Uniti Group Inc. (UNIT) Presents at Bank of America Merrill Lynch 2018 Leveraged Finance Conference (Transcript)

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About: Uniti Group Inc. (UNIT)
by: SA Transcripts

Uniti Group Inc. (NASDAQ:UNIT) Bank of America Merrill Lynch 2018 Leveraged Finance Conference December 4, 2018 8:50 AM ET

Executives

Mark Wallace - Chief Financial Officer

Lawrence Gleason - President of Uniti Towers

Bill DiTullio - Director of Finance and Investor Relations

Analysts

Ana Goshko - Bank of America Merrill Lynch

Ana Goshko

Thank you for joining us at the Bank of America Merrill Lynch Leveraged Finance Conference. I'm Ana Goshko. So I cover high-yield telecom and technology. And we’re thrilled to welcome again Uniti Group. So today we’ve got Mark Wallace, the company’s CFO; Lawrence Gleason, the President of Uniti Towers; and Bill DiTullio, who is Director of Finance and Investor Relations. So without further due, we’re going to do all Q&A session today. So Mark, I'm going to start with you welcome. Any kind of opening comments or will you …

Mark Wallace

Not really. Look, we -- this is one of my favorite conferences of the year. So I’m glad to be here again. I think we’ve been here every year since the -- we were spin-off of Windstream four years ago. So I'm glad to have my colleagues here Lawrence and Bill with me today. So happy to jump right into questions.

Question-and-Answer Session

Q - Ana Goshko

Okay, great. So I have a good amount of questions for that. And I’ll start off. Then I’m happy to open it up to the audience for Q&A as well. So let’s start on growth outlook, so particularly, obviously, organic growth. So for the non-leasing part of your business, so if you look into 2019 and beyond, what kind of organic revenue growth rate should we expect for the Fiber and for the Towers segments?

Mark Wallace

Yes. So I’ll start talking about the Uniti Fiber and let Lawrence time-in on the Towers. So Uniti Fiber, we continue to target 8% to 12% organic growth rate for next year and beyond. And we’re in the process of completing most of our large dark fiber and small cell projects over the next year or so. And on a fully deployed basis, those projects represent annual run rate revenue of about $20 million, and about $11 million of that will be incremental toward 2018 outlook. So in addition to finishing the initial anchor builds on these projects, we’ll begin to lease up those networks as well, not only with additional wireless opportunities, but with enterprise and wholesale. So with those things combined, that’s how we’ll kind of get to that 8% to 12% organic growth rate going forward. And Lawrence, if you want to talk about towers …

Lawrence Gleason

Yes. Towers, little bit different since we're such a young business. So instead of percentage growth, it’s more like talking about deploying capital. So this year, we’re going to be spending on CapEx side of new builds in the U.S., about $65 million. And we’re forecasting that we’re going to be building in terms of new towers, macro towers, about 200 to 300 new sites per year. So that’s going to be consistent for next year as well, so about $65 million to $80 million depending on the build cycle of those towers.

Ana Goshko

I should have some follow-ups on that.

Lawrence Gleason

Sure.

Ana Goshko

So that $65 million to $85 million -- so what dictates? Is that the budget constraint? I mean, is that demand-driven or is that device …

Lawrence Gleason

It is demand -- it’s demand-driven by our clients. We don’t go out from the towers side. We don’t go out and build speculative towers. It’s all driven by request from our clients. They want towers in a certain location, and then we go out and build them there. So we don’t just determine where there’re holes in the network in the build cycle of towers. It’s all -- we have anchor tenants that we build for.

Ana Goshko

Okay. And then, so that $65 million to $85 million of CapEx and then 200 to 300 of kind of power for year.

Lawrence Gleason

Completed tower, right.

Ana Goshko

Right. And you’re saying that’s for the next couple of years? So if you have [indiscernible] on that?

Lawrence Gleason

Yes, I mean, we have -- I mean, we have -- there is a very pretty long tail with new tower builds that we build in the U.S. So I mean, we’re working on towers now that will come online both next year and 2020. So we have a pretty healthy backlog right now that we can forecast out. But, also based upon the amount of awards we’re receiving now that we expect to receive next year, we’re looking at continuing that, build projections of 200 to 300 over the next five years.

Ana Goshko

And that’s demand-driven. I mean …

Lawrence Gleason

Yes.

Ana Goshko

Any chance that your clients would want you to accelerate those builds?

Lawrence Gleason

Yes. I mean, we would -- I mean, I think there’s an appetite on our end if there’s increased demand, which we’re always hoping for and we strive for that we could devote additional capital to the towers business.

Ana Goshko

So now getting back to the growth outlook so we addressed revenue, but what about the EBITDA margin outlook? So the fiber business, you got about 40-ish percent margins. Is that about the right level that we should expect? And then on the towers side, it just turned positive, so obviously towers could be very exciting margin business. But -- when is that really going to ramp?

Lawrence Gleason

That’s based on scale. I mean, right now, we’re going to be about EBITDA, probably neutral for this year. And then it’s the hockey stick. It goes up the more and more scale you get then the margin start to go up. I mean, on our anchor builds were at 40%, 50% EBITDA margin and then as the business matures we’re going to get up to tower peer groups of 60% plus EBITDA margins.

Ana Goshko

Okay. And that should be for linear trending up.

Lawrence Gleason

Yes, yes.

Ana Goshko

Okay. And on the fiber side?

Mark Wallace

Yes, so on Fiber, for fourth quarter '18, we expect EBITDA margins to be in the 40% range. And that excludes the hurricane impact. We’re still evaluating a lot of those costs. We believe a lot of the restoration work has been done, but we’re still dive-in those costs. And we’ll have an update on that on our next earnings call. So with 40% for fourth quarter '18, that translates to about 42% margin for full year 2018. Again, the margin was impacted this year by the deployment delays that we discussed in the last quarter’s call, customer service credits that were just one of our loyal customers, some of the higher than expected operational costs.

But again, as we continue to complete these large dark fiber builds, the incremental margins on these dark fiber small cell are in the 75% to 85% plus range. So that will help us get our higher margin as well. Also as we complete these projects, we’ll lease them up with additional wireless enterprise wholesale opportunities, which have just incrementally EBITDA margins in the 70% to 90% range. And then lastly, we’ll start to realize some of the costs and revenue synergies of some of the acquisitions that we previously done and those would start to flow through the P&L. So with all of those things combined, we would expect our EBITDA margin profile to improve going forward.

Ana Goshko

Maybe if we take a step back, and help us think on kind of the strategic picture for the fiber business. So Uniti continues to announce its stream of smaller acquisitions, and most recently in ITS, and two, TPx assets, CenturyLink assets, and this is after the larger acquisitions you had hunt in seven like 2017. So what is the strategy and what are you putting together here? Is there a general plan to build the cohesive fiber business focus on a geographic footprint? Or are you serving a specific customer base or what are you building here?

Lawrence Gleason

So our primary strategy at Uniti Fiber is to complete the dark fiber small cell builds that I -- we mentioned and discussed about within the next year or so. And then we’ll start to lease those up with additional opportunities as well. From M&A perspective, we're interested in acquiring dense -- fiber dense -- dense fiber metro networks that are complementary to our network, so either standard existing network or next to our network that we are today. So they could be in anyone of our regions, primarily probably retail business southeast region where we have most of our dense fiber. But again, it could be anyone of our regions. And in terms of the customers, we’re not looking to serve just one type of customers, we’re looking to serve multiple types of customers. I said wireless enterprise wholesale E-Rate. These are all opportunities that we’re focused on when looking at these incentives.

Mark Wallace

Yes let me add also when we talk about the fiber business, it’s really there’s Uniti Fiber, which is an operating company and then there’s also Uniti Leasing as well. Lot of the transactions that we have done this year had been in our Uniti Leasing division. And that’s really a proprietary business where -- for the most part of the business the lease type transactions were in the fiber network. So we’ve been -- so we acquired the fiber network and then lease it back to the counterparty or alternatively we will acquire from the third-party both fiber, premarket, get an anchored tenant on a transaction so the builds point we don't do speculated transactions, but we acquire fiber in bulk and then we -- with an anchored tenant we lease it up over time. And so that this is really more of a financing business, it’s not geographically constraint or not necessarily just the southeast region because it doesn’t have the -- it doesn't have as much of the benefits of call savings and revenue synergies and things, but it’s a business where there’s a lot of weigh to create value. So in many cases, we’ll have the initial yield on the lease, we’ll have a market rate escalator on the lease, in many cases with the counterparty we also have the right to fund any additional CapEx they are going to spend, so we can make additional investments in their business and they continue to grow and be successful. And in many cases -- and when we acquire the networks, there may be -- what we refer to is exclusive versus non-exclusive rights. So we may do a sale lease back on part of their network, but it gives them exclusive rights similar to what Windstream has. But at the same time we also may acquire part of their network -- maybe they’ve part of the network that’s not being utilized or maybe is adjacent to our southeast network. And so therefore, we can either -- we can acquire ourselves, mix it up. So in many cases, human leasing is a way to take a counterparty’s network, think about what’s the best -- how we can best jointly get the most value out of the network, and in some cases as we can get back to them, in some cases we would have joint marketing rights and help them mix up the Fiber, or in some cases, we can acquire part of it using in our own business. So I think that Uniti Leasing business -- it’s really, like I said it’s a proprietary business. I don't know if any other company is looking into sale leasebacks on fiber networks. And I think you’ll see us deploy more and more capital there overtime.

Ana Goshko

Okay. I think on the last call you said there were four OpCo/PropCo structures that you’re in the discussion with. Are these conversations still active?

Mark Wallace

It's still very active. And I still think, we definitely will execute some of those, I believe. And so, and I think those, again, in the OpCo/PropCo structures are both with financial and strategic counterparties. In many cases, again, those will be a -- those will be ones where one of our partners are part of the operations. We acquired the fiber network and then we lease the fiber network to them. And in many cases, the counterparties that are our partners are looking to do a rollup transaction where they’re looking to acquire other fiber operating companies. And so this is something where it’s going to be -- if it works up the way we think, it'll actually be repeatable or we can do the multiples of the transactions with the partners that we’ve developed. And so I think that will certainly expand -- it will certainly expand and grow our Uniti Leasing business overtime.

Ana Goshko

Are these new partners, as we don’t know about, that you haven’t announced yet or like when you reference financing partners?

Mark Wallace

Yes. So let’s say, infrastructure funds will be a good business.

Ana Goshko

Okay. So you still have at least four deals in the work?

Mark Wallace

Correct.

Ana Goshko

Right. Okay. I mean how far along are these, I mean, is this going to be like of 4Q results and …

Mark Wallace

Yes, yes, it's kind of -- I mean it's always hard to predict. And obviously, these are transactions where they have to be successful, they have to win the transactions towards execute on these. But we’ve got the structures worked out, we’ve got the counterparties, so it’s just -- I think it’s more of a question of time than they have.

Ana Goshko

Okay. By taking a step back to the fiber of business discussion, so on capital intensity, the discretionary CapEx to the fiber business remains high. I think it’s been over 50% of segment revenues, and sometimes more than segment EBITDA actually. So EBITDA let CapEx of that segment positive. So what is this being spent on? And whatever returns totals for the capital spending that you deploy?

Mark Wallace

Yes. So we expect for 2018 net success-based CapEx be on $132 million range, which gets back to almost 50% of revenue. So a lot of that CapEx today is being spent on these dark fiber projects. Most of the projects that we're talking about are going to ramp up by the end of next year and to 2020. But for 2019, we’re still working through our capital plan. But we expect -- our planning cycle, but we expect success-based CapEx to come in at $131 million to $140 million directionally, because again we will still be completing those projects.

So most of our capital spend today has been in Uniti Fiber. And we feel confident of that because we can underwrite those deals with anchor tenant, and then potentially lease up those anchor builds with higher incremental margins that I discussed about before. So on the initial to your question about what are the return profile outlook, on these initial anchor tenant deals we're targeting cash deals, I’d say 5% to 7% range. And then when you add on the additional lease-up not only wireless but most of the wholesale enterprise and E-Rate potential, that’s when you’re talking about incremental yields and start to push to double digits 10%, 15% plus.

Ana Goshko

And then on the towers side, I think, you gave us like you're going to deduct on tower strategy. You really talked about the organics plan. Is there any inorganic opportunities for you?

Mark Wallace

M&A?

Ana Goshko

Yes.

Mark Wallace

I mean right now the way we view M&A possibilities in the United States is the multiples and valuations right now, the portfolios were trading just for us doesn’t make sense. So until those multiples come down to a more rationale level what reduces rational levels, we’re staying away from we’re going to deploy our capital on the build side.

Ana Goshko

Okay. And then so, little more broadly, the company said its goal is just to diversify its revenue base so that more than 50% of the revenue is non-Windstream entities. What is the target timeframe to achieve this? And what is that's in for acquisition?

Lawrence Gleason

Yes. So what we’ve said is that the goal was to achieve that by mid 2019. And I think we should be on track to do that. We certainly have the acquisition pipeline in place. Our M&A pipeline is very strong, in fact, I’d say it’s good as it’s ever been. It’s pretty rich with a number of different sizes of transactions, those different good variety and different structures in it, large variety of different counterparties. So I think we're really happy with the M&A pipeline. So I think we are poised to execute well on transactions going forward. Obviously, our cost of capital has been challenged this year with the Windstream litigation kind of overhanging on our cost of capital. But hopefully, we’ll get a favorable ruling in that sometime soon, hopefully, in the -- not too distant future. And I think that will improve our cost of capital that allows us to execute on some things that we haven’t done so yet this year.

Ana Goshko

Okay. Yes, I think -- and you just are reiterated, but the company has said that they’ve been less aggressive with the acquisitions and you otherwise would have been because the currency, your acquisition currency, debt and equity has been depressed extensively because of this overhang with the Windstream ruling. Can you give us a sense of what kind of opportunities are in the funnel and on hold, pending the Windstream ruling?

Lawrence Gleason

Sure. So there’re going to be -- within the M&A pipeline, it’s going to be primarily, it’s going to be mostly Fiber related acquisitions, and it’s going to be acquisitions that either fit into the criteria that we’ve laid out for Uniti Fiber, leading Southeast region, to increase the density of our southeast and adjacent markets, and then -- or it will be transactions so that would go into Uniti Leasing, primarily, and that’s going to be primarily sale-leaseback transactions, OpCo-PropCo structures or both Fiber purchases that would be premarket with an anchor tenant. So that’s going to be 90% of the pipeline. And as I've said that the pipeline is really strong. One of the things we’ve done, even though we’ve done smaller transactions this year given what our cost of capital is and kind of waiting for litigation to be resolved, we’ve also tried to put in place a lot of elements that will allow us to execute more aggressively on the pipeline and that includes everything from getting our PLR in place that we’re very certain as to what TRS versus QRS qualifying. When we look at larger transactions it’s also net that we’ve done a lot of outreach as I’ve talked on earnings call with private capital sources that would be willing to partner with us on more transformative larger transactions, if we’re able to execute on some of those. And so we’ve done -- and then we’ve looked at a variety of differences, structural elements to leasing transactions and others as well. So I think we try to put a lot of the pieces in place so that once our cost of capital improves after the Windstream ruling, that we’ll be able to execute on the M&A pipeline that we’ve somewhat delayed this year.

Ana Goshko

Okay. And then what about deal size, I mean, is it fair to say that the pipeline -- the things that are on hold or bigger because of the lack of the …

Lawrence Gleason

I think, that’s right, that things that have been on hold, again, we’ve executed more on the smaller transactions. So a lot of them have been $100 million or less. So but -- so, yes, I think, so, some of the larger transactions to say things that are in the $200 million plus, even some of the transactions we’re working on, and mentioned that we’ve transformative transactions in the pipeline as well that can get us to our 50% goal, in a single transaction. So we’re at 64% now, so we need to get to 50%. But we do that transaction that could move the needle that much in a single transaction.

Ana Goshko

And then so, obviously, it’s a big consolidation story here. How has integration been? I mean, are there -- are the smaller companies that you keep rolling in seems like exponentially the integration issues grow? I mean who’s in-charge of that? And like …

Lawrence Gleason

Everybody has a little bit of the piece of the integration on Uniti Fiber, but I’d say Mike Friloux who is the former CEO with PEG has probably spearheaded that as much as anybody. But obviously, Andy Newton who runs Uniti Fiber is involved and Ron Mudry, our Chief Revenue Officer, has a role to play as well as likely at Uniti Fiber. So but it’s going -- I’d say it’s going well. I mean there’s, obviously, tough decisions that you have to make, when you’re doing an integration everything from personnel issues to salesforce organization, to allowing commission plans against the number of different companies. And then there’s always a lot of difficult kind of back office work that has to be done on data cleanup, the data definitions, migrating to new systems, things like that. In some cases, everybody competes or keeps different data, has different nomenclature. And so there’s a lot of work to that. A lot of the back office, I’d say one of the, most of the organizations salesforce integration operational things have been done already except for maybe some on net, off net synergies that we still have to realize. A lot of the back office work we’re still doing. We’re actually converting to a new ERP platform currently and that will probably take us another six to nine months.

Ana Goshko

With some of the leverage and dividend and topics, so Uniti is get to run rate cash EBITDA currently, I think, about 6.5 to 6.3 net, which is high for a telecom operator. However, when you look at it from a debt to unleveraged free cash flow basis, EBITDA less CapEx, Uniti's leveraged metrics actually compare more favorably than some of the telco peers. Because I think, the key point is that for your leasing revenue and EBITDA, there's no CapEx requirement. So in particular with the triple net lease of Windstream, so how do you think about the right leverage for the company given that leveraged metric is arguably inflated when you compare it to peers?

Lawrence Gleason

Yes. So I would say, I think on -- if you look at net debt to EBITDA, we're at about 6x. So -- and we’ve been there for a while. I think that’s about the right leverage level for us in the -- I’d say near to medium term. And the way, I think about it is, if you look at triple net lease peers, that’s about comparable, if you look at some of the tower companies, some of them are lower, at least one of them is higher. But if look at the peer group, I think, we’re at right where we should be on that basis. More importantly, I’d say, I think about leverage relative to the quality of the revenue streams and the quality of the assets that we’re acquiring. So one of the things that we’ve always tried to mention is, as we’ve done acquisitions, we’ve tried to make sure that the credit quality of the tenants, because a lot of these are the revenues under contract, a lot of that is for large scale dark fiber projects with the wireless carriers. And so what we’ve always tried to say is we’re trying to acquire high quality assets and we’re trying to acquire tenants that have -- that are high quality tenants, meaning that they’re going to have a higher credit rating than, certainly Windstream does, being a lower noninvestment grade credit.

So we’re trying to increase the blended credit quality of the tenant base on the revenue stream. So I try to think about leverage order to both quality of the assets and also the quality of the tenets that support our ability to service debt. And I think as we’ve done acquisitions, as we’ve entered into dark fiber small cell agreements, we’ve tried to always improve the blended credit quality of the revenue streams.

Ana Goshko

Last quarter you issued $55 million of equity to reduce borrowings under revolver. So what is your willingness to use equity to fund CapEx and/or to delever? And in particularly, I know you’ve said you’ve been reluctant to issue equities with the ongoing Windstream litigation. So can we expect more aggressive equity issuance if Windstream receives a favorable ruling?

Lawrence Gleason

Yes. So we’ll use equity primarily for the reasons that we’ve always said and that is one to manage our leverage ratios within the targets that we’ve established; two is to fund M&A. And even when we issued equity off of the ATM program previously, that equity went to paydown the revolver, but the revolver had been used previously to fund some of these smaller acquisitions that we’ve done. We’ve put about $200 million of M&A on the revolver this past year. And so it really went to fund M&A as well, just a sequencing, timing difference. And then we would also use -- we’ll also go to the capital market, obviously, to fund CapEx projects as we need to do that. I think we’re going to -- we’ll go to the capital markets both on the debt and equity basis periodically to fund primarily organic growth and then also M&A growth as well.

Ana Goshko

Okay. And then how do you think about the right dividends coverage, especially given the discretionary capital spending in Fiber business, and then in Tower business right now it's pretty high?

Lawrence Gleason

Sure. Yes, so if you look at it -- the traditional REIT metrics so to say, AFFO coverage ratio would be one of the traditional REIT metrics. So we’ve always been little bit over 90 -- kind of between 90%, 94%. And I think overtime, we certainly want the payout ratio to improve, so come down overtime. And I think it will, and I think will on leverage -- on a levered cash flow basis as well. But I think, in order to do that, I think, we’ve got a couple of things. We need to consistently have the organic growth, we need to consistently have the margin expansion in the Uniti Fiber business as Bill mentioned. More importantly, also I think growing the Uniti Leasing business is very important. The Uniti Leasing business, as I indicated earlier, it’s a -- most of the yields that we’ve been able to achieve on the leasing transactions that we’ve done so far, they’re around 9%. On the leasing transactions, there’s no working capital required, there’s no CapEx required, so they’re really 99% EBITDA margin business in that. So the more capital we can deploy there, the more is going to improve our coverage ratio. And I do believe we’re going to deploy more capital in the Uniti Leasing business as well. So we want it to improve over time. And I think -- and so I think of those elements will help as well as execute on our M&A pipeline as well.

Ana Goshko

Now the AFFO metric doesn’t count the discretionary FX in there. So really is it a free cash flow like coverage? Like what’s -- what is the coverage metric that you think is the best to monitor?

Lawrence Gleason

I’d say the AFFO would be the best one.

Ana Goshko

So just moving to credit rating. So sorry, this maybe a pain point, but unfortunately, Union unsecured ratings are currently pretty low. So I just to get the audience on the same page, there’s CAA3, Triple C minus. And as the rating agencies have said that they view your ratings as tethered to Windstream and really think -- like they knock you every time they sit, they knock Windstream. So what could you -- are you focused on improving your credit ratings? Hopefully, the answer is yes, and you talked about getting to that over 50% revenue diversification, but what did the ratings agencies -- what have they told you that they need to see to sort of un-tethered you and to get that rating moving backup?

Mark Wallace

Let me start with you're exactly correct that many times I get a phone call saying that -- from the rating agency saying that we’re going to lower your credit rating and it’s only -- it’s not even that you did it solely because we’ve lowered the Windstream and you’re still tethered to Windstream. So what we need to do is to look, I mean, there’s couple of things. There’s things that we can control. We need to continue to execute on our plan to increase our diversification. And we mentioned revenue is a diversification element because it’s an easy metric, it’s not influenced by, it’s an easy metric to point to because the rating agencies that point to that as one of the metrics that they follow since our initial spin-off. But it’s also not impacted by deal structure, okay. And so, but we fully recognized that EBITDA is important as well as is free cash flow. And we’re level -- we were to leverage to Windstream and across all of those metrics. So what we can do to affect our own outcome is we can continue to execute on our M&A. We can continue to diversify to the 50% level and more overtime. And then the other thing that agency, obviously, want to see is they want to see Windstream to stabilize. And they’ve been very clear that currently that in the near-term, they want to see additional stability in Windstream's operating results. And so in that regard, I know Windstream speaking tomorrow at this conference, I think in the same room. But I think Windstream has been focused on the right things, and whether it’s cost reductions or network investments or asset liability management that they’ve done or even asset sales, I think, they’ve been focused on the right things. So I’m hoping that they can achieve that kind of in the near to medium terms. But what we can do is to continue to execute on the strategy that we’ve laid out.

Ana Goshko

So on this topic of Windstream, can you just update us on your relationship with Windstream? And are you in any conversations and opportunities to work together? Could Uniti be a potential buyer of some of the -- fiber Windstream is likely to monetize? I mean, let's just start there.

Mark Wallace

Sure. I mean we have in very good relationship with Windstream. And we like most landlords and tenants, have routine dialogues with them about different ways we can work together. In many cases, as we’ve said to the extent that they have assets that they want to sell, we’ll make, we’ll look at those like we would any other trend, any other fiber assets that might be in the marketplace, then we'll evaluate those against other opportunities that we have in our M&A pipeline as well.

We’ve also had been clear that we’ve talked to Windstream about how we can help them of markets with are unused fibers trends overtime as well. And so Ron Mudry, who’s our Chief Revenue Officer, is often in front of our wireless customers and windshield customers and others that may have a use for some of the unutilized fiber streams that Windstream leases from us. So to the extent that, he knows, he’s identified somebody that has an interest in some of the unutilized trends we’re happy to bring that to Windstream's attention.

Ana Goshko

So the Windstream assets really which were the predecessor of EarthLink assets, a lot of which are in for the Southeastern quadrant where you're active. They’ve been effectively in the market for about a year. So the fact that nothing has happened yet between Uniti and Windstream on those assets, had been we think that to me that your level of interest in those assets that’s pretty low?

Mark Wallace

Without -- we try to avoid commenting on any transactions that until when we have some sort of announce or sort of comment or when we have to announce. But look at me, I think there’s a lot of think, I mean, we’re obviously, pricing-sensitive buyers. I think they’re going to be a price-sensitive and sophisticated seller. So if there’s a transaction to do, we'd like to say we'll have a conversation with about it. But we have a -- we have an active pipeline already and we have to make sure that whatever we deploy our capital that’s the best deal that we’ve to do at the time.

Ana Goshko

So the master lease between Windstream and Uniti is a 15-year triple net master lease that actually has some escalators in it. I think you’ve said you wish escalators were higher, but they certainly wish definitely lower. Is there..?

Mark Wallace

As I said, a typical landlord-tenant relationship.

Ana Goshko

Is there any potential to restructure the terms of that lease, in particular to provide Windstream some relief on their fixed charge load?

Mark Wallace

I’d say that we’re always happy to try to work with Windstream on -- but it has to be something that -- it has to be things are economical for us. I mean if you’re -- so, look, I mean we’re always open to discussions about things. But in terms of if the -- and what we’ve said is that we’re not open to like a unilateral rent reduction. So, but if there’s something economical for us to do with the Windstream, we’re certainly going to do that. I’ve mentioned the marking lines, I’ve mentioned certainly looking at things that they may have. So previously, if you remember, shortly after the spinoff, we’ve got some towers from Windstream. So we’ll look at things within periodically, but nothing to really discuss right now.

Ana Goshko

So theoretically, potential win-win scenario, would that be swapping assets for a lease reduction. Is that something that you would consider?

Mark Wallace

I’d say it’s probably unlikely.

Ana Goshko

Unlikely. Okay. And then just the big bogeyman, obviously, it’s the Windstream default litigation. So I know -- I need to clear though, Windstream has been adamant and it expects a positive ruling -- but, and you’ve to sort of plan for downside. So in a downside scenario in which Windstream ended with an unfavorable court ruling and it was found to be in default in its debt, what would that means for Uniti and its ability to receive continued payments on the lease? I know you're going to ask this a lot, but I think investors just like to hear you to continue to answer this question.

Mark Wallace

We’ve always been very confident in the lease structure and that we’ll continue to see receive our lease payments. And it’s both for the structure of the lease, for legal reasons, little more importantly for commercial reasons. I think Windstream deliver services to their customers by running traffic over our network. And the way they do that is by complying with the terms of the lease, including the rate payments.

Ana Goshko

And it is like a few minutes left. Is there any -- one question from the audience. David?

Unidentified Analyst

I think one of the things that you guys have presented to the market is that you guys were kind of a unique structure PLR on this is OpCo/PropCo structure. Now that Zayo is trying to effectively replicate this structure by having their own enterprise OpCo and infrastructure PropCo. Do you feel that's potential competitive threat to some of the work you're going to do in acquisitions and sale leasebacks down the road?

Mark Wallace

Dave, I don’t think so. Actually, remember -- when we -- shortly after the spun-off they changed the tax laws. And what they’ve actually said was that you can really -- the C Corp couldn’t spin-off an entity then have it likely status for like, I believe it was 10 years. So that kind of made an impact to go for anybody to do a similar transaction like Windstream did. Now they’ve always -- you’ve always been able to have the C Corporation converter REIT, not the spin-off, the converter REIT. And so really, as I understand, what Zayo is doing, they’re spinning off their EnterpriseCo and then taking their readable assets leaving in InfraCo, and then they'll have that convert to a REIT. But keep in mind the difference between us and them is, and to my knowledge, they’re not involved in a sale-leaseback transaction. They’re not involved in sell leaseback or bulk fiber purchases with anchor tenants like they’re not really doing a business model like Uniti Leasing. And more importantly, we’re actually in different markets. So as you know, they primarily focus on the NFL cities, we're primarily in Tier 2 and Tier 3 markets for Uniti Fiber business. So we’re really in different markets. And don’t actually compete with Zayo and don't see them very much competitively in our markets.

Ana Goshko

Okay. So with that, I think we're out of time. So Mark, Lawrence and Bill, thank you so much for being with us.

Mark Wallace

Thank you.

Lawrence Gleason

Thank you.

Bill DiTullio

Thank you.