Earnings Call Transcript - UNIT Q4 2023

Operator, Operator

Welcome to Uniti Group's Fourth Quarter 2023 Conference Call. My name is Gigi, 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 today 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 morning 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 the 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 morning, everyone, and thank you for joining. Starting on slide three, I'd like to begin with a review of 2023, and particularly some highlights of a very busy fourth quarter. During the year, despite a challenging backdrop, we successfully refinanced $3.1 billion of debt, resulting in our current business plan now being fully funded with no significant debt maturities until 2027, and over 95% of our debt being fixed rate. We accomplished this while continuing to demonstrate the resiliency of our core recurring Fiber business, with top line growth of 5% in 2023, including Uniti Leasing lease up, and Uniti Fiber enterprise and wholesale growth of 20%, 15%, and 9%, respectively, with continued declining capital intensity. Just as importantly, by addressing our balance sheet, we afforded ourselves the ability to focus on strategic matters. As we foreshadowed during our third quarter call, we recently sold some non-core assets that included our remaining tower portfolio, our remaining investment interest in Bluebird Network, and our sale leaseback with CableSouth, for total proceeds of $87 million, and almost 10 times blended EBITDA multiple. Also, during the fourth quarter, we decided to largely exit the non-core one-time equipment sale business. As a reminder, this business represents the reselling of networking and other IT equipment. Historically, that business has generated anywhere between $20 million and $30 million of annual revenue, with margins of 15% or less, thus representing less than 5% of our total adjusted EBITDA. Despite the small contribution to profitability, the unpredictable nature of the business regularly contributes the majority of volatility we see in our quarterly earnings, including the most recent third and fourth quarters. As an example, approximately $6 million of contracted equipment sales that were expected to be realized in the fourth quarter of 2023 have slipped into 2024 largely due to delayed USAC funding. On a go-forward basis, one-time equipment sales will now be a negligible part of our results as we'll only pursue those sales that are part of an important fiber network sales, and are desired by our important customers. Deemphasizing this business is also coincidental with the one-time ETL fees related to the T-Mobile Sprint merger being largely completed in 2023, and should also have a minimal impact on earnings on a go-forward basis. Finally, as we also foreshadowed on our third quarter earnings call, we just announced an ABS bridge financing that will provide funding of up to $350 million. Paul will elaborate further on this, but it's an exciting development which reinforces that fiber truly is a mission-critical communication asset. We believe that ABS will be an important value-creating financing option going forward. Turning to slide four, with our industry-leading 0.3% churn, and no legacy services weighing us down, we believe our runway for mid-single-digit growth continues to be long. Our primary focus continues to be executing on our lease-up strategy via lit and dark fiber solutions for our wholesale and enterprise customers within our Southeast footprint, while also further monetizing our long-haul national network through long-term IRU agreements with hyperscalers, domestic and international carriers, and other large national strategic accounts. Slide five illustrates that we expect our growth will continue to be disciplined and profitable. Our substantially underutilized fiber network is helping drive our shared infrastructure economics with continued declining capital intensity. Our anchor plus lease-up model is working, driving cumulative cash flow yields today of 25%, a more than 3.5 times increase from the anchor yield of these projects. Turning to slide six, we continue to grow our 140,000 route mile network. Less than 25% of our available network is lit today. And as we've mentioned before, we own dark metro fiber in about 300 markets nationwide, which represents terrific capital and margin-efficient growth potential for enterprise, wireless backhaul, and small cells. We continue to believe that the wireless carriers will eventually need to identify these non-NFL markets, and Uniti is well-positioned for that growth in the future. Slide seven shows that the majority of our revenue is wholesale in nature, which comes with longer-term contracts, lower churn, and less required overhead for execution. As a result, our business and underlying performance are less susceptible to macroeconomic conditions, and we're diversified across numerous use cases for fiber and customer segments. As an example, even though wireless carriers have recently been spending less as a collective group than they have in past years, the decline is offset by other buyers such as hyperscalers, internet providers, and fiber-to-the-home providers. We continue to see more use cases weighted toward artificial intelligence as well. Turning to slide eight, scale matters in fiber, especially with a wholesale-heavy business like ours. Having an owned national network is a meaningful competitive advantage for Uniti, and our ability to deploy dark fiber and wave services presents Uniti with the unique low-risk growth opportunity with minimal competition. Slide nine illustrates our continued balanced approach to bookings between anchor and lease-up. We had a healthy level of bookings in 2023, and the interest in our network remains robust as our sales funnel remains very strong and underscores the growing demand for fiber. As a result, wholesale bookings can appear lumpy given those deals are typically larger and fewer in quantity. It is not uncommon for one wholesale deal to materially impact bookings in a single quarter from a timing perspective. In fact, our funnel suggests we expect to see multiple sizable new contract agreements over the coming months, especially from hyperscalers preparing for generative AI. Turning to slide ten, our enterprise strategy is highly disciplined and regional in nature. As you can see from the map, we're only offering enterprise services in approximately 30 metros concentrated in the Southeast, which has very favorable demographics. Our local brand is very strong in this region, helping to contribute to industry-leading enterprise churn of around 0.7%. Although enterprise sales represent about 5% of our total revenue today and will likely always represent a minority percentage, it remains a critical element of our profitable lease-up strategy. With that, I'll now turn the call over to Paul.

Paul Bullington, CFO

Thank you, Kenny. Good morning, everyone. I'd like to begin by reviewing our fourth quarter performance, followed by an overview of our 2024 outlook. Uniti had another solid year of performance in 2023, with our core recurring strategic fiber business growing at a healthy 5%, while consolidated net success-based capital intensity continues to decline, ending the year at 34%. As expected, non-recurring revenue was lower in 2023 versus 2022 due to lower ETL fee activity primarily related to fewer lit and dark fiber disconnects from the Sprint T-Mobile merger, and to lower one-time equipment sales. We mentioned on our last earnings call that the exact timing of non-recurring revenue and related margins can be difficult to predict, and thus can fluctuate from quarter to quarter. As Kenny already discussed, given the low margin and tough-to-predict nature of one-time equipment sales, we have made the conscious decision not to actively pursue these types of sales going forward. Despite these one-time sales headwinds in the fourth quarter, our full-year 2023 adjusted EBITDA and AFFO were essentially in line with our prior guidance. As I will cover in more detail shortly, our 2024 outlook reflects the robust trends we continue to see in our recurring business, the planned exit from most one-time equipment sales, and the impact from the recently announced ABS bridge financing and asset sales. Finally, I'll end with additional commentary on our current balance sheet and capital structure. Please turn to slide 11, and I'll start with comments on the fourth quarter. We reported consolidated revenues of $286 million, consolidated adjusted EBITDA of $231 million, AFFO attributed to common shareholders of $92 million, and AFFO per diluted common share of $0.34. Net income attributable to common shareholders for the quarter was approximately $30 million or $0.13 per diluted share. At Uniti Leasing, we reported segment revenues of $215 million and adjusted EBITDA of $209 million, representing growth of approximately 3% for each in the fourth quarter of 2023, compared to the prior-year period. Accordingly, Uniti Leasing achieved an adjusted EBITDA margin of 97% for the quarter. Turning to slide 12, our growth capital investment program continues to provide positive results for Uniti. Over the past nine years, our tenant has invested over $1 billion of tenant capital improvements in our network. Uniti continues to invest its own capital in long-term value-accretive fiber, largely focused on highly valuable last-mile fiber. Collectively, these investments have resulted in 25,500 route miles of newly constructed fiber, and over 24% of the legacy copper network being overbuilt with fiber. Based on the investments made to date and our expectation that Windstream will utilize most, if not all, of the GCI program, we expect that nearly half of the legacy copper network will be overbuilt with fiber by 2030. During the fourth quarter, Uniti Leasing deployed approximately $23 million towards growth capital investment initiatives, with the majority of the investments relating to the Windstream GCI program. As expected, Windstream did reach the 2023 GCI funding limit of $250 million in October of last year. As of December 31, Uniti has invested approximately $794 million of capital to date under the GCI program with Windstream, adding around 19,500 routes miles and 1.1 million strand miles of fiber to our network. These investments will be added to the master leases at an 8% initial yield at the one-year anniversary of Uniti making such investment. They are subject to a 0.5% annual escalator and result in nearly 100% margin. The investments we have made to date will ultimately generate approximately $64 million of annualized cash rent and increase the overall value of our network. For full-year 2023, we turned over 728 lit backhaul, dark fiber, and small cell sites for our wireless carriers across the Southeast footprint at Uniti Fiber. These installs add annualized revenues of approximately $7.4 million. We currently have 725 lit backhaul, dark fiber, and small cell sites remaining in our backlog that we expect to deploy over the next few years. This wireless backlog represents an incremental $6 million of annualized revenues. At Uniti Fiber, we reported revenues of $71 million and adjusted EBITDA of $27 million during the fourth quarter, achieving margins of 38%. Revenue and adjusted EBITDA during the quarter were lower than expected due to the timing of one-time equipment sales. Slide 13 provides a detailed reconciliation of our 2023 prior outlook to 2023 actual results. This reconciliation illustrates the impact of one-time equipment sales on our 2023 and highlights the fact that our core recurring business performed in line with our expectations. Uniti Fiber net success-based CapEx was $21 million in the fourth quarter. We also incurred about $2 million of maintenance CapEx during the quarter. Please turn to slide 14, and I'll now cover our 2024 guidance. Our 2024 outlook includes the estimated impact from the recent ABS bridge financing, the planned exit of most one-time equipment sales, the recently completed asset sales, and the upcoming maturity of our 4% exchangeable notes due June 2024. Our outlook excludes future acquisitions, capital market transactions, and future transaction related and other costs not specifically mentioned herein. Actual results could differ materially from these forward-looking statements. Our full-year outlook for 2024 includes the following for each segment. Beginning with Uniti leasing, we expect revenues and adjusted EBITDA to be $874 million and $847 million respectively at the midpoint, representing adjusted EBITDA margins of approximately 97%. As a result of the recent asset sales, we will no longer recognize revenue and adjusted EBITDA in 2024 related to the CableSouth sale leaseback and our investment interest in Bluebird. Excluding the impact of these transactions, revenue and adjusted EBITDA would each have been expected to grow 3% from the prior year. Revenue and adjusted EBITDA each include $55 million of cash rent associated with the GIC investments and $16 million relating to the straight-line rent associated with Windstream master leases and GIC investments. We expect to deploy $260 million of success-based CapEx at the midpoint of our guidance, of which $230 million relates to Windstream GIC investments that will mostly be weighted in the first half of 2024 versus the second half. Turning to slide 15, we expect Uniti Fiber to contribute $290 million of revenues and adjusted EBITDA of $150 million at the midpoint for full-year 2024, representing an EBITDA margin of approximately 40%. Core recurring revenue is expected to grow approximately 4% from the prior year. However, non-recurring revenue is expected to be significantly lower in 2024 when compared to the prior year due to exit of most one-time equipment sales and substantially lower ETL fee revenue as a result of working through essentially all of the Sprint-related churn in 2023. Net success-based CapEx for Uniti Fiber this year is expected to be $105 million at the midpoint of our guidance. An 11% decrease from levels in 2023, and represents capital intensity of 36%, down from 40% in 2023. Turning to slide 16, for 2024 we expect full-year AFFO to range between $1.38 and $1.45 per diluted common share with a midpoint of $1.41 per diluted share. On a consolidated basis, we expect revenues to be $1.2 billion, and adjusted EBITDA to be $940 million at the midpoint. Our guidance contemplates consolidated interest expense for the full-year of approximately $500 million. Corporate SG&A, excluding amounts allocated to our business segments, is expected to be approximately $30 million, including $8 million of stock-based compensation expense. We expect our weighted average diluted common shares outstanding for full-year 2024 to be around 284 million shares compared to 290 million shares in 2023, reflecting the diluted share impact related to the upcoming maturity of our existing exchangeable notes due in June of this year. As a reminder, guidance ranges for key components of our outlook are included in the appendix to our presentation. On slide 17, we have provided a tabular reconciliation of our full-year 2023 results to our 2024 outlook that summarizes the organic contribution from our core operations, the impact from the exit of most equipment sales, lower Sprint churn ETL fees, the recent asset sales, and refinancing activities. Turning now to our capital structure, we recently announced that Uniti entered into an asset-backed bridge loan and security agreement for up to $350 million of borrowings pursuant to a multi-draw term loan facility through an indirect bankruptcy remote subsidiary of the company. Borrowings under the facility will bear an initial interest rate equal to the Term SOFR rate for the applicable interest period plus an applicable margin of 3.75% and may include customary step-ups in the applicable margin based on how long the facility remains outstanding. The facility will mature 18 months from the initial draw date and is subject to customary covenants. The ABS bridge facility represents an important step for Uniti as it provides a path to opening up access to a new source of funding with incremental leverage capacity and an attractive cost of capital. We intend to refinance the current facility in full with proceeds from a long-term ABS facility secured primarily by certain Uniti fiber network assets. At year-end, we had approximately $354 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity. Our leverage ratio at year-end stood at 6.03 times based on net debt to last quarter's annualized adjusted EBITDA. On February 22, our board declared a dividend of $0.15 per share to stockholders of record on March 28, payable April 12. With that, I'll now turn the call back over to Kenny.

Kenny Gunderman, CEO

Thanks, Paul. Before closing, I'd like to make a few comments on M&A. Please keep in mind that we will not be making any specific comments on rumored potential strategic transactions involving Uniti that have been circulating in recent press reports. As an asset-rich company with one of the largest fiber portfolios in the country, Uniti is uniquely positioned to benefit from M&A trends that continue to highlight the value of quality fiber assets, including wholesale and fiber-to-the-home. Over the past five years, Uniti has sold or monetized nearly a billion dollars of assets at premium multiples, and we expect to continue that disciplined, ongoing review of our current asset portfolio. In addition, given our balance sheet and liquidity runway, we expect to be active this year evaluating transformative transactions including the ongoing review of our current asset portfolio. Despite that, however, our primary focus, as always, will be execution of disciplined growth of our core business operations. With that, Operator, we're now ready to take questions.

Operator, Operator

Thank you. Our first question comes from Greg Williams from TD Cowen.

Greg Williams, Analyst

Great. Thanks for taking my questions. The first one is on the demand you are seeing in Gen AI. You seemed somewhat bullish, but we just came back from MetroConnect this week and you were there, and it seems like a lot of the fiber folks we talked to are seeing unprecedented demand, really bullish. And your comments seem a little more gated or measured on the excitement. Maybe you can help us contextualize what you're seeing versus what I've been hearing from other fiber providers, and how you're seeing it playing out. And then, just the second question is on the lighter bookings in the fourth quarter. You mentioned that wholesale could be lumpy. Is that the case here? And anything to call out would be great? Thanks.

Kenny Gunderman, CEO

Hey, Greg. Those two questions are not unrelated. On the first point about generative AI and demand we're seeing from the hyperscalers, it's hard to not sound hysterical when expressing how excited we are about it. So, if our comments and the prepared remarks seem muted, that was probably intentional because the demand that we're seeing today, both today and in the future, is tremendous. I saw a presentation a couple of weeks ago from one of our important vendors that showed a 3.5 times increase in demand in the next few years. They were speaking in terms of zettabytes, which is, I think, two functions removed from the terabyte. That increase in demand was almost predominantly related to generative AI. And so, I think the demand is huge, we're in the midst of it now, really the early innings of it, especially for Uniti because we're still putting in place MLAs with a lot of the important hyperscalers. But we're starting to see that demand. And I think it's not just demand on existing networks where these providers are looking to acquire conduits, they're looking to acquire strands, they're looking to acquire waves. They're also interested in building a lot of new infrastructure, particularly long-haul routes connecting new data centers. And that's exciting on multiple levels because I think, as we all know, there's a power issue related to a lot of these new data centers. So, a lot of these guys are looking in tier 2 and tier 3 markets where the grids are not nearly as strained as they might be in tier 1 markets. And so, that's a nice opportunity for us there. But also, the hyperscalers are a different kind of anchor customer than the wireless carriers, for example. They are not pricing every deal to perfection, if you will. And so there's a collaborative approach to building the new infrastructure, which is good for all parties. It's not nearly as reliant upon a lease-up model, if you will, as some of the wireless deals. And so, there's a lot of excitement there when we're looking at building new infrastructure with the hyperscalers as an anchor. So, when you tie that to our funnel for the year, yes, bookings look low in the fourth quarter, and they are just empirically relative to some of the previous quarters. But I can tell you, our funnel for the year is very robust. We don't give guidance on bookings, but we're showing a nice uptick in growth for bookings for the year. When you look at our wholesale-heavy model, yes, there's a handful of deals that are always much bigger and can move the needle. When you look at some of the hyperscaler deals that we have in the funnel, there are three deals alone that represent close to 25% of our total bookings that could be near-term deals. They could move the needle in a big way. So, I'm not at all concerned about the lower bookings number in the fourth quarter, given the demand that we've got staring us in the face, looking into 2024. And a lot of that is coming from the hyperscalers.

Greg Williams, Analyst

Got it. If I may follow up, you mentioned that you're not pricing to perfection. And I guess we're also hearing that some of these hyperscale providers are providing a very large majority of the upfront costs to help build. I'm just curious what you meant by the pricing, and if you can talk about that upfront costs or pricing structure? Thanks.

Kenny Gunderman, CEO

Yes, I think you made a valid point, Greg. That's generally accurate. We have discussed in the past about the wireless carriers, and when we refer to anchored customers, we aim for an initial yield of 5% to 10%. However, exceeding that range depends on our lease-up model, which we have been implementing. With hyperscalers as our anchored customers, the pricing is not necessarily perfect within that 5% to 10% yield; instead, it's much more about collaboration in sharing the initial build costs. In some instances, the hyperscalers are willing to cover a significant portion of those initial expenses, which makes the economics quite appealing. However, at the same time, they are also taking a large share of the capacity for those initial routes. While it's not entirely without trade-offs, the economic factors are favorable. I believe there will be considerable new infrastructure required by these carriers. As a scaled fiber provider like Uniti, with a national presence, I think we are well-positioned to be a key provider for the hyperscalers moving forward.

Frank Louthan, Analyst

Great. Thank you. And Kenny, just a follow-up on that, when we look at these hyperscale deals, how should we think about them ramping and hitting their full top-line potential relative to traditional carriers that are generally a little bit slower? And then, secondly, talk to us about the asset sales. How competitive were those? Did you have a lot of interest? I would assume maybe the towers do, but just curious on what the market is for that? Thanks.

Kenny Gunderman, CEO

Hey, Frank. I think for the hyperscalers, they have very different models than the wireless carriers. I shouldn't comment on their models. I'll let them do that. But at least for us, when we look at the ramp and demand from them relative to the carriers, I think you'll see both a top line ramp and a profitability ramp, and a capital intensity decline. If you're comparing us, the hyperscalers and an anchor customer relative to the wireless carrier, I think you're going to see less CapEx on a net basis. You're going to see the same kind of mid-single-digit growth, but I think more profitable deals out of the gate, so those deals are less reliant upon lease up as I said earlier. It's a tremendous amount of demand potential. Again for Uniti, it's well for all carriers in order to do business with any large customer including the hyperscalers, you've got to get MLAs in place which takes anywhere from six to 12 months. We're still in the early stages of getting that done. Despite that, we're still seeing a huge demand potential. I think once we get all those agreements in place with the right carriers or the right hyperscalers, we're going to see even more demand in the coming quarters and years. I don't think this is a one year or two year phenomenon. It's something that will be sustained for the foreseeable future. With respect to the asset sales, as you know, Frank, we've been selling towers now for some time. We sold the bulk of our towers a couple of years ago, actually three years ago. That was a very competitive process. I think we still have the distinction of having sold our towers at the highest multiple in the U.S. for a tower business. We were very happy about that. The remaining towers that we've sold were less competitive, just substantially fewer towers and very little revenue and EBITDA associated with them, frankly. So, it was more of a bespoke transaction, and the same for the sale leasebacks that we sold. There's really a large infrastructure fund that owns the two loans either owns all or a portion of the two OpCos that were the acquirers of those sale leasebacks. So, it was a package deal with that large infrastructure fund, and it worked out great for both them and us. We think we got a good value, and we think they also got a good value. So, more of a bespoke deal speaks to just us having good relationships with the infrastructure investor space as we've had for many years and we were able to put together a nice bespoke transaction that worked for both parties.

Michael Rollins, Analyst

Thanks, and good morning. Just wanted to follow up on some of your comments on the strategic front. On one of your first few slides, you described a disciplined approach. Can you define that for investors in terms of how Uniti thinks about discipline in terms of the types of transactions or transformative actions that can be interesting for Uniti? I noticed that you may have pulled the slide on valuation that you used to include in the earnings deck. I'm just curious if there's an evolution in how you're viewing the value of the Uniti franchise as you're thinking about transformative transactions? Thanks.

Kenny Gunderman, CEO

Hey, Michael. Regarding pulling slides, I'm not sure about that one. I'll have to defer that to our IR Group. So, I don't think that was really a conscious decision necessarily. More importantly to your first question, yes, we've always taken a disciplined approach to M&A, whether as a buyer or a seller. We've sold assets at premium multiples, whether it be towers, ground leases, or portions of our fiber business. I think on a go-forward basis that will continue to be our modus operandi if we do sell additional assets. When we've been an acquirer, we've also been disciplined on acquisitions. We've paid generally speaking, multiples for fiber businesses that were lower than the market at the time. If you look at our portfolio, we're very happy with how all of those transactions have performed on a consolidated basis for us with the benefit of hindsight. So, using that as data to demonstrate our ability to be disciplined, when you look at transformative type transactions, the closest thing to a transformative transaction that we've done is when we re-cut our MLAs with Windstream during the bankruptcy. We said at the time that transaction was a good mutually beneficial transaction and was also a very strategic transaction and the strategic merits of it would probably be revealed over time as opposed to at that point in time. Again, with the benefit of hindsight, we think that has proven to be true too. We think it's been a good transaction for both companies. Without talking specifically about specific opportunities or deals, I think you're going to see us continue to be disciplined. We believe in mutually beneficial transactions with potential partners. That will continue to guide us going forward.

David Barden, Analyst

Hey, guys. Thanks so much for taking the question. Two, if I could. I guess the first question would be, Kenny, you kind of called out the equipment sales in 2024 being a big delta for 2023. Is that like a business strategy change or is that some sort of customer category that's changing? If you could elaborate a little bit on why we're assuming that all the equipment sales go away? And then, the second question is, I don't know really exactly how to ask it, but there's so much about this ABS thing that I just don't understand, that if you could really be as crystal clear as possible about why we have a bridge loan to an ABS deal, and then we've got an 18-month ABS deal and a longer-term ABS deal and what assets are behind it. I think that for the last couple of quarters, you've been peppered with questions about Frontier did this deal, it was Dallas, it was a ring fenced, it was an 8x multiple. It was very crystal clear what they were doing and what they got out of it. I think that you're trying to get to that place, but I just don't understand what's happened on the ABS deal thus far. Thank you.

Kenny Gunderman, CEO

Hi, David, I'll let Paul add some clarity to the ABS transaction. I think on your first question, a few years ago when we acquired one of the companies, it came with this business that was targeting one-time equipment sales. It was part of their business. That wasn't the reason we did the acquisition, but it was part of their business. Since then we just continued that line of business. It is something that adds a little bit of profitability each year, so we kept going with it. But at the end of last year, we decided to deemphasize it on a go-forward basis primarily because, as I said in my prepared remarks, it adds a little bit of profitability, but not enough profitability to outweigh the volatility we see from that business on a quarter-to-quarter basis. It really flies in the face of the predictability of our core recurring business. Removing that volatility and the de minimis profitability associated with it seems like the right decision, particularly as the ETL revenue from Sprint and T-Mobile is now in the rearview mirror. Those two things constituted the majority of any volatility in our earnings. On a go-forward basis, we expect there to be a lot less volatility and that will be good for underscores the recurring nature of our business. I think to be clear, however, that doesn't mean there will be no equipment sales. We do believe there will be a small amount, as we are going to continue to do it for our important customers. It'll just be a substantially lower number than what it has been in the past. So, yes, it's a strategic decision and the right decision for the business. Paul, do you want to comment on ABS?

Paul Bullington, CFO

Yes, happy to comment on ABS. David, certainly appreciate your question there. I think the ABS bridge is a little bit different. Uniti has broken some new ground with regard to this facility and some of the mechanics of how this is working. It's a little bit different for folks to digest, but it's pretty simple when you boil it all down. Uniti started looking at the ABS market about nine months to a year ago. It could be an attractive long-term addition to our capital structure, so access to different capital markets, access to investment-grade borrowings, additional leverage capacity, attractive cost of capital compared to some other markets. It could be a really good addition to our overall long-term capital structure going forward. One of the things with ABS is it takes a fair amount of effort and time to get that set up. You have to get all of the assets and customer contracts associated with the fiber network that you want to securitize into a bankruptcy-remote, special purpose vehicle company, and that just takes a fair amount of time. We spent some time with rating agencies, getting them familiar with our Uniti Fiber assets in particular and getting a confidence level that those assets and the cash flows from those assets would be well received by the ABS market. We got really good feedback from that, solidifying our viewpoint that we wanted to add ABS to our capital structure long-term. But when you looked at the time it was going to take to put in the traditional ABS, we thought it would probably take up to a year to do all the work to get there. Our immediate funding need for investing in the business, GCI and other things was really more shorter-term than that. We needed to do something sooner than 12 months to take care of our capital investments. Rather than going out and doing some other sort of raise and then an ABS year from now, this ABS bridge came up as a concept that was attractive for us. The ABS bridge is essentially a lightly securitized ABS facility with a few banks, looking at our confidence level in our plan to get to a full ABS and lending against the collateralized asset and our roadmap to get to a full ABS takeout. The ABS bridge is optimized for an ABS takeout. So, rather than doing a high yield add-on to one of our other bond issuances that would come with call protection and a make-whole provision, this ABS bridge is geared specifically to be taken out by an eventual ABS. It's really a path to get us from where we stand today to the full types of ABS as you're describing with some other players. A little different approach to get to the same end point.

David Barden, Analyst

Got it. So, it's like a temporary step toward achieving the final plan. Could you please repeat what the costs of this bridge are?

Paul Bullington, CFO

Yes, so it comes with a rate of SOFR plus 3.75%. That rate is a bit higher than what we would expect for a full ABS investment-grade transaction when we get to that point. But again, this is a bespoke instrument. Instead of putting in all the assets, we're putting in IRUs and eventually would move in fiber assets into this facility to do a full ABS takeout at some point. This is collateralized differently. We would expect the spreads on a full ABS deal to be slightly improved over this. But this facility is, like I said, SOFR plus 3.75%, and it has some step-ups at month 12 and I think 15 to incentivize the eventual takeout with a full ABS facility.

Simon Flannery, Analyst

Great, thank you. Good morning. Kenny, just coming back to the hyperscale comments, any differences in terms of the term of these leases versus the wireless deals, escalators, things like that? And to what extent have you put that into guidance given you have some stuff in the pipeline, or is that really more exiting this year and into 2025? I wonder, Paul, if you could just revisit your near-term and medium-term leverage targets and how you're thinking about the dividend. Again, you declared another $0.15, but what's the latest on that kind of pros and cons? Thank you.

Kenny Gunderman, CEO

Simon, I think on impact from hyperscalers in 2024, I would say it's still relatively muted versus what we think the opportunity could be because we're still in the ramp. I think it'll be an increasing percentage of our bookings this year versus last, and it has been growing. I think it'll continue to be a higher percentage this year than previously. But bookings, as you know, precede revenue. The revenue ramp, you'll start to really see it in 2025 and beyond. Eventually, I think the hyperscalers will be a bigger percentage of our business than the wireless carriers when we reach a steady state. That's how big the demand is. With respect to contracts, I wouldn't call out any material differences between the two other than what we've sort of touched on earlier, which is the hyperscalers tend to be willing to pay higher NRCs just to help fund initial builds. But again, it's relative, right? It depends on whether it's a lit deal versus a dark deal. It depends on whether it's a greenfield versus existing network. That's true of the wireless carriers as well. But in general, there's more of a willingness to help with higher NRCs at the outset. So, Paul, you want to talk about the balance sheet?

Paul Bullington, CFO

Yes, sure, Simon. In terms of leverage, our target leverage range is still what we've always communicated as 5.5 to 6 times is where we feel like we should be from a leverage standpoint. However, we have also said that there are times when we go above 6% for short periods of time, and we think the business can handle that. But our target is always to be in that 5.5 to 6x range. We ended 2024 right at that 6x leverage mark at 6.03. AFFO is slightly above that. One of the things I mentioned earlier is that we expect GCI investments to be heavily weighted in the first half, if not completely in the first half of 2024. There will be some incremental investments made in the first half over the second half. You could see our leverage tick up a bit in the first half, maybe to 6.15 to 6.25, and then you would see that come back down in the second half after those GCI commitments are completed, and our 2024 exchangeable notes mature and come off the balance sheet. Our effort would be to work that back down into our target range over the long term as some of those Windstream commitments from the settlement wind down into 2025 and 2026.

Kenny Gunderman, CEO

Yes, yes, Simon, on the dividend, the board continues to have confidence in our balance sheet, our liquidity, and importantly, in our outlook. We have a very predictable business. We have a very predictable step down in capital spending, as Paul mentioned, in the coming years. The dividend is as much about the future as it is about the here and now, and that confidence remains strong. They're going to evaluate it each quarter, and they're going to look at other equally attractive uses of capital, including investing in the business, M&A, and other things. But as we sit here today, I think the dividend just underscores the board's confidence in the future of the business. Thank you. We appreciate your interest in Uniti Group and look forward to updating you further on future calls. Thank you for joining us today.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.