process. Turning to Windstream, we're pleased that the U.S. Bankruptcy Court for the Southern District of New York approved our previously announced settlement agreement with Windstream on Friday. We believe this agreement adds significant strategic value for Uniti, as it further expands and enhances the value of our national network, strengthens Windstream's competitive position and provides Uniti with a clear path forward. We're also announcing today improved terms for the previously announced sale of our U.S. towers. As you may recall, Uniti had an exclusive go shop period to evaluate offers from other parties. Following this period, Uniti has now agreed to sell 90% of its U.S. tower business to Melody Investment Advisors, while retaining a 10% investment interest. This transaction realizes significant value for Uniti, while allowing the company to own a meaningful interest in a scale wireless tower owner and operator. I'll provide more details on the revised sale of our towers and the Windstream settlement agreement later in my prepared remarks. We continue to drive high margin low churn recurring revenue in all of our business units and the results from our core business continue to be in line with our expectations. We continue to deemphasize noncore operations that do not fit our strategy, such as our nonstrategic construction business and our residential CLEC business called Talk America, both of which are non-core, low margin nonrecurring businesses. As a result of our actions, 97% of our revenue is now recurring with an average term of approximately nine years. Company-wide churn remains low and for the quarter was less than 0.3%. We continue to evaluate opportunities that optimize as well as monetize the highly valuable infrastructure assets within our portfolio. In the past two years alone, inclusive of our recently announced U.S. tower sale, we've generated approximately $350 million of proceeds from recycling capital at premium multiple transactions, including our Latin American tower business, our U.S. ground lease portfolio and sale of our U.S. tower business. Through lease-up of our fiber infrastructure at Uniti Leasing, we have generated an additional approximately $90 million of proceeds through opco/propco and IRU transactions. We expect similar activities in the coming 12 to 24 months could generate meaningful proceeds. Let me now provide an update on our operational results for the first quarter. Uniti Fiber sales bookings in the first quarter were approximately $0.6 million of MRR. Approximately 85% of our sales bookings in the quarter came from local enterprises, government, schools and wholesale customers. Enterprise bookings during the quarter increased 40% from prior year levels, reflecting our continued focus to drive lease-up on our southeast markets. We also added over 10,000 on-net near-net buildings in our markets, providing significant opportunity for future lease-up. Due to COVID-19, the E-Rate submission deadlines for new awards has been extended 30 days. We'll provide a more comprehensive update next quarter on E-Rate, but early indications are we are able to renew virtually all of our customers and are pursuing several new opportunities. The remaining 15% of our bookings activity came from the four national wireless carriers, as we continue to focus on adding on-net near-net sites while pursuing a handful of greenfield opportunities. As I mentioned earlier, we've seen minimal impact so far from bookings related to COVID-19. Uniti Fiber sold $0.6 million of MRR during the first quarter, with 65% of gross installs related to non-wireless opportunities, 25% related to wireless and 10% related to bandwidth upgrades. In Uniti Leasing, we continue to pursue additional lease-up opportunities that utilize our existing fiber network, as well as pursue larger scale sale-leaseback and opco/propco transactions. We're actively working on several opportunities with a well-diversified customer base that includes wireless carriers, national and regional cable providers and global content providers. We've also seen a material increase in interest from our wholesale customers after announcing our settlement agreement with Windstream in February for the fiber we are acquiring as part of this agreement. With that, I will turn the call over to Mark.

Mark Wallace, CFO

It proves to be incredibly stable and resilient even in times of crisis and economic downturns, on par with towers and data centers. Accordingly, our operations performed exceedingly well across the board during the quarter, which translated into solid core financial results. Our updated guidance for this year remains largely in line with our previous outlook. We are adjusting our guidance primarily for the timing and change in structure of the sale of our U.S. towers business and slightly higher corporate costs this year, which we expect to decrease to normalized levels in 2021. Please turn to slide five for a brief update on our first quarter results. We reported consolidated revenues of $266 million, consolidated adjusted EBITDA of $202 million, AFFO attributable to common shares of $97 million, and AFFO per diluted common share of $0.45. The net loss attributable to common shares for the quarter was $79 million, or $0.41 per diluted common share, which included a $73 million write-off of non-cash unamortized debt discount and issuance costs as a result of the full repayment of our term loans on February 10, plus $16 million of transaction-related and other costs. Our Uniti Leasing segment revenues and adjusted EBITDA increased 5% and 4%, respectively, compared to the same period last year. During the quarter, Uniti Leasing deployed approximately $5 million of capital associated with growth capital investment initiatives, primarily for Bluebird, at an initial yield of 9.25%. Windstream made $36 million of improvements to our network with their capital during the quarter, bringing the cumulative amount since our spin-off to just over $800 million in tenant capital improvements. Regarding Uniti Fiber, during the quarter, we turned over 300 dark fiber and small cell sites for wireless carriers across multiple markets, adding annualized revenues of $2.5 million. We currently have over 1,100 dark fiber and small cell sites remaining in our backlog, representing an incremental $5.3 million of annualized revenues. Uniti Fiber core revenues and margins were in line with our expectations. When compared to the same quarter last year, it's important to remember that our first quarter 2020 results do not include revenue or adjusted EBITDA related to our Uniti Fiber Midwest operations, as these were sold to Macquarie as part of the Bluebird transaction in August of last year. Non-core construction revenues at Uniti Fiber were consistent with our expectations, while the related adjusted EBITDA was lower-than-expected by approximately $2 million due to compressed margins on certain construction projects. As previously noted, we continue to deemphasize lower-margin nonrecurring products and services that are not strategic to our fiber business. Uniti Fiber net success-based CapEx was approximately $49 million in the first quarter and was higher-than-expected due to the timing of upfront customer NRC payments that we now expect to receive over the next two quarters. We also incurred $1 million of integration CapEx and $1 million of maintenance CapEx, which is about 1% of revenues. As I mentioned last quarter, we continue to finalize deployment of the remaining three out of the original 14 major dark fiber and small cell builds and still expect all of these to be completed by the end of this year. The completed projects achieved an aggregate initial anchor yield of 7%. At Uniti Towers, we incurred $16 million of CapEx spend in the first quarter, while completing the construction of 32 towers and decommissioning one tower, bringing our completed and in-service tower count to 703 towers at quarter end. Please turn to slide six for our updated 2020 guidance. We are revising our prior guidance for several reasons: first, the impact from the timing and final structure of the sale of our U.S. tower business; second, transaction-related costs and other items reported in the first quarter of this year; and lastly, other relatively modest business unit level revisions. Our guidance excludes any impact from the court-approved settlement with Windstream related to its reorganization process as the effective date and the accounting treatment are uncertain at this time. Our outlook anticipates that Windstream lease continues in full force and effect and that Windstream continues to make all lease payments on time under the existing master lease. Our current outlook excludes future acquisitions, capital market transactions, and other costs not specifically mentioned. Actual results may differ materially from these forward-looking statements. A reconciliation of our prior 2020 outlook to our current outlook is included in the presentation materials posted on our website today. Our current full-year outlook for 2020 includes the following for each segment. Starting with Uniti Leasing, we now expect Uniti Leasing revenues and adjusted EBITDA to be $740 million and $729 million, respectively, at the midpoint, representing adjusted EBITDA margins of 98%. The slight increase from our prior guidance is due to incremental TCI revenues recognized in the first quarter of this year. The Uniti Leasing sales team is currently focused on leasing up our existing fiber portfolio as well as 2.2 million fiber strands we are receiving as part of the Windstream settlement agreement. Uniti Leasing's sales funnel represents $510 million of total contract value and $23 million of annual revenue consistent with the prior quarter, and we continue to assume lease-up activity this year will contribute an additional $4.5 million of annualized incremental revenue. Our current guidance continues to reflect $28 million of net success-based CapEx at Uniti Leasing, primarily related to Bluebird. The investments in the Bluebird network will earn an initial yield of 9.25%, resulting in incremental annualized cash rent of just over $2 million. Turning to slide 7, we expect Uniti Fiber revenues of $306 million and adjusted EBITDA of $116 million at the midpoint of our 2020 outlook, which remains in line with our prior guidance. Net success-based CapEx for Uniti Fiber this year is expected to be about $100 million at the midpoint, up about $10 million from our prior guidance due to the timing of CapEx spent on some of our fiber builds. Of the remaining three large dark fiber and small cell projects, we now expect one of the projects to be completed by the end of next quarter, with the two remaining projects completed by year-end. Once all 14 projects are completed, they will represent annualized recurring revenue of over $20 million. We continue to focus on leasing up our anchor wireless builds and are actively selling to numerous enterprise and wholesale customers, as well as schools and government facilities in many of our markets. Our enterprise sales bookings activity was strong during the quarter, exceeding our expectations by over 20%. While there could be potential delays in bookings related to COVID-19, we are optimistic the momentum we saw in the first quarter will continue later this year, as we ramp up sales activities in our recently completed anchor markets. We expect Uniti Fiber's net success-based capital intensity to now be about 33% this year, decreasing from 50% in the first half of 2020 to about 12% in the second half. We expect integration and maintenance CapEx for 2020 to be about $6 million each. Looking ahead, we expect Uniti Fiber's net success-based capital intensity to be in the 30% to 35% range or lower as we continue to pursue a handful of greenfield dark fiber and small cell builds. We are very focused on managing down Uniti Fiber's capital intensity and realizing the value embedded in the investments we've made over the last few years. Regarding towers, as Kenny mentioned earlier, we have signed an agreement to sell 90% of our U.S. tower business to Melody for cash consideration of approximately $220 million, implying a 34 times annualized tower cash flow multiple for the entire business. Uniti will retain a 10% investment interest through an affiliate of Melody. Additionally, as part of the agreement, Uniti will receive an incremental earn-out payment in March 2021 for each additional pipeline tower completed in 2020, which we currently estimate to be about $2 million. We expect the transaction to close by the end of the second quarter and have included operating results in our 2020 guidance only up to that estimated closing date. For the full year 2020, we now expect tower revenues to be about $7 million with a reported adjusted EBITDA loss of $1 million. The expected pre-tax gain on the sale of the U.S. towers business of $38 million is anticipated to be reported as a gain on sale of real estate and accordingly will be excluded from our reported revenues, adjusted EBITDA, and AFFO. As a result of the change in the timing structure of the sale of our tower business, we expect capital expenditures for the full year at Uniti Towers to range from $20 million to $25 million, reflecting approximately 50 towers constructed during the first half of the year. Upon closing of the transaction with Melody, we do not expect any further tower-related capital expenditures for the remainder of the year. Turning to slide 9, for 2020, we now expect full-year AFFO to range between $1.79 and $1.83 per diluted common share, with a midpoint of $1.81 per diluted share. On a consolidated basis, we now expect revenues to be $1.1 billion and adjusted EBITDA to be $810 million at the midpoint. Our guidance now includes consolidated interest expense for the full year of approximately $420 million, excluding any deferred financing cost write-offs. As noted, reported interest expense in 2020 includes an additional $73 million of non-cash write-off of deferred financing costs reported in the first quarter of this year related to the payoff of our term loans. Corporate SG&A, excluding amounts allocated to our business segments, is expected to be approximately $42 million, including $9 million of stock-based compensation expense. We now expect weighted average diluted shares outstanding for the full year 2020 to be approximately 222 million shares. A reminder that guidance ranges for key components of our outlook are included in the appendix of our presentation. On slide 10, we have provided a tabular reconciliation of our prior guidance to our updated 2020 outlook, which summarizes my comments this afternoon. Now turning to the capital structure. This morning, our Board declared a dividend of $0.15 per share to stockholders of record on June 26, payable July 10. We expect our Board will continue to evaluate our dividend policy as key developments in Windstream's reorganization occur in order from Windstream's emergence from bankruptcy. Any decision to change our dividend policy will be made by our Board of Directors at the appropriate time. At quarter end, we had approximately $149 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity. Our leverage ratio at the end of the first quarter stood at 6.4 times based on net debt to annualized adjusted EBITDA. Proceeds from the sale of our tower business will provide additional liquidity and ensure that we have no need to raise additional capital this year. It will also lead to a slight reduction in leverage as we expect to initially use the net proceeds to repay borrowings on our revolving credit facility while ultimately reinvesting the proceeds into fiber assets. We plan to continue optimizing and monetizing our portfolio. Given the recent volatility in capital markets, we believe it is wise to focus on recycling capital at attractive valuations where appropriate. While our outlook does not include any capital market transactions, we continue to monitor and evaluate the capital markets, engage with market participants routinely, and may seize attractive opportunities. Looking ahead, we believe the court approval of our settlement agreement and the emergence of Windstream from bankruptcy opens up a wide range of strategic options for Uniti. We remain optimistic about the fundamentals of our business, the long-term demand for communication infrastructure, and our ability to deliver value for our stockholders.

Kenny Gunderman, CEO

Thanks, Mark. Please turn to Slide 11. We've agreed to sell 90% of our U.S. tower business to Melody for approximately $220 million or roughly 34 times annual tower cash flows, a premium of approximately $30 million to the previously disclosed transaction. Uniti will also retain a minority investment interest in the tower business. As part of the transaction, Uniti will receive an incremental earn-out for each additional pipeline tower completed in 2020. We believe this transaction realizes significant value for our stockholders, as it represents an economic gain of approximately $55 million and an unlevered IRR of approximately 20%, which does not factor in potential future upside from our retained investment interest and ongoing strategic partnership. The transaction also allows us to reduce our ongoing CapEx investment while at the same time solidifying a strategic relationship with the new tower company that will enable us to serve wireless carriers with integrated solutions. Turning to Slide 12. Our settlement agreement with Windstream will now become effective at the earlier of Windstream's emergence from bankruptcy and February 28, 2021. The effectiveness of the settlement is still subject to finalizing and executing various definitive documentation, federal and state regulatory approvals and that Uniti received true lease and REIT opinions. We expect that all these conditions will be met. As a reminder, all litigation is stayed during the pendency of the settlement and the master lease remains in full force and effect with Windstream remaining current on its monthly lease payments. On Windstream's emergence from bankruptcy and our agreements becoming effective, we expect to be well positioned for accelerated growth for years to come. Slide 13 illustrates the many long-term benefits our court-approved settlement provides for Uniti including making the master lease stronger, helping Windstream become a healthier tenant and acquiring attractive fiber assets, while at the same time making long-term fiber investments that are value accretive to Uniti. As it relates to making Windstream a healthier tenant, it's important to remember that 90% of our capital is being used to acquire or build mission-critical fiber infrastructure at attractive yields, which is consistent with our historical strategy. Further, we fully expect this agreement will enable a reorganization of Windstream and emergence from bankruptcy with ample liquidity and a deleveraged balance sheet at emergence while positioning Windstream for sustainable growth and margin expansion. Slide 14 demonstrates how our new MLAs with Windstream will be substantially enhanced for Uniti's benefit in a number of ways. First, our ability to add financial covenants to the lease agreements as well as including both Windstream Holdings and Windstream Services as tenants under the lease provides enhanced security versus our existing lease. Second, annual aggregate rent is not expected to change as we've consistently stated before. Finally, we believe bifurcating the master lease into two separate leases that govern the ILEC and CLEC networks, separately unlocks value and strategic optionality for both Uniti and Windstream, while providing enhanced diversification for Uniti and Windstream's new owners decide to sell the CLEC or ILEC. Slide 15 expands on the potential diversification opportunity. Based on the midpoint of our 2020 outlook, Windstream represents 65% of our total revenue. However, if Windstream were to sell a CLEC and transfer the lease to a third party and if you were to layer in the approximately $30 million of incremental EBITDA from the dark fiber IRUs we're acquiring, the revenue diversity should shift significantly to where Windstream would represent less than half of our total revenue, which as you may recall was the goal we originally set out to achieve before Windstream entered restructuring. Turning to Slide 16, we're acquiring 440,000 fiber strand miles that are currently not owned by Uniti today, as well as gaining rights to sell or lease to third parties 1.8 million strand miles that are part of the Uniti-owned Windstream lease network. Together, these additional 2.2 million fiber strand miles increase our leasable fiber available to third parties by approximately 90%. This national network not only brings substantial lease-up potential but also synergies with Uniti Fiber and Uniti Leasing. Importantly, the expanded footprint also greatly enhances our opportunity set for additional opco/propco and company acquisitions. As a frame of reference on slide 17, we previously acquired a national network from CenturyLink in 2018, which has contributed lease-up of approximately $50 million of upfront IRU payments and $10 million of annual recurring revenue in a span of just two years. Our newly-acquired assets and rights equate to 2.2 million strand miles or roughly 10 times the capacity of the CenturyLink network, and includes metro fiber in numerous markets providing additional sale opportunities such as small cells, fiber-to-the-tower and enterprise services, all of which cannot be sold utilizing the current CenturyLink routes as they are long-haul routes only. As I mentioned earlier, we expect similar success monetizing the acquired fiber assets and rights from the Windstream settlement after the effective date. In addition, we're acquiring dark fiber IRU contracts that currently generate approximately $30 million of EBITDA today and are comprised of a mix of well diversified customers as detailed on slide 18. This is high-quality revenue with 100% of the customers on-net and approximately 75% of the acquired revenue from the top 25 customers or existing customers of Uniti. Similar to the existing lease-up, our Uniti Leasing network, this revenue is also near 100% margin with little to no incremental CapEx required. Slide 19 illustrates the benefits of the GCI CapEx program. As part of its post-emergence business plan, Windstream has stated an intent to increase its fiber-to-the-home footprint with a plan to bring 1-gig broadband service to over 50% of its homes by 2028. This compares favorably to most other national ILECs today, which should enable Windstream to be more competitive in most of its markets. The GCI investments will enable these high speeds and the assets will immediately become Uniti's assets generating an initial yield of 8%, which compares favorably to most of our existing Uniti Leasing and Uniti Fiber contracts as highlighted on slide 20. In addition, we'll have numerous additional lease-up opportunities during the 10-year initial term based upon our new contractual ability under the new MLAs to joint-build new fiber with shared use to Uniti and Windstream as an anchor customer. We continue to be very excited about this agreement we've reached with Windstream. Not only does this agreement enable restructured Windstream to emerge at a much lower leverage, thus removing the biggest overhang Uniti has had historically. So it's also very strategic to Uniti and substantially enhances our overall portfolio of assets and cash flow. Turning to slide 21, the quality of our portfolio of almost seven million strand miles of valuable owned fiber and 2,200 small cell locations either in service or in backlog continues to be highly underappreciated. We're one of the select few providers of these critical components that are enabling the 5G revolution. And as a result, the opportunity stays tremendous for sustainable growth for many years to come. Our infrastructure provides substantial highly predictable revenue and cash flow, material lease-up potential and attractive margins. Uniti is well experienced at managing through times of crisis and our business has proven resilient, not just in the early days of the COVID pandemic, but throughout other crises in our history. As slide 23 shows, we've been able to grow consistently our revenue adjusted EBITDA and AFFO over the past four years. Importantly, through our proprietary M&A efforts we've added over three million fiber strand miles to our network, 2,200 small cells and 700 towers to our portfolio since our spin-off in early 2015. Later this year, after the impacts of COVID-19 have hopefully started to subside and Windstream emerges from bankruptcy, we will be a substantially stronger company with a healthier tenant and enhanced validated lease with over $7 billion of predictable high-margin revenue, ample liquidity and no near-term maturities and one of the largest independently owned mission-critical communications infrastructure businesses, with a highly valuable portfolio. With that operator, we are now ready to take questions.

Operator, Operator

The first question comes from Frank Louthan. Your line is now open.

Frank Louthan, Analyst

Thank you. Walk us through a little bit on the tower business. Can you give us an idea of what the 10% interest that you're going to own is and where that's going to show up? And then, can you comment a little further on what you think the dividend policy might look like when you get all the puts and takes from Windstream? Thank you.

Kenny Gunderman, CEO

Hi, Frank it's Kenny. I'll start and then Mark can finish up. So as we mentioned on our last call, we were in the midst of a go shop for the tower business. We had a deal in hand, but we were just beginning to engage with other potential interested parties. Turns out it was a robust process with a good amount of interest. And so as a result, we were able to improve the economics and also just change the terms to make them a little simpler, I would say, where we're effectively monetizing the entire business, including the team, but we're retaining a stake as opposed to having the off-take arrangement as we had structured previously. So a little simpler, but gives us the same benefits, including improved economics, liquidity, potential future upside in the business, as well as the ability to continue offering holistic solutions to our carrier customers through our strategic partnership with the new business, which again will be the same team that's been operating for Uniti in the past several years. So Mark you want to comment on where that 10% will be accounted?

Mark Wallace, CFO

The 10% will be recorded as an equity interest, allowing us to recognize our share of earnings. This isn't included in our forecast because we currently lack a solid basis to estimate it. However, it will be included as equity and earnings in our financial results moving forward. Regarding the dividend, I don't think we should view it any differently than what I mentioned in our last quarterly call. As you know, I have stated what we can distribute under our current restrictions for this year. If we meet the conditions to reach the covenant reversion threshold, we could potentially distribute 100% of taxable income and also consider any capital gains we earn this year. To achieve this, Windstream needs to emerge from bankruptcy, and we must lower our leverage to 5.75 on a net leverage basis. We may be able to accomplish this, but it requires executing on various strategies, such as increasing occupancy in our existing portfolio and exploring other asset sales, as Kenny discussed earlier.

Frank Louthan, Analyst

All right, great. And congratulations with the go-shop. I guess, one follow-up there. Longer term, how do you think about the tower business, will it be more of flipping them? And will this partnership part of it? Or will you guys build it up eventually as we go forward?

Kenny Gunderman, CEO

Yes, Frank, I think this partnership is appealing because there is a substantial amount of capital that will be invested in it by Melody and its LPs. We believe the number of new towers that will be constructed is likely to exceed what it would have been if Uniti retained full ownership. Moving forward, we anticipate significant development activity, and we are very excited about that. We are also pleased to maintain an interest in the potential upside. For the foreseeable future, this will be how we engage in the macro tower investment cycle.

Frank Louthan, Analyst

All right, great. Thank you very much.

Operator, Operator

Thank you. Our next question comes from the line of Greg Williams. Your line is now open.

Greg Williams, Analyst

Great. Thanks for taking my questions. I just wanted to confirm in your scripted remarks, you said there would be no need to raise additional capital this year. And you did say you would look at recycling capital as you always have. On that question, are you seeing activity in selling possibly your fiber assets? Or are buyers at a pause at the moment? The last question is, from where you sit when do you anticipate Windstream emerges from bankruptcy, what time frame are you planning for internally? Thanks.

Mark Wallace, CFO

Yeah. So on your first question, yes, you heard me correctly that given the tower sale, we have no need to raise additional capital this year. So we have the ability to be patient and raise capital when the time is right as opposed to being required to raise capital this year. I'll let Kenny address your other question.

Kenny Gunderman, CEO

Yes. Greg, you asked about interest in our fiber asset, Uniti Fiber. We receive regular inbound interest in that business, and it may have even increased. It remains a strategic part of our portfolio, as it has from the start. It's a valuable asset, especially now that we've fully integrated the businesses we've acquired, and we're seeing positive results in key metrics like bookings, installs, and churn, proving the effectiveness of our lease-up model. This is very important. There are significant opportunities for future growth in this business, particularly with the tailwinds of 5G, which we believe have been accelerated by the COVID pandemic, along with the strong competitive nature of the Tier 2 markets we operate in. Additionally, the settlement with Windstream has enhanced our network with a large amount of fiber. We will see off-net savings become on-net in areas where we currently lease network, and our leasable capacity has increased by 90%. The interest in Uniti Fiber has been consistent for good reasons, and as we've demonstrated, we will continue to consider that interest in a way that is friendly to our shareholders while also recognizing that we are a REIT and long-term holders of assets, ultimately making decisions that benefit our shareholders.

Mark Wallace, CFO

I think Windstream said on the call this morning that they were targeting emergence in the August, September time frame. So we don't have any better information than that. So we're looking forward to them hitting that target.

Greg Williams, Analyst

Great. Thank you.

Operator, Operator

Our next question comes from the line of Philip Cusick. Your line is now open.

Philip Cusick, Analyst

Hi guys. Thanks. It sounds like the timing of the capital raise would come sort of in that September-October timeframe with Windstream. Is that the way to think about it?

Mark Wallace, CFO

We are not required to raise any capital this year for Windstream or otherwise. Therefore, we do not have any planned timing for a capital raise in our guidance. We will consider capital raises when opportunities arise in the capital markets, but we have no obligation to do so.

Philip Cusick, Analyst

Okay. Thank you. And then as we think about the potential diversification away from Windstream any movement in terms of potential sellers or partners with the COVID crisis happening out there? Are you seeing a little bit of a shutting down in discussions? Or do people need that capital and pulling forward a little bit?

Kenny Gunderman, CEO

Hey Phil, it's Kenny. The interest in infrastructure assets, particularly in 5G infrastructure like fiber, small cells, and towers, has not decreased. In fact, it seems to have accelerated or at least remained steady during this time, especially considering that much of the interest historically and even now has been from infrastructure funds, private equity, or other non-traditional investors. So, that interest remains strong. A couple of years ago, we hinted at the potential for collaborating with these types of funds, and we have successfully done so in various ways, including monetizing assets like towers or partnering on acquisitions such as Bluebird or the Uniti Fiber Midwest operations. We've navigated these deals three or four times already, and I believe we will continue to pursue similar opportunities that are beneficial for shareholders, especially since the interest has not waned. While public companies may experience some volatility in their capital costs that could lead to a slowdown in interest, our engagement in proprietary M&A discussions and the attraction from non-traditional capital sources is still very much alive.

Philip Cusick, Analyst

Thanks guys.

Operator, Operator

Thank you. Our next question comes from the line of David Barden. Your line is now open.

David Barden, Analyst

Hey guys. Thanks for taking the question. So, I guess, the first question Kenny for you is Windstream is saying that as a function of this settlement that they arrived at with you they've benefited to the tune of $1.25 billion on an NPV basis. You've historically said that you were willing to talk about the lease if it was kind of value neutral. I was wondering if you could kind of elaborate a little bit on the game theory here and whether this is a one plus one equals three type of situation where them being healthier makes you healthier. If you could kind of walk us through how you thought through this process? And why this settlement is a next good thing for Uniti would be super helpful? And then I think the second thing is you've talked about this pipeline that's been kind of waiting around obviously, the cost of capital that Uniti has been too high to do a lot of deals that would otherwise be doable. At what velocity might we expect things to start to unlock as we get past the August Windstream bankruptcy reemergence, et cetera, et cetera? Thank you.

Kenny Gunderman, CEO

Yes, those are good questions, David. First, regarding the settlement, the public nature of the bankruptcy process has made it challenging for us to comment extensively because of how it has been publicly negotiated. It's crucial for Windstream to convey the value of the settlement to its stakeholders to secure approval. While you referenced the $1.250 billion of value that this owner adds to Windstream, I believe the true figure is likely higher. I have consistently stated during mediation that our contributions for Windstream are more than that. This doesn't imply that the negotiation was all gain for one side; it wasn't a zero-sum situation, and we anticipated this before discussions even began. It’s important to recognize that while it's valuable for Windstream, it also significantly benefits Uniti. If we break down the deal, considering our historical investment strategy for customers, it becomes clearer. For instance, the GCI program involves a $1.750 billion investment to upgrade our network, alongside about $800 million that Windstream has already invested for our advantage. This totals approximately $2.5 billion in network upgrades, significantly reducing our renewal risks in ten years. Meanwhile, Windstream is paying us an 8% cap rate to facilitate these investments, which aligns with yields from our dark fiber projects with companies like Verizon and AT&T. This aspect of the transaction aligns perfectly with our previous dealings with other customers, and we are optimistic about the value it will bring to Uniti over time. Additionally, Windstream's payment of around $650 million for 42,000 route miles of fiber is strategic. As I mentioned, this fiber is largely unused by Windstream, making it valuable for them, but it will also be beneficial for us as we lease it out in line with past successes. This isn’t just theoretical; we have the team and processes to realize this value. The synergies from transitioning off-net to on-net will enhance our leasing potential by 90%, leading to significant proceeds. We're mindful about our equity use, especially at current prices, but we have historically employed equity in major M&A transactions to align interests with sellers. In this case, the new owners of Windstream, holding around 90%, will own a portion of our equity, creating an alignment that is valuable for us moving forward. These considerations add benefits even before we account for the stronger position Windstream will have post-settlement, with no near-term maturities and ample liquidity. Overall, I firmly believe both Uniti and Windstream are deriving substantial value from this transaction, which aligns with our long-held vision of creating a mutually beneficial situation. Your second question was about...

David Barden, Analyst

Velocity of transactions and kind of like your capacity to really start executing on the business?

Kenny Gunderman, CEO

Yes, that's a good question. We have not paused our M&A discussions over the past year and a half. We’ve continued to engage in conversations and frequently reference our proprietary funnel. Looking back, we’ve executed several transactions, with the Bluebird transaction being the most significant. Additionally, we've made smaller acquisitions and completed sale-leasebacks. We intentionally reduced the size of the deals we pursued to avoid overexposing ourselves to the need for capital during this volatile period. We remain very active with our counterparts, which facilitates asset monetization when necessary and keeps them reaching out to us with expressions of interest in deals. We are quite engaged, and I believe that when the time is right, whether later this year or early next year, and when we see a stabilization in our cost of capital, we will be ready to pursue more acquisition opportunities. We are looking forward to that.

Operator, Operator

Thank you. And our last question comes from the line of Simon Flannery. Your line is now open.

Simon Flannery, Analyst

Great. Thank you very much. Good evening. On the Uniti Fiber, what are you seeing in terms of COVID impacts? It sounds like the bookings are generally looking good a couple of delays on E-Rate. But what about permitting and zoning? Any big changes to your construction timing on that? And then on the Windstream GCI program that was kind of designed prior to the COVID crisis. So we have seen some of the wireline peers pulling back on some of their initiatives. How do you think COVID might affect some of the timing of that program or any major changes? And then also, how do you think and how do you work with Windstream around what they might do in the rural digital opportunity fund auction replacing some of the CAF-II. Is that something that you can work with them on? And what are your latest thoughts there? Thanks.

Kenny Gunderman, CEO

It's Kenny. I'll address your questions. Regarding Uniti Fiber, we've found that COVID has had very little impact. We identified around 50,000 of monthly recurring revenue that has been delayed due to either customer availability for installation or permitting issues. This number has actually decreased since the end of the first quarter as we have started to address these delays. We conservatively estimate that between 50,000 to 75,000 in enterprise bookings may be postponed due to COVID, as our sales team is making virtual calls instead of in-person meetings, leading some customers to hold off on purchases. However, even this estimate feels conservative as it doesn't capture the actual impact on our business. The effect has been minimal, particularly since small businesses, which represent only about 1% of our total revenue, have been the sector most affected by COVID. Furthermore, the importance of fiber infrastructure has been reinforced during this crisis, showcasing its mission-critical nature. We'll continue to monitor the situation as it evolves, but so far we have shown strong resilience. In terms of the GCI program, we haven't engaged with Windstream yet since the settlement isn't finalized and will be effective later this year. Until then, I can't provide any insights on potential timing delays. Regarding the Rural Digital Opportunity Fund, we see numerous opportunities to collaborate with other entities to facilitate investments in areas where we have fiber infrastructure, particularly in Tier 2 to Tier 4 markets. We won't be using federal funding for our own services or directly serving residential customers, but our existing fiber infrastructure positions us well to support these investments in rural communities. We view this as a promising opportunity for us. Thank you. I'd like to once again thank all of our employees for their continued dedication during these uncertain times as well as our loyal customers who continue to work hard for us every day. We appreciate your interest in Uniti Group and look forward to updating you further on future calls. Thank you for joining us today and please stay safe.

Operator, Operator

Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect.