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UNIT Uniti

Filed: 5 Aug 21, 5:11pm

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______

Commission File Number: 001-36708

 

Uniti Group Inc.

(Exact name of registrant as specified in its charter)

 

Maryland

46-5230630

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

10802 Executive Center Drive

Benton Building Suite 300

Little Rock, Arkansas

72211

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (501) 850-0820

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

UNIT

The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No    

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes        No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

As of July 30, 2021, the registrant had 233,407,367 shares of common stock, $0.0001 par value per share, outstanding.

 

 


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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q includes forward-looking statements as defined under U.S. federal securities law. Forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements regarding: our expectations regarding the settlement we have entered into with Windstream Holdings, Inc. (together with Windstream Holdings II, LLC, its successor in interest, and subsidiaries, “Windstream”);  the future prospects and financial health of Windstream; our expectations about our ability to maintain our status as a real estate investment trust (a “REIT”); our expectations regarding the effect of the COVID-19 pandemic on our results of operations and financial condition, including the potential need to perform an interim goodwill analysis and report an impairment charge related thereto; our expectations regarding the effect of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), the Consolidated Appropriations Act of 2021 (the “2021 Appropriations Act”) and other tax related legislation on our tax position; our expectations regarding the future growth and demand of the telecommunication industry, future financing plans, business strategies, growth prospects, operating and financial performance, and our future liquidity needs and access to capital; our expectations regarding levels of capital expenditures; expectations regarding the deductibility of goodwill for tax purposes; our expectations regarding reclassification of accumulated other comprehensive income (loss) related to derivatives to interest expense; our expectations regarding the amortization of intangible assets; our expectations regarding remediation of the material weakness in our internal control over financial reporting as discussed in Part II, Item 9A of our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 5, 2021, as amended by Amendment No. 1 thereto filed on Form 10-K/A with the SEC on March 30, 2021 (the “Annual Report”); and our expectations regarding the payment of dividends.

 

Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “may,” “will,” “would,” “could,” “should,” “seek(s)” and similar expressions, or the negative of these terms, are intended to identify such forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecasted or expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to:

 

 

the future prospects of our largest customer, Windstream, following its emergence from bankruptcy;

 

adverse impacts of the COVID-19 pandemic on our employees, our business, the business of our customers and other business partners and the global financial markets;

 

the ability and willingness of our customers to meet and/or perform their obligations under any contractual arrangements entered into with us, including master lease arrangements; 

 

the ability of our customers to comply with laws, rules and regulations in the operation of the assets we lease to them; 

 

the ability and willingness of our customers to renew their leases with us upon their expiration, and the ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we replace an existing tenant; 

 

our ability to renew, extend or retain our contracts or to obtain new contracts with significant customers (including customers of the businesses that we acquire); 

 

the availability of and our ability to identify suitable acquisition opportunities and our ability to acquire and lease the respective properties on favorable terms or operate and integrate the acquired businesses; 

 

our ability to generate sufficient cash flows to service our outstanding indebtedness and fund our capital funding commitments; 

 

our ability to access debt and equity capital markets; 

 

the impact on our business or the business of our customers as a result of credit rating downgrades and fluctuating interest rates; 

 

adverse impacts of litigation or disputes involving us or our customers;

 

our ability to retain our key management personnel; 

 

our ability to maintain our status as a REIT;

 

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changes in the U.S. tax law and other federal, state or local laws, whether or not specific to REITs, including the impact of the 2017 U.S. tax reform legislation, the CARES Act, the Families First Coronavirus Response Act and the 2021 Appropriations Act;

 

covenants in our debt agreements that may limit our operational flexibility; 

 

the possibility that we may experience equipment failures, natural disasters, cyber attacks or terrorist attacks for which our insurance may not provide adequate coverage; 

 

the risk that we fail to fully realize the potential benefits of or have difficulty in integrating the companies we acquire; 

 

other risks inherent in the communications industry and in the ownership of communications distribution systems, including potential liability relating to environmental matters and illiquidity of real estate investments; and

 

additional factors discussed in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q and in Part I, Item 1A "Risk Factors" of our Annual Report, as well as those described from time to time in our future reports filed with the SEC.

Forward-looking statements speak only as of the date of this Quarterly Report. Except in the normal course of our public disclosure obligations, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.

 

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Uniti Group Inc.

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

5

 

Uniti Group Inc.

 

 

Condensed Consolidated Balance Sheets

5

 

Condensed Consolidated Statements of Income (Loss)

6

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

7

 

Condensed Consolidated Statements of Shareholders’ Deficit

8

 

Condensed Consolidated Statements of Cash Flows

10

 

Notes to Condensed Consolidated Financial Statements

11

 

1.Organization and Description of Business

11

 

2.Basis of Presentation and Summary of Significant Accounting Policies

11

 

3.Revenues

13

 

4.Leases

15

 

5.Assets Dispositions

19

 

6.Investments in Unconsolidated Entities

19

 

7.Fair Value of Financial Instruments

20

 

8.Property Plant and Equipment

22

 

9.Derivative Instruments and Hedging Activities

23

 

10.Goodwill and Intangible Assets

25

 

11.Notes and Other Debt

25

 

12.Earnings Per Share

29

 

13.Segment Information

30

 

14.Commitments and Contingencies

34

 

15.Accumulated Other Comprehensive (Loss) Income

36

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

 

1.Overview

37

 

2.Results of Operations

39

 

3.Non-GAAP Financial Measures

52

 

4.Liquidity and Capital Resources

55

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

59

Item 4.

Controls and Procedures

59

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

61

Item 1A.

Risk Factors

61

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

61

Item 3.

Defaults Upon Senior Securities

61

Item 4.

Mine Safety Disclosures

61

Item 5.

Other Information

61

Item 6.

Exhibits

61

 

 

 

Signatures

62

 

 

 

 

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Uniti Group Inc.

Condensed Consolidated Balance Sheets

(Thousands, except par value)

 

(Unaudited)

June 30, 2021

 

 

December 31, 2020

 

Assets:

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

$

3,400,755

 

 

$

3,273,353

 

Cash and cash equivalents

 

 

108,536

 

 

 

77,534

 

Accounts receivable, net

 

 

42,986

 

 

 

62,952

 

Goodwill

 

 

601,878

 

 

 

601,878

 

Intangible assets, net

 

 

379,524

 

 

 

390,725

 

Straight-line revenue receivable

 

 

26,278

 

 

 

13,107

 

Other assets, net

 

 

115,730

 

 

 

152,883

 

Investment in unconsolidated entities

 

 

65,038

 

 

 

66,043

 

Deferred income tax assets, net

 

 

4,649

 

 

 

-

 

Assets held for sale

 

 

-

 

 

 

93,343

 

Total Assets

 

$

4,745,374

 

 

$

4,731,818

 

Liabilities and Shareholders' Deficit:

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other liabilities, net

 

$

136,577

 

 

$

146,144

 

Settlement payable (Note 14)

 

 

378,718

 

 

 

418,840

 

Intangible liabilities, net

 

 

183,133

 

 

 

187,886

 

Accrued interest payable

 

 

105,922

 

 

 

95,338

 

Deferred revenue

 

 

1,122,445

 

 

 

995,123

 

Derivative liability, net

 

 

16,786

 

 

 

22,897

 

Dividends payable

 

 

36,326

 

 

 

36,725

 

Deferred income tax liabilities, net

 

 

-

 

 

 

10,540

 

Finance lease obligations

 

 

14,497

 

 

 

15,468

 

Contingent consideration

 

 

-

 

 

 

2,957

 

Notes and other debt, net

 

 

4,884,410

 

 

 

4,816,524

 

Liabilities held for sale

 

 

-

 

 

 

55,752

 

Total liabilities

 

 

6,878,814

 

 

 

6,804,194

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Deficit:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 50,000 shares authorized, 0 shares issued and outstanding

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value, 500,000 shares authorized, issued and outstanding: 231,805 shares at June 30, 2021 and 231,262 at December 31, 2020

 

 

23

 

 

 

23

 

Additional paid-in capital

 

 

1,153,707

 

 

 

1,209,141

 

Accumulated other comprehensive loss

 

 

(14,792

)

 

 

(20,367

)

Distributions in excess of accumulated earnings

 

 

(3,341,371

)

 

 

(3,330,455

)

Total Uniti shareholders' deficit

 

 

(2,202,433

)

 

 

(2,141,658

)

Noncontrolling interests:

 

 

 

 

 

 

 

 

Operating partnership units

 

 

68,868

 

 

 

69,157

 

Cumulative non-voting convertible preferred stock, $0.01 par value, 3 shares authorized, 1 issued and outstanding

 

 

125

 

 

 

125

 

Total shareholders' deficit

 

 

(2,133,440

)

 

 

(2,072,376

)

Total Liabilities and Shareholders' Deficit

 

$

4,745,374

 

 

$

4,731,818

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Uniti Group Inc.

Condensed Consolidated Statements of Income (Loss)

(unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Thousands, except per share data)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

$

196,057

 

 

$

185,320

 

 

$

390,993

 

 

$

369,672

 

Fiber Infrastructure

 

 

72,123

 

 

 

79,140

 

 

 

149,773

 

 

 

156,547

 

Tower

 

 

-

 

 

 

2,392

 

 

 

-

 

 

 

6,112

 

Consumer CLEC

 

 

-

 

 

 

(32

)

 

 

-

 

 

 

651

 

Total revenues

 

 

268,180

 

 

 

266,820

 

 

 

540,766

 

 

 

532,982

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

106,388

 

 

 

107,243

 

 

 

246,969

 

 

 

285,636

 

Depreciation and amortization

 

 

69,671

 

 

 

84,969

 

 

 

140,635

 

 

 

171,090

 

General and administrative expense

 

 

24,900

 

 

 

27,894

 

 

 

50,723

 

 

 

55,027

 

Operating expense (exclusive of depreciation and amortization)

 

 

33,185

 

 

 

40,167

 

 

 

71,269

 

 

 

80,477

 

Settlement expense

 

 

-

 

 

 

650,000

 

 

 

-

 

 

 

650,000

 

Transaction related and other costs

 

 

424

 

 

 

18,556

 

 

 

4,561

 

 

 

34,528

 

Gain on sale of real estate

 

 

(442

)

 

 

(63,818

)

 

 

(442

)

 

 

(63,818

)

Gain on sale of operations (Note 5)

 

 

(28,143

)

 

 

-

 

 

 

(28,143

)

 

 

-

 

Other expense, net

 

 

8,021

 

 

 

6,013

 

 

 

8,475

 

 

 

9,088

 

      Total costs and expenses

 

 

214,004

 

 

 

871,024

 

 

 

494,047

 

 

 

1,222,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and equity in earnings from unconsolidated entities

 

 

54,176

 

 

 

(604,204

)

 

 

46,719

 

 

 

(689,046

)

Income tax expense (benefit)

 

 

5,084

 

 

 

(5,875

)

 

 

2,527

 

 

 

(10,451

)

Equity in (earnings) from unconsolidated entities

 

 

(547

)

 

 

-

 

 

 

(945

)

 

 

-

 

Net income (loss)

 

 

49,639

 

 

 

(598,329

)

 

 

45,137

 

 

 

(678,595

)

Net income (loss) attributable to noncontrolling interests

 

 

732

 

 

 

(10,585

)

 

 

668

 

 

 

(11,998

)

Net income (loss) attributable to shareholders

 

 

48,907

 

 

 

(587,744

)

 

 

44,469

 

 

 

(666,597

)

Participating securities' share in earnings

 

 

(333

)

 

 

(424

)

 

 

(581

)

 

 

(624

)

Dividends declared on convertible preferred stock

 

 

(2

)

 

 

(1

)

 

 

(5

)

 

 

(4

)

Net income (loss) attributable to common shareholders

 

$

48,572

 

 

$

(588,169

)

 

$

43,883

 

 

$

(667,225

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.21

 

 

$

(3.06

)

 

$

0.19

 

 

$

(3.47

)

Diluted

 

$

0.20

 

 

$

(3.06

)

 

$

0.19

 

 

$

(3.47

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

231,801

 

 

 

192,479

 

 

 

231,636

 

 

 

192,358

 

Diluted

 

 

262,268

 

 

 

192,479

 

 

 

231,862

 

 

 

192,358

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

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Uniti Group Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (loss)

 

$

49,639

 

 

$

(598,329

)

 

$

45,137

 

 

$

(678,595

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on derivative contracts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,036

)

Interest rate swap termination

 

 

2,829

 

 

 

2,830

 

 

 

5,658

 

 

 

4,496

 

Other comprehensive income (loss):

 

 

2,829

 

 

 

2,830

 

 

 

5,658

 

 

 

(2,540

)

Comprehensive income (loss)

 

 

52,468

 

 

 

(595,499

)

 

 

50,795

 

 

 

(681,135

)

Comprehensive income (loss) attributable to noncontrolling interest

 

 

773

 

 

 

(10,535

)

 

 

751

 

 

 

(12,043

)

Comprehensive income (loss) attributable to common shareholders

 

$

51,695

 

 

$

(584,964

)

 

$

50,044

 

 

$

(669,092

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.


 

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Uniti Group Inc.

Condensed Consolidated Statements of Shareholders’ Deficit

(unaudited)

 

 

 

For the Three Months Ended June 30,

 

(Thousands, except share data)

 

Preferred Stock

 

 

Common Stock

 

 

Additional Paid-in Capital

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Distributions in Excess of Accumulated Earnings

 

 

Noncontrolling Interest - OP Units

 

 

Noncontrolling Interest - Non-voting Preferred Shares

 

 

Total Shareholders' Deficit

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020

 

 

-

 

 

$

-

 

 

 

192,281,092

 

 

$

19

 

 

$

954,223

 

 

$

(28,717

)

 

$

(2,602,777

)

 

$

81,676

 

 

$

125

 

 

$

(1,595,451

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(587,744

)

 

 

(10,585

)

 

 

-

 

 

 

(598,329

)

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,780

 

 

 

-

 

 

 

50

 

 

 

-

 

 

 

2,830

 

Common stock dividends declared ($0.15 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(29,102

)

 

 

-

 

 

 

-

 

 

 

(29,102

)

Distributions to noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(519

)

 

 

-

 

 

 

(519

)

Payments related to tax withholding for stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(677

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(677

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

241,991

 

 

 

-

 

 

 

4,110

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,110

 

Balance at June 30, 2020

 

 

-

 

 

$

-

 

 

 

192,523,083

 

 

$

19

 

 

$

957,656

 

 

$

(25,937

)

 

$

(3,219,623

)

 

$

70,622

 

 

$

125

 

 

$

(2,217,138

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

 

-

 

 

$

-

 

 

 

231,694,203

 

 

$

23

 

 

$

1,150,550

 

 

$

(17,580

)

 

$

(3,355,423

)

 

$

68,615

 

 

$

125

 

 

$

(2,153,690

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,907

 

 

 

732

 

 

 

-

 

 

 

49,639

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,788

 

 

 

-

 

 

 

41

 

 

 

-

 

 

 

2,829

 

Common stock dividends declared ($0.15 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(34,855

)

 

 

-

 

 

 

-

 

 

 

(34,855

)

Distributions to noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(520

)

 

 

-

 

 

 

(520

)

Payments related to tax withholding for stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(336

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(336

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

110,718

 

 

 

-

 

 

 

3,462

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,462

 

Issuance of common stock - employee stock purchase plan

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

31

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

31

 

Balance at June 30, 2021

 

 

-

 

 

 

-

 

 

 

231,804,921

 

 

 

23

 

 

 

1,153,707

 

 

 

(14,792

)

 

 

(3,341,371

)

 

 

68,868

 

 

 

125

 

 

 

(2,133,440

)

 

 

8


Table of Contents

 

 

 

 

For the Six Months Ended June 30,

 

(Thousands, except share data)

 

Preferred Stock

 

 

Common Stock

 

 

Additional Paid-in Capital

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Distributions in Excess of Accumulated Earnings

 

 

Noncontrolling Interest - OP Units

 

 

Noncontrolling Interest - Non-voting Preferred Shares

 

 

Total Shareholders' Deficit

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

-

 

 

$

-

 

 

 

192,141,634

 

 

$

19

 

 

$

951,295

 

 

$

(23,442

)

 

$

(2,494,740

)

 

$

83,704

 

 

$

-

 

 

$

(1,483,164

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(666,597

)

 

 

(11,998

)

 

 

-

 

 

 

(678,595

)

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,495

)

 

 

-

 

 

 

(45

)

 

 

-

 

 

 

(2,540

)

Common stock dividends declared ($0.15 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(58,286

)

 

 

-

 

 

 

-

 

 

 

(58,286

)

Distributions to noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,039

)

 

 

-

 

 

 

(1,039

)

Cumulative non-voting convertible preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

125

 

 

 

125

 

Payments related to tax withholding for stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,050

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,050

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

337,600

 

 

 

-

 

 

 

7,105

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,105

 

Issuance of common stock - employee stock purchase plan

 

 

-

 

 

 

-

 

 

 

43,849

 

 

 

-

 

 

 

306

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

306

 

Balance at June 30, 2020

 

 

-

 

 

 

-

 

 

 

192,523,083

 

 

 

19

 

 

 

957,656

 

 

 

(25,937

)

 

 

(3,219,623

)

 

 

70,622

 

 

 

125

 

 

$

(2,217,138

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

-

 

 

$

-

 

 

 

231,261,958

 

 

$

23

 

 

$

1,209,141

 

 

$

(20,367

)

 

$

(3,330,455

)

 

$

69,157

 

 

$

125

 

 

$

(2,072,376

)

Cumulative effect adjustment for adoption of new accounting standard

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(59,908

)

 

 

-

 

 

 

14,598

 

 

 

-

 

 

 

-

 

 

 

(45,310

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

44,469

 

 

 

668

 

 

 

-

 

 

 

45,137

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,575

 

 

 

-

 

 

 

83

 

 

 

-

 

 

 

5,658

 

Common stock dividends declared ($0.15 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(69,983

)

 

 

-

 

 

 

-

 

 

 

(69,983

)

Distributions to noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,040

)

 

 

-

 

 

 

(1,040

)

Payments related to tax withholding for stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,642

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,642

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

507,199

 

 

 

-

 

 

 

6,797

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,797

 

Issuance of common stock - employee stock purchase plan

 

 

-

 

 

 

-

 

 

 

35,764

 

 

 

-

 

 

 

319

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

319

 

Balance at June 30, 2021

 

 

-

 

 

$

-

 

 

 

231,804,921

 

 

$

23

 

 

$

1,153,707

 

 

$

(14,792

)

 

$

(3,341,371

)

 

$

68,868

 

 

$

125

 

 

$

(2,133,440

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

9


Table of Contents

 

 

 

Uniti Group Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Six Months Ended June 30,

 

(Thousands)

 

2021

 

 

2020

 

Cash flow from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

45,137

 

 

$

(678,595

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

140,635

 

 

 

171,090

 

Amortization of deferred financing costs and debt discount

 

 

9,371

 

 

 

18,666

 

Loss on debt extinguishment

 

 

43,369

 

 

 

73,952

 

Interest rate swap termination

 

 

5,658

 

 

 

4,496

 

Deferred income taxes

 

 

605

 

 

 

(11,209

)

Equity in earnings of unconsolidated entities

 

 

(945

)

 

 

-

 

Distributions of cumulative earnings from unconsolidated entities

 

 

1,950

 

 

 

-

 

Cash paid for interest rate swap settlement

 

 

(6,110

)

 

 

(2,251

)

Straight-line revenues

 

 

(14,215

)

 

 

711

 

Stock-based compensation

 

 

6,797

 

 

 

7,105

 

Change in fair value of contingent consideration

 

 

21

 

 

 

6,140

 

Gain on sale of real estate

 

 

(442

)

 

 

(63,818

)

Gain on sale of operations

 

 

(28,143

)

 

 

-

 

(Gain) loss on asset disposals

 

 

(218

)

 

 

672

 

Accretion of settlement obligation

 

 

8,889

 

 

 

-

 

Other

 

 

143

 

 

 

(195

)

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

19,965

 

 

 

6,263

 

Other assets

 

 

39,019

 

 

 

(8,285

)

Accounts payable, accrued expenses and other liabilities

 

 

46,991

 

 

 

51,539

 

Settlement payable (Note 15)

 

 

-

 

 

 

650,000

 

Net cash provided by operating activities

 

 

318,477

 

 

 

226,281

 

Cash flow from investing activities

 

 

 

 

 

 

 

 

Other capital expenditures

 

 

(177,934

)

 

 

(134,035

)

Proceeds from sale of real estate, net of cash

 

 

1,034

 

 

 

225,149

 

Proceeds from sale of operations (Note 5)

 

 

62,113

 

 

 

-

 

Proceeds from sale of other equipment

 

 

399

 

 

 

-

 

Net cash (used in) provided by investing activities

 

 

(114,388

)

 

 

91,114

 

Cash flow from financing activities

 

 

 

 

 

 

 

 

Repayment of debt

 

 

(1,660,000

)

 

 

(2,044,728

)

Proceeds from issuance of notes

 

 

1,680,000

 

 

 

2,250,000

 

Dividends paid

 

 

(70,386

)

 

 

(71,645

)

Payment of settlement obligation

 

 

(49,011

)

 

 

-

 

Payments of contingent consideration

 

 

(2,979

)

 

 

(7,086

)

Distributions paid to noncontrolling interest

 

 

(1,039

)

 

 

(1,282

)

Borrowings under revolving credit facility

 

 

205,000

 

 

 

10,000

 

Payments under revolving credit facility

 

 

(220,000

)

 

 

(456,700

)

Finance lease payments

 

 

(1,393

)

 

 

(1,979

)

Payments for financing costs

 

 

(25,156

)

 

 

(47,775

)

Costs related to the early repayment of debt

 

 

(25,800

)

 

 

-

 

Employee stock purchase program

 

 

319

 

 

 

306

 

Payments related to tax withholding for stock-based compensation

 

 

(2,642

)

 

 

(1,050

)

Net cash used in financing activities

 

 

(173,087

)

 

 

(371,939

)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

31,002

 

 

 

(54,544

)

Cash and cash equivalents at beginning of period

 

 

77,534

 

 

 

142,813

 

Cash and cash equivalents at end of period

 

$

108,536

 

 

$

88,269

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment acquired but not yet paid

 

$

17,764

 

 

$

17,825

 

Tenant capital improvements

 

 

106,789

 

 

 

87,017

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

10


Table of Contents

 

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Note 1. Organization and Description of Business

Uniti Group Inc. (the “Company,” “Uniti,” “we,” “us,” or “our”) was incorporated in the state of Maryland on September 4, 2014. We are an independent internally managed real estate investment trust (“REIT”) engaged in the acquisition, construction and leasing of mission critical infrastructure in the communications industry. We are principally focused on acquiring and constructing fiber optic, copper and coaxial broadband networks and data centers. We have historically managed our operations in 4 separate lines of business: Uniti Fiber, Uniti Towers, Uniti Leasing, and the Consumer CLEC Business.  On June 1, 2020, the Company completed the sale of its Uniti Towers business, and as of the end of the second quarter of 2020, the Company had substantially completed the wind down of its Consumer CLEC business. As a result, effective January 1, 2021, we manage our operations focused on our 2 primary lines of business: Uniti Fiber and Uniti Leasing.

The Company operates through a customary “up-REIT” structure, pursuant to which we hold substantially all of our assets through a partnership, Uniti Group LP, a Delaware limited partnership (the “Operating Partnership”), that we control as general partner, with the only significant difference between the financial position and results of operations of the Operating Partnership and its subsidiaries compared to the consolidated financial position and consolidated results of operations of Uniti is that the results for the Operating Partnership and its subsidiaries do not include Uniti’s Consumer CLEC segment, which consists of Talk America Services (“Talk America”), which we substantially completed the wind down of the business as of the end of the second quarter of 2020. The up-REIT structure is intended to facilitate future acquisition opportunities by providing the Company with the ability to use common units of the Operating Partnership as a tax-efficient acquisition currency.  As of June 30, 2021, we are the sole general partner of the Operating Partnership and own approximately 98.5% of the partnership interests in the Operating Partnership.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying Condensed Consolidated Financial Statements include all accounts of the Company and its wholly-owned and/or controlled subsidiaries, including the Operating Partnership. Under the Accounting Standards Codification 810, Consolidation (“ASC 810”), the Operating Partnership is considered a variable interest entity and is consolidated in the Condensed Consolidated Financial Statements of Uniti Group Inc. because the Company is the primary beneficiary.  All material intercompany balances and transactions have been eliminated.

ASC 810 provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIEs.  Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and substantially all of the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest.  The Company consolidates VIEs in which it is considered to be the primary beneficiary.  The primary beneficiary is defined as the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE.

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. Operating results from any interim period are not necessarily indicative of the results that may be expected for the full fiscal year. The accompanying Condensed Consolidated Financial Statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K filed with the SEC on March 5, 2021, as amended by Amendment No. 1 thereto filed on Form 10-K/A with the SEC on March 30, 2021 (the “Annual Report”). Accordingly, significant accounting policies and other disclosures normally provided have been omitted from the accompanying Condensed Consolidated Financial Statements and related notes since such items are disclosed in our Annual Report.

 

11


Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

Concentration of Credit Risks—Prior to September 2020, we were party to a long-term exclusive triple-net lease (the “Master Lease”) with Windstream Holdings, Inc. (together with Windstream Holdings II, LLC, its successor in interest, and its subsidiaries, “Windstream”) pursuant to which a substantial portion of our real property was leased to Windstream and from which a substantial portion of our leasing revenues were derived. On September 18, 2020, Uniti and Windstream bifurcated the Master Lease and entered into two structurally similar master leases (collectively, the “Windstream Leases”), which amended and restated the Master Lease in its entirety.  Revenue under the Windstream Leases and the Master Lease provided 67.1% and 65.2% of our revenue for the six months ended June 30, 2021 and 2020, respectively.  Because a substantial portion of our revenue and cash flows are derived from lease payments by Windstream pursuant to the Windstream Leases, there could be a material adverse impact on our consolidated results of operations, liquidity, financial condition and/or ability to pay dividends and service debt if Windstream were to default under the Windstream Leases or otherwise experiences operating or liquidity difficulties and becomes unable to generate sufficient cash to make payments to us.

Prior to its emergence from bankruptcy on September 21, 2020, Windstream was a publicly traded company subject to the periodic filing requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Windstream’s historic filings through their quarter ended June 30, 2020 can be found at www.sec.gov. Additionally, the Windstream audited financial statements as of December 31, 2020 and for the period from September 22, 2020 to December 31, 2020 and as of December 31, 2019 and for the period from January 1, 2020 to September 21, 2020 and for each of the two years in the period ended December 31, 2019 are included as an exhibit to our Annual Report.  On September 22, 2020, Windstream filed a Form 15 to terminate all filing obligations under Sections 12(g) and 15(d) under the Exchange Act.  Windstream filings are not incorporated by reference in this Quarterly Report on Form 10-Q.

We monitor the credit quality of Windstream through numerous methods, including by (i) reviewing credit ratings of Windstream by nationally recognized credit agencies, (ii) reviewing the financial statements of Windstream that are required to be delivered to us pursuant to the Windstream Leases, (iii) monitoring news reports regarding Windstream and its business, (iv) conducting research to ascertain industry trends potentially affecting Windstream, (v) monitoring Windstream’s compliance with the terms of the Windstream Leases and (vi) monitoring the timeliness of its payments under the Windstream Leases.

As of the date of this Quarterly Report on Form 10-Q, Windstream is current on all lease payments.  We note that in August 2020, Moody’s Investor Service assigned a B3 corporate family rating with a stable outlook to Windstream in connection with its post-emergence exit financing.  At the same time, S&P Global Ratings assigned Windstream a B- issuer rating with a stable outlook.  In order to assist us in our continuing assessment of Windstream’s creditworthiness, we periodically receive certain confidential financial information and metrics from Windstream.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (“EPS”) for convertible instruments by using the if-converted method.

In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted. The Company elected to early adopt the guidance ASU 2020-06 as of January 1, 2021 using the modified retrospective transition method. Pursuant to the transition guidance, the Company is required to apply the guidance to all impacted financial instruments that were outstanding as of January 1, 2021 with the cumulative effect recognized as an adjustment to the opening balance of retained earnings.

 

12


Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

As a result of early adopting ASU 2020-06, the Company made certain adjustments to its accounting for the outstanding exchangeable senior unsecured notes. The adoption of ASU 2020-06 resulted in the re-combination of the liability and equity components of these notes into a single liability instrument. The carrying value as of December 31, 2020, totaled approximately $275.4 million and as a result of the adoption increased by $61.1 million to $336.5 million as of January 1, 2021. Because of this adoption, the effective interest rate on the exchangeable senior unsecured notes went from 11.1% to 4.8%. Additional paid-in-capital was reduced by $59.9 million and deferred tax liabilities were reduced by $15.8 million. Approximately $14.6 million of cumulative effect of adoption was recognized to the opening balance of retained earnings as of January 1, 2021.

Note 3. Revenues

The following is a description of principal activities, separated by reportable segments (see Note 13), from which the Company generates its revenues.

Leasing

Leasing revenue represents the results from our leasing program, Uniti Leasing, which is engaged in the acquisition of mission-critical communications assets and leasing them to anchor customers on either an exclusive or shared-tenant basis. See Note 4.

Fiber Infrastructure

The Fiber Infrastructure segment represents the operations of our fiber business, Uniti Fiber, which provides (i) consumer, enterprise, wholesale and backhaul lit fiber, (ii) E-rate, (iii) small cell, (iv) construction services, (v) dark fiber and (vi) other revenue generating activities.

 

i.

Consumer, enterprise, wholesale, and backhaul lit fiber fall under the guidance of Topic 606. Revenue is recognized over the life of the contracts in a pattern that reflects the satisfaction of Uniti’s stand-ready obligation to provide lit fiber services. The transaction price is equal to the monthly-recurring charge multiplied by the contract term, plus any non-recurring or variable charges. For each contract, the customer is invoiced monthly.

 

ii.

E-rate contracts involve providing lit fiber services to schools and libraries, and is governed by Topic 606. Revenue is recognized over the life of the contract in a pattern that reflects the satisfaction of Uniti’s stand-ready obligation to provide lit fiber services. The transaction price is equal to the monthly-recurring charge multiplied by the contract term, plus any non-recurring or variable charges. For each contract, the customer is invoiced monthly.

 

iii.

Small cell contracts provide improved network connection to areas that may not require or accommodate a tower. Small cell arrangements typically contain five streams of revenue: site development, radio frequency (“RF”) design, dark fiber lease, construction services, and maintenance services. Site development, RF design and construction are each separate services and are considered distinct performance obligations under Topic 606. Dark fiber and associated maintenance services constitute a lease, and as such, they are outside the scope of Topic 606 and are governed by other applicable guidance.

 

iv.

Construction revenue is generated from contracts to provide various construction services such as equipment installation or the laying of fiber.  Construction revenue is recognized over time as construction activities occur as we are either enhancing a customer’s owned asset or constructing an asset with no alternative use to us and we would be entitled to our costs plus a reasonable profit margin if the contract was terminated early by the customer.  We are utilizing our costs incurred as the measure of progress of satisfying our performance obligation.

 

v.

Dark fiber arrangements represent operating leases under ASC 842, Leases (“ASC 842”) and are outside the scope of Topic 606.  When (a) a customer makes an advance payment or (b) a customer is contractually obligated to pay any amounts in advance, which is not deemed a separate performance obligation, deferred leasing revenue is recorded. This leasing revenue is recognized ratably over the expected term of the contract, unless the pattern of service suggests otherwise.

 

vi.

The Company generates revenues from other services, such as consultation services and equipment sales.  Revenue from the sale of customer premise equipment and modems that are not provided as an essential part of the telecommunications services, including broadband, long distance, and enhanced services is recognized when products are delivered to and accepted by the customer. Revenue from customer premise equipment and modems provided as an essential part of the

 

13


Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

 

telecommunications services, including broadband, long distance, and enhanced services are recognized over time in a pattern that reflects the satisfaction of the service performance obligation.

Towers

The Towers segment represents the operations of our former towers business, Uniti Towers, through which we acquired and constructed tower and tower-related real estate, which we then leased to our customers in the United States and Latin America. Revenue from our towers business qualifies as a lease under ASC 842 and is outside the scope of Topic 606.  Starting in 2019, the Company completed a series of transactions to largely divest of its towers business and on April 2, 2019, May 23, 2019 and June 1, 2020, the Company completed the sales of its Latin American business, substantially all of its U.S. ground lease business, and its U.S. tower business, respectively.

Consumer CLEC

The Consumer CLEC segment represents the operations of Talk America through which we operated the Consumer CLEC Business, which provided local telephone, high-speed internet and long-distance services to customers in the eastern and central United States. Customers are billed monthly for services rendered based on actual usage or contracted amounts. The transaction price is equal to the monthly-recurring charge multiplied by the initial contract term (typically 12 months), plus any non-recurring or variable charges. As of the end of the second quarter of 2020, we substantially completed a wind down of our Consumer CLEC business.

Disaggregation of Revenue

The following table presents our revenues disaggregated by revenue stream.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue disaggregated by revenue stream

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from contracts with customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiber Infrastructure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lit backhaul

 

$

22,979

 

 

$

27,216

 

 

$

48,023

 

 

$

55,408

 

Enterprise and wholesale

 

 

21,327

 

 

 

19,628

 

 

 

42,327

 

 

 

38,886

 

E-Rate and government

 

 

15,926

 

 

 

21,821

 

 

 

35,290

 

 

 

42,758

 

Other

 

 

824

 

 

 

755

 

 

 

1,640

 

 

 

1,303

 

Fiber Infrastructure

 

$

61,056

 

 

$

69,420

 

 

$

127,280

 

 

$

138,355

 

Consumer CLEC

 

 

-

 

 

 

(32

)

 

 

-

 

 

 

651

 

Leasing

 

 

1,000

 

 

 

-

 

 

 

2,167

 

 

 

-

 

Total revenue from contracts with customers

 

 

62,056

 

 

 

69,388

 

 

 

129,447

 

 

 

139,006

 

Revenue accounted for under other applicable guidance

 

 

206,124

 

 

 

197,432

 

 

 

411,319

 

 

 

393,976

 

Total revenue

 

$

268,180

 

 

$

266,820

 

 

$

540,766

 

 

$

532,982

 

 

At June 30, 2021, and December 31, 2020, lease receivables were $15.1 million and $17.5 million, respectively, and receivables from contracts with customers were $22.7 million and $45.1 million, respectively.

Contract Assets (Unbilled Revenue) and Liabilities (Deferred Revenue)

Contract assets primarily consist of unbilled construction revenue where we are utilizing our costs incurred as the measure of progress of satisfying our performance obligation, contract assets are reported within accounts receivable, net on our Consolidated Balance Sheet.  When the contract price is invoiced, the related unbilled receivable is reclassified to trade accounts receivable, where the balance will be settled upon the collection of the invoiced amount.  Contract liabilities are generally comprised of upfront fees charged to the customer for the cost of establishing the necessary components of the Company’s network prior to the commencement of use by the customer. Fees charged to customers for the recurring use of the Company’s network are recognized during the related periods of service. Upfront fees that are billed in advance of providing services are deferred until such time the customer accepts the Company’s network and then are recognized as service revenues ratably over a period in which substantive services required under the revenue

 

14


Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

arrangement are expected to be performed, which is the initial term of the arrangement. During the three and six months ended June 30, 2021, we recognized revenues of $3.0 million and $8.1 million, respectively, which was included in the December 31, 2020 contract liabilities balance.

The following table provides information about contract assets and contract liabilities accounted for under Topic 606.

 

(Thousands)

 

Contract Assets

 

 

Contract Liabilities

 

Balance at December 31, 2020

 

$

3,462

 

 

$

18,601

 

Balance at June 30, 2021

 

$

1,624

 

 

$

13,970

 

 

Transaction Price Allocated to Remaining Performance Obligations

Performance obligations within contracts to stand ready to provide services are typically satisfied over time or as those services are provided. Contract liabilities primarily relate to deferred revenue from upfront customer payments.  The deferred revenue is recognized, and the liability reduced, over the contract term as the Company completes the performance obligation.  As of June 30, 2021, our future revenues (i.e., transaction price related to remaining performance obligations) under contract accounted for under Topic 606 totaled $418.7 million, of which $339.4 million is related to contracts that are currently being invoiced and have an average remaining contract term of 1.7 years, while $79.3 million represents our backlog for sales bookings which have yet to be installed and have an average remaining contract term of 6.2 years.

Practical Expedients and Exemptions

We do not disclose the value of unsatisfied performance obligations for contracts that have an original expected duration of one year or less.

We exclude from the transaction price any amounts collected from customers for sales taxes and therefore, such amounts are not included in revenue.

Note 4. Leases

Lessor Accounting

We lease communications towers, ground, colocation, and dark fiber to tenants under operating leases. Our leases have initial lease terms ranging from less than one year to 35 years, most of which include options to extend or renew the leases for less than one year to 20 years (based on the satisfaction of certain conditions as defined in the lease agreements), and some of which may include options to terminate the leases within one to six months. Certain lease agreements contain provisions for future rent increases. Payments due under the lease contracts include fixed payments plus, for some of our leases, variable payments.

The components of lease income for the three and six months ended June 30, 2021 and 2020, respectively, are as follows:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Lease income - operating leases

 

$

206,124

 

 

$

197,432

 

 

$

411,319

 

 

$

393,976

 

 

 

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Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

 

Lease payments to be received under non-cancellable operating leases where we are the lessor for the remainder of the lease terms as of June 30, 2021 are as follows:

 

(Thousands)

 

June 30, 2021 (1)

 

2021

 

$

368,041

 

2022

 

 

751,516

 

2023

 

 

755,574

 

2024

 

 

757,431

 

2025

 

 

759,168

 

Thereafter

 

 

3,734,183

 

Total lease receivables

 

$

7,125,913

 

(1) Total future minimum lease payments to be received include $6.1 billion relating to the Windstream Leases.

 

 

The underlying assets under operating leases where we are the lessor are summarized as follows:

 

(Thousands)

 

June 30, 2021

 

 

December 31, 2020

 

Land

 

$

26,596

 

 

$

26,596

 

Building and improvements

 

 

340,096

 

 

 

335,495

 

Poles

 

 

273,934

 

 

 

266,758

 

Fiber

 

 

3,147,976

 

 

 

2,994,465

 

Equipment

 

 

428

 

 

 

421

 

Copper

 

 

3,902,265

 

 

 

3,850,988

 

Conduit

 

 

89,960

 

 

 

89,773

 

Tower assets

 

 

1,397

 

 

 

1,397

 

Finance lease assets

 

 

28,126

 

 

 

32,660

 

Other assets

 

 

10,643

 

 

 

10,425

 

 

 

 

7,821,421

 

 

 

7,608,978

 

Less:  accumulated depreciation

 

 

(5,319,033

)

 

 

(5,222,731

)

Underlying assets under operating leases, net

 

$

2,502,388

 

 

$

2,386,247

 

 

Depreciation expense for the underlying assets under operating leases where we are the lessor for the three and six months ended June 30, 2021 and 2020, respectively, is summarized as follows:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Depreciation expense for underlying assets under operating leases

 

$

44,107

 

 

$

53,303

 

 

$

90,020

 

 

$

109,437

 

Lessee Accounting

We have commitments under operating leases for communications towers, ground, colocation, dark fiber lease arrangements, and buildings. We also have finance leases for dark fiber lease arrangements and other communications equipment. Our leases have initial lease terms ranging from less than one year to 30 years, most of which include options to extend or renew the leases for less than one year to 20 years, and some of which may include options to terminate the leases within one to six months. Certain lease agreements contain provisions for future rent increases. Payments due under the lease contracts include fixed payments plus, for some of our leases, variable payments.

As of June 30, 2021, we have short term lease commitments amounting to approximately $2.6 million.

The components of lease cost for the three and six months ended June 30, 2021 and 2020, respectively, are as follows:

 

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Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Finance lease cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of ROU assets

 

$

1,335

 

 

$

954

 

 

$

2,697

 

 

$

1,979

 

Interest on lease liabilities

 

 

717

 

 

 

969

 

 

 

1,627

 

 

 

1,957

 

     Total finance lease cost

 

 

2,052

 

 

 

1,923

 

 

 

4,324

 

 

 

3,936

 

Operating lease cost

 

 

3,102

 

 

 

6,421

 

 

 

8,215

 

 

 

13,959

 

Short-term lease cost

 

 

748

 

 

 

526

 

 

 

1,440

 

 

 

1,009

 

Variable lease cost

 

 

109

 

 

 

66

 

 

 

296

 

 

 

84

 

Less sublease income

 

 

(3,246

)

 

 

(3,076

)

 

 

(6,228

)

 

 

(6,770

)

Total lease cost

 

$

2,765

 

 

$

5,860

 

 

$

8,047

 

 

$

12,218

 

Amounts reported in the Condensed Consolidated Balance Sheets for leases where we are the lessee were as follows:

(Thousands)

 

Location on Condensed Consolidated Balance Sheets

 

June 30, 2021

 

 

December 31, 2020

 

Operating leases

 

 

 

 

 

 

 

 

 

 

ROU assets, net

 

Other assets, net

 

$

73,620

 

 

$

97,850

 

Lease liabilities

 

Accounts payable, accrued expenses and other liabilities, net

 

 

49,909

 

 

 

71,483

 

 

 

 

 

 

 

 

 

 

 

 

Finance leases

 

 

 

 

 

 

 

 

 

 

ROU asset, gross

 

Property, plant and equipment, net

 

$

71,444

 

 

$

128,098

 

Lease liabilities

 

Finance lease obligations

 

 

14,497

 

 

 

48,724

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average remaining lease term

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

 

8.8 years

 

 

12.2 years

 

Finance leases

 

 

 

13.3 years

 

 

13.3 years

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average discount rate

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

 

 

9.5

%

 

 

9.9

%

Finance leases

 

 

 

 

11.0

%

 

 

8.0

%

 

Other information related to leases as of June 30, 2021 and 2020, respectively, are as follows:

 

(Thousands)

 

2021

 

 

2020

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

 

Operating cash flows from finance leases

 

$

1,627

 

 

$

1,957

 

Operating cash flows from operating leases

 

 

10,381

 

 

 

14,470

 

Financing cash flows from finance leases

 

 

1,393

 

 

 

1,979

 

 

 

 

 

 

 

 

 

 

Non-cash items:

 

 

 

 

 

 

 

 

New operating leases and remeasurements, net

 

$

1,722

 

 

$

3,847

 

New finance leases

 

 

-

 

 

 

31

 

 

 

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Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

 

Future lease payments under non-cancellable leases as of June 30, 2021 are as follows:

 

(Thousands)

 

Operating Leases

 

 

Finance Leases

 

2021

 

$

7,446

 

 

$

1,164

 

2022

 

 

12,672

 

 

 

2,225

 

2023

 

 

10,484

 

 

 

2,174

 

2024

 

 

8,064

 

 

 

1,972

 

2025

 

 

5,439

 

 

 

1,911

 

Thereafter

 

 

31,892

 

 

 

15,440

 

Total undiscounted lease payments

 

$

75,997

 

 

$

24,886

 

Less:  imputed interest

 

 

(26,088

)

 

 

(10,389

)

Total lease liabilities

 

$

49,909

 

 

$

14,497

 

 

 

Future sublease rentals as of June 30, 2021 are as follows:

 

(Thousands)

 

Sublease Rentals

 

2021

 

$

4,458

 

2022

 

 

9,310

 

2023

 

 

9,377

 

2024

 

 

9,445

 

2025

 

 

9,513

 

Thereafter

 

 

136,177

 

Total

 

$

178,280

 

 

18


Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

 

 

Note 5. Asset Dispositions

2021 Transaction

Everstream OpCo-PropCo Transaction

On May 28, 2021, the Company completed its previously announced strategic transaction with Everstream Solutions LLC (“Everstream”).  As part of the transaction, Uniti entered into two 20-year dark fiber indefeasible rights of use (“IRU”) lease agreements with Everstream on Uniti owned fiber.  Concurrently, Uniti sold its Uniti Fiber Northeast operations and certain dark fiber IRU contracts acquired as part of the Windstream settlement to Everstream.  Total cash consideration, including upfront IRU payments, was approximately $135 million.  In addition to the upfront proceeds, Uniti will receive fees of approximately $3 million annually from Everstream over the initial 20-year term of the IRU lease agreements, subject to an annual escalator of 2%.  During the second quarter, we recorded a gain of $28.1 million related to this transaction, which is included in gain on sale of operations in our Condensed Consolidated Statements of Income (Loss).

 

(Thousands)

 

June 30, 2021

 

Assets and liabilities sold:

 

 

 

 

Assets:

 

 

 

 

Property, plant and equipment, net

 

$

44,685

 

Goodwill

 

 

17,794

 

Intangible assets, net

 

 

7,264

 

Right of use assets, net

 

 

19,841

 

Total assets

 

$

89,584

 

 

 

 

 

 

Liabilities:

 

 

 

 

Lease liabilities

 

$

18,779

 

Intangible liabilities, net

 

 

4,492

 

Finance lease obligations

 

 

32,343

 

Total liabilities

 

$

55,614

 

 

 

 

 

 

Cash consideration

 

$

62,113

 

Less: total assets and liabilities sold, net

 

 

(33,970

)

Gain on sale of operations

 

$

28,143

 

 

2020 Transaction

Sale of U.S. Tower Portfolio

On June 1, 2020, the Company completed the sale of its U.S. tower business to Melody Investment Advisors LP (“Melody”), selling net assets having a book value of $190.0 million for total cash consideration of $225.8 million.  The Company retained a 10% investment interest in the tower business, having a fair value of $26.0 million, through a newly formed limited partnership with Melody (see Note 6), and will receive incremental earn-out payments, estimated to be $1.6 million, which is included in other assets on the Condensed Consolidated Balance Sheet as of December 31, 2020.  During the quarter ended June 30, 2020, we recorded a gain of $63.4 million related to this transaction.

Note 6. Investments in Unconsolidated Entities

As of June 30, 2021, the Company had an aggregate investment of $65.0 million in its equity method unconsolidated entities, which included a 42% interest in BB Fiber Holdings LLC (“Fiber Holdings”) and an 8% interest in Harmoni Towers LP (“Harmoni”).

 

19


Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

Fiber Holdings

Fiber Holdings was primarily established to develop fiber networks as real estate property for long-term investment.  On July 1, 2020, the Company completed the sale of an ownership stake in the entity that controls the Company’s Midwest fiber network assets (the “Propco”).  Fiber Holdings has a 47.5% ownership in the Propco that is under a long-term, triple net lease with our joint venture partner.  Our ownership interest in Fiber Holdings represents approximately a 20% economic interest in the Propco.  The Company’s current investment and maximum exposure to loss as a result of its involvement with Fiber Holdings was approximately $40.5 million as of June 30, 2021. The Company has not provided financial support to Fiber Holdings.

Harmoni

Harmoni was primarily established to develop wireless communication towers as real estate property for long-term investment.  We concluded that Harmoni is a VIE; however, the Company determined that it was not the primary beneficiary of Harmoni because the Company lacks the power to direct the activities that most significantly impact its economic performance. The Company’s current investment and maximum exposure to loss as a result of its involvement with Harmoni was approximately $24.5 million as of June 30, 2021. The Company has not provided financial support to Harmoni.

We provide transition services to Harmoni in exchange for fees and reimbursements. Total transition service fees earned in connection with Harmoni for the three and six months ended June 30, 2021 were $0.1 million and $0.2 million, respectively, which is included in operating expense on a net basis in our Condensed Consolidated Statements of Income (Loss).

Note 7. Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurements, establishes a hierarchy of valuation techniques based on the observability of inputs utilized in measuring assets and liabilities at fair values. This hierarchy establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the assessment date;

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 – Unobservable inputs for the asset or liability.

Our financial instruments consist of cash and cash equivalents, accounts and other receivables, a derivative asset and liability, our outstanding notes and other debt, contingent consideration and accounts, interest and dividends payable.

The following table summarizes the fair value of our financial instruments at June 30, 2021 and December 31, 2020:

 

 

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Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

 

(Thousands)

 

Total

 

Quoted Prices in Active Markets

(Level 1)

 

Prices with Other Observable Inputs

(Level 2)

 

Prices with Unobservable Inputs (Level 3)

 

At June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured notes - 7.875%, due February 15, 2025

 

$

2,410,313

 

$

-

 

$

2,410,313

 

$

-

 

Senior secured notes - 4.75%, due April 15, 2028

 

 

569,288

 

 

-

 

 

569,288

 

 

-

 

Senior unsecured notes - 7.125%, due December 15, 2024

 

 

621,000

 

 

-

 

 

621,000

 

 

-

 

Senior unsecured notes - 6.50%, due February 15, 2029

 

 

1,115,550

 

 

-

 

 

1,115,550

 

 

-

 

Exchangeable senior notes - 4.00%, due June 15, 2024

 

 

399,769

 

 

-

 

 

399,769

 

 

-

 

Senior secured revolving credit facility, variable rate, due December 10, 2024

 

 

95,000

 

 

-

 

 

95,000

 

 

-

 

Settlement payable

 

 

378,718

 

 

-

 

 

378,718

 

 

-

 

Derivative liability, net

 

 

16,786

 

 

-

 

 

16,786

 

 

-

 

Total

 

$

5,606,424

 

$

-

 

$

5,606,424

 

$

-

 

 

(Thousands)

 

Total

 

Quoted Prices in Active Markets

(Level 1)

 

Prices with Other Observable Inputs

(Level 2)

 

Prices with Unobservable Inputs (Level 3)

 

At December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured notes - 6.00%, due April 15, 2023

 

$

561,000

 

$

-

 

$

561,000

 

$

-

 

Senior secured notes - 7.875%, due February 15, 2025

 

 

2,410,313

 

 

-

 

 

2,410,313

 

 

-

 

Senior unsecured notes - 8.25%, due October 15, 2023

 

 

1,112,775

 

 

-

 

 

1,112,775

 

 

-

 

Senior unsecured notes - 7.125%, due December 15, 2024

 

 

601,500

 

 

-

 

 

601,500

 

 

-

 

Exchangeable senior unsecured notes - 4.00%, due June 15, 2024

 

 

426,058

 

 

-

 

 

426,058

 

 

-

 

Senior secured revolving credit facility, variable rate, due April 24, 2022

 

 

110,000

 

 

-

 

 

110,000

 

 

-

 

Settlement payable

 

 

418,840

 

 

-

 

 

418,840

 

 

-

 

Derivative liability, net

 

 

22,897

 

 

-

 

 

22,897

 

 

-

 

Contingent consideration

 

 

2,957

 

 

-

 

 

-

 

 

2,957

 

Total

 

$

5,666,340

 

$

-

 

$

5,663,383

 

$

2,957

 

 

The carrying value of cash and cash equivalents, accounts and other receivables, and accounts, interest and dividends payable approximate fair values due to the short-term nature of these financial instruments.

The total principal balance of our outstanding notes and other debt was $4.97 billion at June 30, 2021, with a fair value of $5.21 billion. The estimated fair value of our outstanding notes and other debt was based on available external pricing data and current market rates for similar debt instruments, among other factors, which are classified as Level 2 inputs within the fair value hierarchy. Derivative assets and liabilities are carried at fair value. See Note 9. The fair value of an interest rate swap is determined based on the present value of expected future cash flows using observable, quoted LIBOR swap rates for the full term of the swap and also incorporate credit valuation adjustments to appropriately reflect both Uniti’s own non-performance risk and non-performance risk of the respective counterparties. The Company has determined that the majority of the inputs used to value its derivative assets and liabilities fall within Level 2 of the fair value hierarchy; however, the associated credit valuation adjustments utilized Level 3 inputs, such as estimates of credit spreads, to evaluate the likelihood of default by the Company and its counterparties. As of June 30, 2021, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall value of the derivatives. As such, the Company classifies its derivative assets and liabilities valuation in Level 2 of the fair value hierarchy.

Given the limited trade activity of the Exchangeable Notes, the fair value of the Exchangeable Notes (see Note 11) is determined based on inputs that are observable in the market and have been classified as Level 2 in the fair value hierarchy. Specifically, we

 

21


Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

estimated the fair value of the Exchangeable Notes based on readily available external pricing information, quoted market prices, and current market rates for similar convertible debt instruments.

Uniti is required to make $490.1 million of cash payments to Windstream in equal installments over 20 consecutive quarters beginning the first month after Windstream’s emergence (the “Settlement Payable”). See Note 14.  The Settlement Payable is recorded at fair value, using the present value of future cash flows. The future cash flows are discounted using discount rate input based on observable market data. Accordingly, we classify inputs used as Level 2 in the fair value hierarchy.  The remaining fair value of the Settlement Payable is $378.7 million and is reported on our Condensed Consolidated Balance Sheet at June 30, 2021. There have been no changes in the valuation methodologies used since the initial recording.

We acquired Tower Cloud, Inc. (“Tower Cloud”) on August 31, 2016.  As part of the Tower Cloud acquisition, we were obligated to pay contingent consideration upon achievement of certain defined operational and financial milestones from the date of acquisition through December 31, 2021. During the three months ended March 31, 2021, the Company paid $3.0 million for the achievement of the final remaining milestone in accordance with the Tower Cloud merger agreement.  During the six months ended June 30, 2020, we paid $7.1 million for the achievement of certain milestones in accordance with the Tower Cloud merger agreement.

Changes in the fair value of contingent consideration arrangements are recorded in our Condensed Consolidated Statements of Income (Loss) in the period in which the change occurs.  The final measurement of the contingent consideration was recorded during the three months ended March 31, 2021, resulting in an increase in the fair value of less than $0.1 million. For the three and six months ended June 30, 2020, there was a $4.6 million and $6.1 million, respectively, increase in the fair value of the contingent consideration that was recorded in other (income) expense on the Condensed Consolidated Statements of Income (Loss).

The following is a roll forward of our liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3):

 

(Thousands)

 

December 31, 2020

 

 

Transfers into Level 3

 

 

(Gain)/Loss included in earnings

 

 

Settlements

 

 

June 30, 2021

 

Contingent consideration

 

$

2,957

 

 

$

-

 

 

$

22

 

 

$

(2,979

)

 

$

-

 

 

Note 8. Property, Plant and Equipment

The carrying value of property, plant and equipment is as follows:

 

(Thousands)

 

Depreciable Lives

 

 

June 30, 2021

 

 

December 31, 2020

 

Land

 

Indefinite

 

 

$

27,936

 

 

$

27,945

 

Building and improvements

 

3 - 40 years

 

 

 

358,570

 

 

 

351,305

 

Poles

 

30 years

 

 

 

273,934

 

 

 

266,758

 

Fiber

 

30 years

 

 

 

3,875,028

 

 

 

3,737,372

 

Equipment

 

5 - 7 years

 

 

 

314,256

 

 

 

298,912

 

Copper

 

20 years

 

 

 

3,902,265

 

 

 

3,850,987

 

Conduit

 

30 years

 

 

 

89,960

 

 

 

89,773

 

Tower assets

 

20 years

 

 

 

8,544

 

 

 

8,571

 

Finance lease assets

 

 

(1

)

 

 

71,444

 

 

 

74,103

 

Other assets

 

15 - 20 years

 

 

 

10,644

 

 

 

10,553

 

Corporate assets

 

3 - 7 years

 

 

 

13,829

 

 

 

13,475

 

Construction in progress

 

 

(1

)

 

 

85,562

 

 

 

47,086

 

 

 

 

 

 

 

 

9,031,972

 

 

 

8,776,840

 

Less accumulated depreciation

 

 

 

 

 

 

(5,631,217

)

 

 

(5,503,487

)

Net property, plant and equipment

 

 

 

 

 

$

3,400,755

 

 

$

3,273,353

 

(1) See our Annual Report for property, plant and equipment accounting policies.

 

 

Depreciation expense for the three and six months ended June 30, 2021 was $64.9 million and $131.1 million, respectively. Depreciation expense for the three and six months ended June 30, 2020 was $77.2 million and $155.0 million, respectively.

 

22


Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

Note 9. Derivative Instruments and Hedging Activities

The Company uses derivative instruments to mitigate the effects of interest rate volatility inherent in our variable rate debt, which could unfavorably impact our future earnings and forecasted cash flows. The Company does not use derivative instruments for speculative or trading purposes.

On April 27, 2015, we entered into fixed for floating interest rate swap agreements to mitigate the interest rate risk inherent in our variable rate senior secured term loan B facility. These interest rate swaps were designated as cash flow hedges and have a notional value of $2.01 billion and mature on October 24, 2022.  As result of the repayment of the Company’s senior secured term loan B facility in February 2020, the Company entered into receive-fixed interest rate swaps to offset its existing pay-fixed interest rate swaps.  As a result, the Company discontinued hedge accounting as the hedge accounting requirements were no longer met.  Amounts in accumulated other comprehensive (loss) income as of the date of de-designation, will be reclassified to interest expense as the hedged transactions impact earnings.  Prospectively, changes in fair value of all interest rate swaps will be recorded directly to earnings.

The Company has elected to offset derivative positions that are subject to master netting arrangements with the same counterparty in our Condensed Consolidated Balance Sheets.  The following tables present the gross amounts of our derivative instruments subject to master netting arrangements with the same counterparty as of June 30, 2021 and December 31, 2020:

 

Offsetting of Derivative Assets and Liabilities (Thousands)

 

Gross Amounts of

Recognized Assets or

Liabilities

 

 

Gross Amounts Offset in

the Condensed

Consolidated Balance

Sheets

 

 

Net Amounts of Assets or

Liabilities presented in the

Condensed Consolidated

Balance Sheets

 

At June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

19,965

 

 

$

(19,965

)

 

$

-

 

Total

 

$

19,965

 

 

$

(19,965

)

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

36,751

 

 

$

(19,965

)

 

$

16,786

 

Total

 

$

36,751

 

 

$

(19,965

)

 

$

16,786

 

 

Offsetting of Derivative Assets and Liabilities (Thousands)

 

Gross Amounts of

Recognized Assets or

Liabilities

 

 

Gross Amounts Offset in

the Condensed

Consolidated Balance

Sheets

 

 

Net Amounts of Assets or

Liabilities presented in the

Condensed Consolidated

Balance Sheets

 

At December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

27,869

 

 

$

(27,869

)

 

$

-

 

Total

 

$

27,869

 

 

$

(27,869

)

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

50,766

 

 

$

(27,869

)

 

$

22,897

 

Total

 

$

50,766

 

 

$

(27,869

)

 

$

22,897

 

 

 

The following table summarizes the fair value and the presentation in our Condensed Consolidated Balance Sheets:

 

(Thousands)

 

Location on Condensed

Consolidated Balance

Sheets

 

June 30, 2021

 

 

December 31, 2020

 

Interest rate swaps

 

Derivative liability, net

 

$

16,786

 

 

$

22,897

 

 

 

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Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

 

As of June 30, 2021, all of the interest rate swaps were valued in net unrealized loss positions and recognized as liability balances within the derivative liability, net in our Condensed Consolidated Balance Sheets. As hedge accounting is no longer applied beginning in February 2020, the unrealized loss amounts are now being recorded directly to earnings. The amount reclassified out of other comprehensive income into interest expense on our Condensed Consolidated Statements of Loss for the three and six months ended June 30, 2021 was $2.8 million and $5.7 million, respectively. The amount reclassified out of other comprehensive income into interest expense on our Condensed Consolidated Statements of Loss for the three and six months ended June 30, 2020 was $2.8 million and $5.2 million, respectively.

During the next twelve months, beginning July 1, 2021, we estimate that $11.3 million will be reclassified as an increase to interest expense.

 

Exchangeable Notes Hedge Transactions

 

On June 25, 2019, concurrently with the pricing of the Exchangeable Notes (see Note 11), and on June 27, 2019, concurrently with the exercise by the initial purchasers involved in the offering of the Exchangeable Notes (the “Initial Purchasers”) of their option to purchase additional Exchangeable Notes, Uniti Fiber, the issuer of the Exchangeable Notes, entered into exchangeable note hedge transactions with respect to the Company’s common stock (the “Note Hedge Transactions”) with certain of the Initial Purchasers or their respective affiliates (collectively, the “Counterparties”). The Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Exchangeable Notes, the same number of shares of the Company’s common stock that initially underlie the Exchangeable Notes in the aggregate and are exercisable upon exchange of the Exchangeable Notes. The Note Hedge Transactions have an initial strike price that corresponds to the initial exchange price of the Exchangeable Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Exchangeable Notes. The Note Hedge Transactions will expire upon the maturity of the Exchangeable Notes, if not earlier exercised. The Note Hedge Transactions are intended to reduce potential dilution to the Company’s common stock upon any exchange of the Exchangeable Notes and/or offset any cash payments Uniti Fiber is required to make in excess of the principal amount of exchanged Exchangeable Notes, as the case may be, in the event that the market value per share of the Company’s common stock, as measured under the Note Hedge Transactions, at the time of exercise is greater than the strike price of the Note Hedge Transactions.

 

The Note Hedge Transactions are separate transactions, entered into by Uniti Fiber with the Counterparties, and are not part of the terms of the Exchangeable Notes. Holders of the Exchangeable Notes will not have any rights with respect to the Note Hedge Transactions. The Note Hedge Transactions meet certain accounting criteria under GAAP, are recorded in additional paid-in capital on our Condensed Consolidated Balance Sheets and are not accounted for as derivatives that are remeasured each reporting period.

 

Warrant Transactions

 

On June 25, 2019, concurrently with the pricing of the Exchangeable Notes, and on June 27, 2019 concurrently with the exercise by the Initial Purchasers of their option to purchase additional Exchangeable Notes, the Company entered into warrant transactions to sell to the Counterparties Warrants (the “Warrants”) to acquire, subject to anti-dilution adjustments, up to approximately 27.8 million shares of the Company’s common stock in the aggregate at an exercise price of approximately $16.42 per share. The maximum number of shares of the Company’s common stock that could be issued pursuant to the Warrants is approximately 55.5 million. The Company offered and sold the Warrants in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. If the market value per share of the Company’s common stock, as measured under the Warrants, at the time of exercise exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on the Company’s common stock unless, subject to the terms of the Warrants, the Company elects to cash settle the Warrants. The Warrants will expire over a period beginning in September 2024.

The Warrants are separate transactions, entered into by the Company with the Counterparties, and are not part of the terms of the Exchangeable Notes. Holders of the Exchangeable Notes will not have any rights with respect to the Warrants. The Warrants meet certain accounting criteria under GAAP, are recorded in additional paid-in capital on our Condensed Consolidated Balance Sheets and are not accounted for as derivatives that are remeasured each reporting period.  

 

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Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

Note 10. Goodwill and Intangible Assets and Liabilities

There were 0 changes in the carrying amount of goodwill occurring during the three and six months ended June 30, 2021. The balance of goodwill recorded in our Fiber Infrastructure segment as of June 30, 2021 and December 31, 2020 is as follows:

 

(Thousands)

 

Fiber Infrastructure

 

 

Total

 

Goodwill at December 31, 2020

 

$

601,878

 

 

$

601,878

 

Goodwill at June 30, 2021

 

 

601,878

 

 

 

601,878

 

 

(Thousands)

 

June 30, 2021

 

 

December 31, 2020

 

 

 

Original

Cost

 

 

Accumulated

Amortization

 

 

Original

Cost

 

 

Accumulated

Amortization

 

Finite life intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer lists

 

$

416,104

 

 

$

(94,426

)

 

$

416,104

 

 

$

(82,989

)

Contracts

 

 

52,536

 

 

 

(4,925

)

 

 

48,269

 

 

 

(1,068

)

Underlying Rights

 

 

10,497

 

 

 

(262

)

 

 

10,497

 

 

 

(87

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total intangible assets

 

$

479,137

 

 

 

 

 

 

$

474,870

 

 

 

 

 

Less: accumulated amortization

 

 

(99,613

)

 

 

 

 

 

 

(84,145

)

 

 

 

 

Total intangible assets, net

 

$

379,524

 

 

 

 

 

 

$

390,725

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finite life intangible liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Below-market leases

 

$

191,154

 

 

 

(8,021

)

 

$

190,086

 

 

 

(2,200

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finite life intangible liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Below-market leases

 

$

191,154

 

 

 

 

 

 

$

190,086

 

 

 

 

 

Less: accumulated amortization

 

 

(8,021

)

 

 

 

 

 

 

(2,200

)

 

 

 

 

Total intangible liabilities, net

 

$

183,133

 

 

 

 

 

 

$

187,886

 

 

 

 

 

 

As of June 30, 2021, the remaining weighted average amortization period of the Company’s intangible assets and liabilities was 15.3 years and 18.4 years, respectively. Amortization expense for the three and six months ended June 30, 2021 was $4.7 million and $9.5 million, respectively. Amortization expense for the three and six months ended June 30, 2020 was $7.8 million and $16.1 million, respectively.

Amortization expense is estimated to be $19.1 million for the full year of 2021, $19.1 million in 2022, $19.0 million in 2023, $19.0 million in 2024, and $19.0 million for 2025. 

Note 11. Notes and Other Debt

All debt, including the senior secured credit facility and notes described below, are obligations of the Operating Partnership and/or certain of its subsidiaries as discussed below.  The Company is, however, a guarantor of such debt.

Notes and other debt are as follows:

 

(Thousands)

 

June 30, 2021

 

 

December 31, 2020

 

Principal amount

 

$

4,970,000

 

 

$

4,965,000

 

Less unamortized discount, premium and debt issuance costs

 

 

(85,590

)

 

 

(148,476

)

Notes and other debt less unamortized discount, premium and debt issuance costs

 

$

4,884,410

 

 

$

4,816,524

 

 

25


Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

 

 

Notes and other debt at June 30, 2021 and December 31, 2020 consisted of the following:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

(Thousands)

 

Principal

 

 

Unamortized

Discount,

Premium and

Debt Issuance

Costs

 

 

Principal

 

 

Unamortized

Discount,

Premium and

Debt Issuance

Costs

 

Senior secured notes - 6.00%, due April 15, 2023

(discount is based on imputed interest rate of 6.49%)

 

$

-

 

 

$

-

 

 

$

550,000

 

 

$

(4,053

)

Senior secured notes - 7.875%, due February 15, 2025

(discount is based on imputed interest rate of 8.38%)

 

 

2,250,000

 

 

 

(35,730

)

 

 

2,250,000

 

 

 

(39,852

)

Senior secured notes - 4.75%, due April 15, 2028

(discount is based on imputed interest rate of 5.04%)

 

 

570,000

 

 

 

(9,479

)

 

 

-

 

 

 

-

 

Senior unsecured notes - 8.25%, due October 15, 2023

(discount is based on imputed interest rate of 9.06%)

 

 

-

 

 

 

-

 

 

 

1,110,000

 

 

 

(22,024

)

Senior unsecured notes - 4.00%, due June 15, 2024

(discount is based on imputed interest rate of 4.77%)

 

 

345,000

 

 

 

(7,359

)

 

 

345,000

 

 

 

(69,608

)

Senior unsecured notes - 7.125% due December 15, 2024

(discount is based on imputed interest rate of 7.38%)

 

 

600,000

 

 

 

(4,794

)

 

 

600,000

 

 

 

(5,316

)

Senior unsecured notes - 6.50%, due February 15, 2029

(discount is based on imputed interest rate of 6.83%)

 

 

1,110,000

 

 

 

(21,668

)

 

 

-

 

 

 

-

 

Senior secured revolving credit facility, variable rate, due December 10, 2024

 

 

95,000

 

 

 

(6,560

)

 

 

110,000

 

 

 

(7,623

)

Total

 

$

4,970,000

 

 

$

(85,590

)

 

$

4,965,000

 

 

$

(148,476

)

At June 30, 2021, notes and other debt included the following: (i) $95.0 million under the Revolving Credit Facility (as defined below) pursuant to the credit agreement by and among Uniti Group LP, Uniti Group Finance 2019 Inc. and CSL Capital, LLC (the “Borrowers”), the guarantors and lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent (the “Credit Agreement”); (ii) $2.25 billion aggregate principal amount of 7.875% senior secured notes due 2025 (the “2025 Secured Notes”); (iii) $570.0 million aggregate principal amount of 4.75% Senior Secured Notes due 2028 (the “2028 Secured Notes”); (iv) $600.0 million aggregate principal amount of 7.125% Senior Unsecured Notes due December 15, 2024 (the “2024 Notes”); (v) $1.11 billion aggregate principal amount of 6.50% Senior Notes due February 15, 2029 (the “2029 Notes”); and (vi) $345.0 million aggregate principal amount of 4.00% Exchangeable Senior Notes due June 15, 2024 (the “Exchangeable Notes” and, collectively with the 2025 Secured Notes, 2028 Notes, 2024 Notes and 2029 Notes, the Notes). Until our net leverage ratio is below 5.75 : 1.00, our 2025 Secured Notes limit our ability to make cash distributions to our shareholders in amounts exceeding 90% of our good faith estimate, as of the date on which the first quarterly dividend for the relevant year is declared, of our REIT taxable income for such year, determined without regard to the dividends paid deduction and excluding any capital gains.  Except as disclosed below with respect to the 2029 Notes and the 2028 Secured Notes, the terms of the Notes are as described in the Company’s Annual Report.

On February 2, 2021, the Borrowers, as co-issuers, issued $1.11 billion aggregate principal of the 2029 Notes and used the net proceeds to fund the tender offer of substantially all outstanding $1.11 billion aggregate principal amount of 8.25% Senior Unsecured Notes due October 15, 2023 (the “2023 Notes”), of which $58.8 million remained outstanding as of March 31, 2021.  On April 15, 2021, the Borrowers redeemed the $58.8 million remaining outstanding principal amount of the 2023 Notes.  During the three months ended March 31, 2021, we recognized a $38.0 million loss on the tendered 2023 Notes within interest expense, net on the Condensed Consolidated States of Income (loss), which included $20.4 million of non-cash interest expense for the write off of the unamortized discount and deferred financing costs and $17.6 million of cash interest expense for the tender premium. The remaining unamortized discount and deferred financing costs of $1.1 million was written off on April 15, 2021 when the outstanding principal amount was repaid.

The 2029 Notes were issued at an issue price of 100% of their principal amount pursuant to an indenture, dated as of February 2, 2021 (the “2029 Indenture”), among the Borrowers, the guarantors named therein and Deutsche Bank Trust Company Americas, as trustee.

 

26


Table of Contents

 

Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

The 2029 Notes mature on February 15, 2029 and bear interest at a rate of 6.50% per year. Interest on the 2029 Notes is payable on February 15 and August 15 of each year, beginning on August 15, 2021.

The Borrowers may redeem the 2029 Notes, in whole or in part, at any time prior to February 15, 2024 at a redemption price equal to 100% of the principal amount of the 2029 Notes redeemed plus accrued and unpaid interest on the 2029 Notes, if any, to, but not including the redemption date, plus an applicable “make whole” premium described in the 2029 Indenture. Thereafter, the Borrowers may redeem the 2029 Notes in whole or in part, at the redemption prices set forth in the 2029 Indenture. In addition, at any time on or prior to February 15, 2024, up to 40% of the aggregate principal amount of the 2029 Notes may be redeemed with the net cash proceeds of certain equity offerings, at a redemption price of 106.500% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date; provided that at least 60% of aggregate principal amount of the originally issued 2029 Notes remains outstanding. Further, if certain changes of control of Uniti Group LP occur, holders of the 2029 Notes will have the right to require the Borrowers to offer to repurchase their 2029 Notes at 101% of their principal amount plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

The 2029 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company and by each of Uniti Group LP’s existing and future domestic restricted subsidiaries (other than the Borrowers) that guarantees indebtedness under the Company’s senior secured credit facilities. The guarantees are subject to release under specified circumstances, including certain circumstances in which such guarantees may be automatically released without the consent of the holders of the 2029 Notes.

The 2029 Indenture contains customary high yield covenants limiting the ability of Uniti Group LP and its restricted subsidiaries to: incur or guarantee additional indebtedness; incur or guarantee secured indebtedness; pay dividends or distributions on, or redeem or repurchase, capital stock; make certain investments or other restricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets; and create restrictions on the ability of the Borrowers and their restricted subsidiaries to pay dividends or other amounts to the Borrowers. These covenants are subject to a number of limitations, qualifications and exceptions. The 2029 Indenture also contains customary events of default.

On April 20, 2021, the Borrowers issued $570 million aggregate principal amount of 4.750% Senior Secured Notes due 2028 and used the net proceeds from the offering to fund the redemption in full of the $550.0 million aggregate principal amount of 6.00% Senior Secured Notes due April 15, 2023 (the “2023 Secured Notes”) on May 6, 2021. On April 20, 2021, the Borrowers deposited amounts sufficient to fund the redemption of the 2023 Secured Notes with the trustee and satisfied and discharged their respective obligations under the indenture governing the 2023 Secured Notes. During the three months ended June 30, 2021, we recognized a $4.3 million loss on the extinguishment of the 2023 Secured Notes within interest expense, net on the Condensed Consolidated States of Income (loss), which included $1.3 million of non-cash interest expense for the write off of the unamortized discount and deferred financing costs and $3.0 million of cash interest expense for the redemption premium.

The 2028 Secured Notes were issued at an issue price of 100% of their principal amount pursuant to an Indenture, dated as of April 20, 2021 (the “2028 Indenture”), among the Borrowers, the guarantors named therein and Deutsche Bank Trust Company Americas, as trustee and as collateral agent. The 2028 Secured Notes mature on April 15, 2028 and bear interest at a rate of 4.750% per year. Interest on the 2028 Secured Notes is payable on April 15 and October 15 of each year, beginning on October 15, 2021.

The Borrowers may redeem the 2028 Secured Notes, in whole or in part, at any time prior to April 15, 2024 at a redemption price equal to 100% of the principal amount of the 2028 Secured Notes redeemed plus accrued and unpaid interest on the 2028 Secured Notes, if any, to, but not including, the redemption date, plus an applicable “make whole” premium described in the 2028 Indenture. Thereafter, the Borrowers may redeem the 2028 Secured Notes in whole or in part, at the redemption prices set forth in the 2028 Indenture. In addition, prior to April 15, 2024, the Borrowers may redeem up to 10% of the aggregate principal amount of the 2028 Secured Notes in any twelve month period at a redemption price equal to 103% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to, but not including, the applicable redemption date.   Further, at any time on or prior to April 15, 2024, up to 40% of the aggregate principal amount of the 2028 Secured Notes may be redeemed with the net cash proceeds of certain equity offerings at a redemption price of 104.750% of the principal amount plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date; provided that at least 60% of aggregate principal amount of the originally issued 2028 Secured Notes remains outstanding.  If certain changes of control of Uniti Group LP occur, holders of the 2028 Secured Notes will have the right to require the Borrowers to offer to repurchase their Notes at 101% of their principal amount plus accrued and unpaid interest, if any, to, but not including, the repurchase date.

 

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Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

The 2028 Secured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company and on a senior secured basis by each of the Operating Partnership’s existing and future domestic restricted subsidiaries (other than the Borrowers) that guarantees indebtedness under the senior secured credit facilities (the “Guarantors”). In addition, the Borrowers will use commercially reasonable efforts to obtain necessary regulatory approval to allow certain non-guarantor subsidiaries of the Company to guarantee the 2028 Secured Notes, including by making filings to obtain such approval within 60 days of the issuance of the 2028 Secured Notes. The guarantees are subject to release under specified circumstances, including certain circumstances in which such guarantees may be automatically released without the consent of the holders of the 2028 Secured Notes.

 

The 2028 Secured Notes and the related guarantees are the Borrowers’ and the Guarantors’ senior secured obligations and the Company’s senior unsecured obligations and rank equal in right of payment with all of the Borrowers’ and the Guarantors’ existing and future senior unsubordinated obligations; effectively senior to all unsecured indebtedness of the Borrowers and the Guarantors, including the Borrowers’ existing senior unsecured notes, to the extent of the value of the collateral securing the 2028 Secured Notes; effectively equal with all of the Borrowers’ and the Guarantors’ existing and future indebtedness that is secured by first-priority liens on the collateral (including indebtedness under the senior secured credit facilities and existing secured notes); senior in right of payment to any of the Borrowers’ and Guarantors’ future subordinated indebtedness; and structurally subordinated to all existing and future liabilities (including trade payables) of the Company’s subsidiaries (other than the Borrowers) that do not guarantee the 2028 Secured Notes. The 2028 Secured Notes and the related guarantees will also be effectively subordinated to any existing or future indebtedness that is secured by liens on assets that do not constitute a part of the collateral securing the 2028 Secured Notes to the extent of the value of such assets.

 

The 2028 Secured Notes and the related guarantees will be secured by liens on substantially all of the assets of the Borrowers and the Guarantors, which assets also ratably secure obligations under the existing secured notes and senior secured credit facilities, in each case, subject to certain exceptions and permitted liens. The collateral will not include real property (below a specified threshold of value), but will include certain fixtures and other equipment as well as cash that we receive pursuant the Windstream Leases.

 

The 2028 Indenture contains customary high yield covenants limiting the ability of Uniti Group LP and its restricted subsidiaries to: incur or guarantee additional indebtedness; incur or guarantee secured indebtedness; pay dividends or distributions on, or redeem or repurchase, capital stock; make certain investments or other restricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets; and create restrictions on the ability of the Borrowers and their restricted subsidiaries to pay dividends or other amounts to the Borrowers. These covenants are subject to a number of limitations, qualifications and exceptions. The 2028 Indenture also contains customary events of default.

Credit Agreement

The Borrowers are party to the Credit Agreement, which after the Seventh Amendment (as defined below), provided for a $60.5 million non-extended revolving credit facility that matures on April 24, 2022 (the “Non-Extended Revolving Credit Facility”) and a $500 million revolving credit facility extended that will mature on December 10, 2024 (the “Extended Revolving Credit Facility” and together with Non-Extended Revolving Credit facility, the “Revolving Credit Facility”), which provide us with the ability to obtain revolving loans as well as swingline loans and letters of credit from time to time. All obligations under the Credit Agreement are guaranteed by (i) the Company and (ii) certain of the Operating Partnership’s subsidiaries (the “Subsidiary Guarantors”) and are secured by substantially all of the assets of the Borrowers and the Subsidiary Guarantors.

The Borrowers are subject to customary covenants under the Credit Agreement, including an obligation to maintain a consolidated secured leverage ratio, as defined in the Credit Agreement, not to exceed 5.00 to 1.00. We are permitted, subject to customary conditions, to incur other indebtedness, so long as, on a pro forma basis after giving effect to any such indebtedness, our consolidated total leverage ratio, as defined in the Credit Agreement, does not exceed 6.50 to 1.00 and, if such debt is secured, our consolidated secured leverage ratio, as defined in the Credit Agreement, does not exceed 4.00 to 1.00.  In addition, the Credit Agreement contains customary events of default, including a cross default provision whereby the failure of the Borrowers or certain of their subsidiaries to make payments under other debt obligations, or the occurrence of certain events affecting those other borrowing arrangements, could trigger an obligation to repay any amounts outstanding under the Credit Agreement. In particular, a repayment obligation could be triggered if (i) the Borrowers or certain of their subsidiaries fail to make a payment when due of any principal or interest on any other indebtedness aggregating $75.0 million or more, or (ii) an event occurs that causes, or would permit the holders of any other indebtedness aggregating $75.0 million or more to cause, such indebtedness to become due prior to its stated maturity. As of June 30, 2021, the Borrowers were in compliance with all of the covenants under the Credit Agreement.

 

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Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

A termination of either Windstream Lease would result in an “event of default” under the Credit Agreement if a replacement lease is not entered into within ninety (90) calendar days and we do not maintain pro forma compliance with a consolidated secured leverage ratio, as defined in the Credit Agreement, of 5.00 to 1.00.

On December 10, 2020, we entered into an amendment (the “Seventh Amendment”) to our Credit Agreement.  Pursuant to the Seventh Amendment, commitments from new and existing lenders under the Revolving Credit Facility have increased to $500 million and the maturity date of such commitments has been extended to December 10, 2024.  Certain non-extending lender commitments of $60.5 million will mature on April 24, 2022 and will continue to bear interest at rates previously in effect. Prior to the expiration of these commitments, the aggregate size of the Revolving Credit Facility will be $560.5 million from all lenders.

Borrowings under (a) the Non-Extended Revolving Credit Facility bear interest at a rate equal to either a base rate plus an applicable margin ranging from 3.75% to 4.25% or a eurodollar rate plus an applicable margin ranging from 4.75% to 5.25% and (b) effective April 17, 2021, following the receipt of certain routine regulatory approvals, the Extended Revolving Credit Facility bear interest at a rate equal to either a base rate plus an applicable margin ranging from 2.75% to 3.50% or a eurodollar rate plus an applicable margin ranging from 3.75% to 4.50%, in each case, calculated in a customary manner and determined based on our consolidated secured leverage ratio. We are required to pay a quarterly commitment fee under the Revolving Credit Facility equal to 0.50% of the average amount of unused commitments during the applicable quarter (subject to a step-down to 0.40% per annum of the average amount of unused commitments during the applicable quarter upon achievement of a consolidated secured leverage ratio not to exceed a certain level), as well as quarterly letter of credit fees equal to the product of  (A) the applicable margin with respect to eurodollar borrowings and (B) the average amount available to be drawn under outstanding letters of credit during such quarter.

Deferred Financing Cost

Deferred financing costs were incurred in connection with the issuance of the Notes and the Revolving Credit Facility. These costs are amortized using the effective interest method over the term of the related indebtedness and are included in interest expense in our Condensed Consolidated Statements of Income (Loss). For the three and six months ended June 30, 2021, we recognized $4.1 million and $8.2 million, respectively, of non-cash interest expense related to the amortization of deferred financing costs. For the three and six months ended June 30, 2020, we recognized $4.5 million and $7.5 million, respectively, of non-cash interest expense related to the amortization of deferred financing costs. 

Note 12. Earnings Per Share

Our time-based restricted stock awards are considered participating securities as they receive non-forfeitable rights to dividends at the same rate as common stock. As participating securities, we included these instruments in the computation of earnings per share under the two-class method described in FASB ASC 260, Earnings per Share (“ASC 260”).

We also have outstanding performance-based restricted stock units that contain forfeitable rights to receive dividends. Therefore, the awards are considered non-participating restrictive shares and are not dilutive under the two-class method until performance conditions are met.

The dilutive effect of the Exchangeable Notes (see Note 11) is calculated by using the “if-converted” method.  This assumes an add-back of interest, net of income taxes, to net income attributable to shareholders as if the securities were converted at the beginning of the reporting period (or at time of issuance, if later) and the resulting common shares included in number of weighted average shares.  The dilutive effect of the Warrants (see Note 9) is calculated using the treasury-stock method.  During the three and six months ended June 30, 2021 and 2020, the Warrants were excluded from diluted shares outstanding because the exercise price exceeded the average market price of our common stock for the reporting period.

 

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Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

The following sets forth the computation of basic and diluted earnings per share under the two-class method:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Thousands, except per share data)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to shareholders

 

$

48,907

 

 

$

(587,744

)

 

$

44,469

 

 

$

(666,597

)

Less: Income allocated to participating securities

 

 

(333

)

 

 

(424

)

 

 

(581

)

 

 

(624

)

Dividends declared on convertible preferred stock

 

 

(2

)

 

 

(1

)

 

 

(5

)

 

 

(4

)

Net income (loss) attributable to common shares

 

$

48,572

 

 

$

(588,169

)

 

$

43,883

 

 

$

(667,225

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

 

231,801

 

 

 

192,479

 

 

 

231,636

 

 

 

192,358

 

Basic earnings (loss) per common share

 

$

0.21

 

 

$

(3.06

)

 

$

0.19

 

 

$

(3.47

)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Thousands, except per share data)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to shareholders

 

$

48,907

 

 

$

(587,744

)

 

$

44,469

 

 

$

(666,597

)

Less: Income allocated to participating securities

 

 

(333

)

 

 

(424

)

 

 

(581

)

 

 

(624

)

Dividends declared on convertible preferred stock

 

 

(2

)

 

 

(1

)

 

 

(5

)

 

 

(4

)

Impact on if-converted dilutive securities

 

 

2,974

 

 

 

-

 

 

 

-

 

 

 

-

 

Net income (loss) attributable to common shares

 

$

51,546

 

 

$

(588,169

)

 

$

43,883

 

 

$

(667,225

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

 

231,801

 

 

 

192,479

 

 

 

231,636

 

 

 

192,358

 

Effect of dilutive non-participating securities

 

 

135

 

 

 

-

 

 

 

226

 

 

 

-

 

Impact on if-converted dilutive securities

 

 

30,332

 

 

 

-

 

 

 

-

 

 

 

-

 

Weighted-average shares for dilutive earnings per common share

 

 

262,268

 

 

 

192,479

 

 

 

231,862

 

 

 

192,358

 

Dilutive earnings (loss) per common share

 

$

0.20

 

 

$

(3.06

)

 

$

0.19

 

 

$

(3.47

)

 

For the six months ended June 30, 2021, 30,332,262 potential common shares related to the Exchangeable Notes were excluded from the computation of earnings per share, as their effect would have been anti-dilutive. For the three and six months ended June 30, 2020, 29,198,385 potential common shares related to the Exchangeable Notes and 730,863 non-participating securities were excluded from the computation of earnings per share, as their effect would have been anti-dilutive.

Note 13. Segment Information

Historically our management, including our chief executive officer, who is our chief operating decision maker, managed our operations as the 4 reportable segments, in addition to our corporate operations, as described below. Due to the sale of our towers business and wind down of the Consumer CLEC business, effective January 1, 2021, we manage our operations focused on our 2 primary businesses, Leasing and Fiber Infrastructure.

Leasing: Represents the results from our leasing business, Uniti Leasing, which is engaged in the acquisition of mission-critical communications assets and leasing them back to anchor customers on either an exclusive or shared-tenant basis.

 

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Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

Fiber Infrastructure: Represents the operations of our fiber business, Uniti Fiber, which is a leading provider of infrastructure solutions, including cell site backhaul and dark fiber, to the telecommunications industry.

Towers: Represents the operations of our former towers business, Uniti Towers, through which we acquired and constructed tower and tower-related real estate and leased space on communications towers to wireless service providers and other tenants in the United States and Latin America.  Starting in 2019, the Company completed a series of transactions to largely divest of its towers business:  on April 2, 2019, May 23, 2019 and June 1, 2020, the Company completed the sales of its Latin American business, substantially all of its U.S. ground lease business, and its U.S. tower business, respectively.

Consumer CLEC: Represents the operations of Talk America through which we operated the Consumer CLEC business, which prior to Uniti’s separation and spin-off from Windstream (the “Spin-Off”) was reported as an integrated operation within Windstream. Talk America provided local telephone, high-speed internet and long-distance services to customers in the eastern and central United States.  As of the end of the second quarter of 2020, we substantially completed a wind down of our Consumer CLEC business.

Corporate: Represents our corporate and back office functions. Certain costs and expenses, primarily related to headcount, insurance, professional fees and similar charges, that are directly attributable to operations of our business segments are allocated to the respective segments.

Management evaluates the performance of each segment using Adjusted EBITDA, which is a segment performance measure we define as net income determined in accordance with GAAP, before interest expense, provision for income taxes, depreciation and amortization, stock-based compensation expense and the impact, which may be recurring in nature, of transaction and integration related costs, costs associated with Windstream’s bankruptcy, costs associated with litigation claims made against us, costs associated with the implementation of our enterprise resource planning system, costs related to the settlement with Windstream, amortization of non-cash rights-of-use, the write off of unamortized deferred financing costs, costs incurred as a result of the early repayment of debt, including early tender premiums and costs associated with the termination of related hedging activities, gains or losses on dispositions, changes in the fair value of contingent consideration and financial instruments, and other similar or infrequent items (although we may not have had such charges in the periods presented). Adjusted EBITDA includes adjustments to reflect the Company’s share of Adjusted EBITDA from unconsolidated entities. The Company believes that net income, as defined by GAAP, is the most appropriate earnings metric; however, we believe that Adjusted EBITDA serves as a useful supplement to net income because it allows investors, analysts and management to evaluate the performance of our segments in a manner that is comparable period over period. Adjusted EBITDA should not be considered as an alternative to net income as determined in accordance with GAAP.

Selected financial data related to our segments is presented below for the three and six months ended June 30, 2021 and 2020:

 

 

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Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

 

 

 

Three Months Ended June 30, 2021

 

(Thousands)

 

Leasing

 

 

Fiber Infrastructure

 

 

Towers

 

 

Consumer CLEC

 

 

Corporate

 

 

Subtotal of Reportable Segments

 

Revenues

 

$

196,057

 

 

$

72,123

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

268,180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

192,137

 

 

$

29,439

 

 

$

-

 

 

$

-

 

 

$

(5,842

)

 

$

215,734

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

106,388

 

Depreciation and amortization

 

 

40,474

 

 

 

29,132

 

 

 

-

 

 

 

-

 

 

 

65

 

 

 

69,671

 

Other expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,779

 

Transaction related and other costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

424

 

Gain on sale of real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(442

)

Gain on sale of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,143

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,462

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,084

 

Adjustments for equity in earnings from unconsolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

872

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

49,639

 

 

 

 

Three Months Ended June 30, 2020

 

(Thousands)

 

Leasing

 

 

Fiber Infrastructure

 

 

Towers

 

 

Consumer CLEC

 

 

Corporate

 

 

Subtotal of Reportable Segments

 

Revenues

 

$

185,320

 

 

$

79,140

 

 

$

2,392

 

 

 

(32

)

 

$

-

 

 

$

266,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

182,810

 

 

$

28,493

 

 

$

85

 

 

$

(292

)

 

$

(8,227

)

 

$

202,869

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

107,243

 

Depreciation and amortization

 

 

52,405

 

 

 

32,279

 

 

 

14

 

 

 

197

 

 

 

74

 

 

 

84,969

 

Other expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,013

 

Settlement expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

650,000

 

Transaction related and other costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,556

 

Gain on sale of real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(63,818

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,110

 

Income tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,875

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(598,329

)

 

 

 

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Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

 

 

 

Six Months Ended June 30, 2021

 

(Thousands)

 

Leasing

 

 

Fiber Infrastructure

 

 

Towers

 

 

Consumer CLEC

 

 

Corporate

 

 

Subtotal of Reportable Segments

 

Revenues

 

$

390,993

 

 

$

149,773

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

540,766

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

383,634

 

 

$

59,160

 

 

$

-

 

 

$

-

 

 

$

(12,812

)

 

$

429,982

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

246,969

 

Depreciation and amortization

 

 

82,700

 

 

 

57,802

 

 

 

-

 

 

 

-

 

 

 

133

 

 

 

140,635

 

Other income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,097

 

Transaction related and other costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,561

 

Gain on sale of real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(442

)

Gain on sale of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,143

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,797

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,527

 

Adjustments for equity in earnings from unconsolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,844

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

45,137

 

 

 

 

 

 

Six Months Ended June 30, 2020

 

(Thousands)

 

Leasing

 

 

Fiber Infrastructure

 

 

Towers

 

 

Consumer CLEC

 

 

Corporate

 

 

Subtotal of Reportable Segments

 

Revenues

 

$

369,672

 

 

$

156,547

 

 

$

6,112

 

 

$

651

 

 

$

-

 

 

$

532,982

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

364,689

 

 

$

56,034

 

 

$

77

 

 

$

(275

)

 

$

(15,942

)

 

$

404,583

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

285,636

 

Depreciation and amortization

 

 

107,027

 

 

 

62,340

 

 

 

783

 

 

 

791

 

 

 

149

 

 

 

171,090

 

Other income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,088

 

Settlement expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

650,000

 

Transaction related and other costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34,528

 

Gain on sale of real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(63,818

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,105

 

Income tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,451

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(678,595

)

 

 

 

 

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Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

 

Note 14. Commitments and Contingencies

In the ordinary course of our business, we are subject to claims and administrative proceedings, none of which we believe are material or would be expected to have, individually or in the aggregate, a material adverse effect on our business, financial condition, cash flows or results of operations.

Windstream Commitments

Following the consummation of our settlement agreement with Windstream, including entry into the Windstream Leases, we are obligated to make $490.1 million of cash payments to Windstream in equal installments over 20 consecutive quarters beginning in October 2020.  As of the date of this Quarterly Report on Form 10-Q, the Company made the first four quarterly payments totaling $98.0 million.

Further, we are obligated to reimburse Windstream for up to an aggregate of $1.75 billion for certain growth capital improvements in long-term fiber and related assets made by Windstream (“Growth Capital Improvements”) through 2029.  Uniti’s reimbursement commitment for Growth Capital Improvements does not require Uniti to reimburse Windstream for maintenance or repair expenditures (except for costs incurred for fiber replacements to the property leased under the competitive local exchange carrier master lease agreement, up to $70 million during the term), and each such reimbursement is subject to underwriting standards. Uniti’s total annual reimbursement commitments for the Growth Capital Improvements under both Windstream Leases (and under separate equipment loan facilities) are limited to $225 million per year in 2021 through 2024; $175 million per year in 2025 and 2026; and $125 million per year in 2027 through 2029.  If the cost incurred by Windstream (or the successor tenant under a Windstream Lease) for Growth Capital Improvements in any calendar year exceeds the annual limit for such calendar year, Windstream (or such tenant, as the case may be) may submit such excess costs for reimbursement in any subsequent year and such excess costs shall be funded from the annual commitment amounts in such subsequent period.  In addition, to the extent that reimbursements for Growth Capital Improvements funded in any calendar year during the term is less than the annual limit for such calendar year, the unfunded amount in any calendar year will carry-over and may be added to the annual limits for subsequent calendar years, subject to an annual limit of $250 million in any calendar year, except that, during calendar year 2021, our combined total obligation to fund Growth Capital Improvements may exceed $250 million to the extent of any unfunded excess amounts from calendar year 2020.  Accordingly, because we funded $84.7 million of the $125 million limit in 2020, we are committed to fund up to $265.3 million of Growth Capital Improvements in 2021. During the six months ended June 30, 2021, Uniti reimbursed $92.1 million of Growth Capital Improvements, of which $28.5 million, as allowed under the Settlement, represented the reimbursement of capital improvements completed in 2020 that were previously classified as tenant funded capital improvements. Upon reimbursement, the Company reduced the unamortized portion of deferred revenue related to these capital improvements and capitalized the difference between the cash provided to Windstream and the unamortized deferred revenue as a lease incentive.  This lease incentive, which is $0.9 million and reported within other assets on our Condensed Consolidated Balance Sheet as of June 30, 2021, will be amortized against revenue over the initial term of the Windstream Leases.

Other Litigation

On July 3, 2019, SLF Holdings, LLC (“SLF”) filed a complaint against the Company, Uniti Fiber, and certain current and former officers of the Company (collectively, the “Defendants”) in the United States District Court for the Southern District of Alabama, in connection with Uniti Fiber’s purchase of Southern Light, LLC from SLF in July 2017. The complaint asserted claims for fraud and conspiracy, as well as claims under federal and Alabama securities laws, alleging that Defendants improperly failed to disclose to SLF the risk that the Spin-Off and entry into the Master Lease violated certain debt covenants of Windstream.   On September 26, 2019, the action was transferred to United States District Court for the District of Delaware.  On November 18, 2019, SLF filed an amended complaint, adding allegations that Defendants also failed to fully disclose the risk that the Master Lease purportedly could be recharacterized as a financing instead of a “true lease.”  The amended complaint seeks compensatory and punitive damages, as well as reformation of the purchase agreement for the sale. On December 18, 2019, Defendants moved to dismiss the amended complaint in its entirety.  That motion was fully briefed as of February 7, 2020, and a hearing on the motion was heard on May 12, 2020. On November 4, 2020, the court granted the Defendants’ motion and dismissed SLF’s amended complaint, in its entirety, with prejudice.  On December 1, 2020, SLF filed a notice of appeal to the United States Court of Appeals for the Third Circuit from the district court’s dismissal order.  The appeal is scheduled to be fully briefed by August 19, 2021.  We have evaluated this matter under the guidance provided by ASC 450-20, Contingencies (“ASC 450”), and as of the date of this Quarterly Report on Form 10-Q, we consider a loss not to be probable and are unable to estimate a reasonably possible range of loss; therefore, we have not recorded any liabilities associated with these claims in our Condensed Consolidated Balance Sheet.

 

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Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

Beginning on October 25, 2019, several purported shareholders filed separate putative class actions in the U.S. District Court for the Eastern District of Arkansas against the Company and certain of our officers, alleging violations of the federal securities laws (the “Shareholder Actions”), based on claims similar to those asserted in the SLF Action.  On March 12, 2020, the U.S. District Court for the Eastern District of Arkansas consolidated the Shareholder Actions and appointed lead plaintiffs and lead counsel in the consolidated cases under the caption In re Uniti Group Inc. Securities Litigation. On May 11, 2020, lead plaintiffs filed a consolidated amended complaint in the consolidated Shareholder Actions.  The consolidated amended complaint seeks to represent investors who acquired the Company’s securities between April 20, 2015 and February 15, 2019.  The Shareholder Actions assert claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, alleging that the Company made materially false and misleading statements by allegedly failing to disclose, among other things, the risk that the Spin-Off and entry into the Master Lease violated certain debt covenants of Windstream and/or the risk that the Master Lease purportedly could be recharacterized as a financing instead of a “true lease.” The Shareholder Actions seek class certification, unspecified monetary damages, costs and attorneys’ fees and other relief.  On July 10, 2020, defendants moved to dismiss the consolidated amended complaint.  On April 1, 2021, the court issued an order denying defendants’ motion to dismiss. On April 15, 2021, defendants filed a motion for reconsideration of the order or, in the alternative, for certification of an appeal of the decision to the Eighth Circuit.  Plaintiffs formally opposed this motion on April 29, 2021.  The District Court has not yet ruled on the motion.  We intend to defend this matter vigorously, and, because it is still in its preliminary stages, we have not yet determined what effect this lawsuit will have, if any, on our financial position or results of operations. We have evaluated this matter under the guidance provided by ASC 450, and as of the date of this Quarterly Report on Form 10-Q, we consider a loss not to be probable and are unable to estimate a reasonably possible range of loss; therefore, we have not recorded any liabilities associated with these claims in our Condensed Consolidated Balance Sheet.

We maintain insurance policies that would provide coverage to various degrees for potential liabilities arising from the legal proceedings described above.

Under the terms of the tax matters agreement entered into on April 24, 2015 by the Company, Windstream Services, LLC and Windstream (the “Tax Matters Agreement”), in connection with the Spin-Off, we are generally responsible for any taxes imposed on Windstream that arise from the failure of the Spin-Off and the debt exchanges to qualify as tax-free for U.S. federal income tax purposes, within the meaning of Section 355 and Section 368(a)(1)(D) of the Code, as applicable, to the extent such failure to qualify is attributable to certain actions, events or transactions relating to our stock, indebtedness, assets or business, or a breach of the relevant representations or any covenants made by us in the Tax Matters Agreement, the materials submitted to the IRS in connection with the request for the private letter ruling or the representations provided in connection with the tax opinion. We believe that the probability of us incurring obligations under the Tax Matters Agreement are remote; and therefore, we have recorded 0 such liabilities in our Condensed Consolidated Balance Sheet as of June 30, 2021.

 

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Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements – Continued

(unaudited)

Note 15. Accumulated Other Comprehensive (Loss) Income

Changes in accumulated other comprehensive (loss) income by component is as follows for the three and six months ended June 30, 2021 and 2020:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Cash flow hedge changes in fair value (loss) gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period attributable to common shareholders

 

$

(30,353

)

 

$

(30,353

)

 

$

(30,353

)

 

$

(23,442

)

Other comprehensive loss before reclassifications

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,713

)

Amounts reclassified from accumulated other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

677

 

Balance at end of period

 

 

(30,353

)

 

 

(30,353

)

 

 

(30,353

)

 

 

(30,478

)

Less: Other comprehensive loss attributable to noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(125

)

Balance at end of period attributable to common shareholders

 

 

(30,353

)

 

 

(30,353

)

 

 

(30,353

)

 

 

(30,353

)

Interest rate swap termination:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period attributable to common shareholders

 

 

12,773

 

 

 

1,636

 

 

 

9,986

 

 

 

-

 

Amounts reclassified from accumulated other comprehensive income

 

 

2,829

 

 

 

2,830

 

 

 

5,658

 

 

 

4,496

 

Balance at end of period

 

 

15,602

 

 

 

4,466

 

 

 

15,644

 

 

 

4,496

 

Less: Other comprehensive (loss) income attributable to noncontrolling interest

 

 

41

 

 

 

50

 

 

 

83

 

 

 

80

 

Balance at end of period attributable to common shareholders

 

 

15,561

 

 

 

4,416

 

 

 

15,561

 

 

 

4,416

 

Accumulated other comprehensive loss at end of period

 

$

(14,792

)

 

$

(25,937

)

 

$

(14,792

)

 

$

(25,937

)

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following management’s discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition for the three and six months ended June 30, 2021. This discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements, and the notes thereto set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 5, 2021, as amended by Amendment No. 1 thereto filed on Form 10-K/A with the SEC on March 30, 2021 (the “Annual Report”).

Overview

Company Description

Uniti Group Inc. (the “Company”, “Uniti”, “we”, “us” or “our”) is an independent, internally managed real estate investment trust (“REIT”) engaged in the acquisition, construction and leasing of mission critical infrastructure in the communications industry. We are principally focused on acquiring and constructing fiber optic, copper and coaxial broadband networks and data centers.

On April 24, 2015, we were separated and spun-off (the “Spin-Off”) from Windstream Holdings, Inc. (“Windstream Holdings” and together with Windstream Holdings II, LLC, its successor in interest, and its subsidiaries, “Windstream”) pursuant to which Windstream contributed certain telecommunications network assets, including fiber and copper networks and other real estate (the “Distribution Systems”) and a small consumer competitive local exchange carrier (“CLEC”) business (the “Consumer CLEC Business”) to Uniti and Uniti issued common stock and indebtedness and paid cash obtained from borrowings under Uniti’s senior credit facilities to Windstream. In connection with the Spin-Off, we entered into a long-term exclusive triple-net lease (the “Master Lease”) with Windstream, pursuant to which a substantial portion of our real property is leased to Windstream and from which a substantial portion of our leasing revenues are currently derived.  In connection with Windstream’s emergence from bankruptcy, Uniti and Windstream bifurcated the Master Lease and entered into two structurally similar master leases (collectively, the “Windstream Leases”), which amended and restated the Master Lease in its entirety.  The Windstream Leases consist of (a) a master lease (the “ILEC MLA”) that governs Uniti owned assets used for Windstream’s incumbent local exchange carrier (“ILEC”) operations and (b) a master lease (the “CLEC MLA”) that governs Uniti owned assets used for Windstream’s CLEC operations.

Uniti operates as a REIT for U.S. federal income tax purposes. As a REIT, the Company is generally not subject to U.S. federal income taxes on income generated by its REIT operations, which includes income derived from the Windstream Leases. We have elected to treat the subsidiaries through which we operate our fiber business, Uniti Fiber, certain aspects of our former towers business, and Talk America Services, LLC, which operated the Consumer CLEC Business (“Talk America”), as taxable REIT subsidiaries (“TRSs”). TRSs enable us to engage in activities that result in income that does not constitute qualifying income for a REIT. Our TRSs are subject to U.S. federal, state and local corporate income taxes.

The Company operates through a customary up-REIT structure, pursuant to which we hold substantially all of our assets through a partnership, Uniti Group LP, a Delaware limited partnership (the “Operating Partnership”), that we control as general partner. This structure is intended to facilitate future acquisition opportunities by providing the Company with the ability to use common units of the Operating Partnership as a tax-efficient acquisition currency. As of June 30, 2021, we are the sole general partner of the Operating Partnership and own approximately 98.5% of the partnership interests in the Operating Partnership.

We aim to grow and diversify our portfolio and tenant base by pursuing a range of transaction structures with communication service providers, including (i) sale-leaseback transactions, whereby we acquire existing infrastructure assets from third parties, including communication service providers, and lease them back on a long-term triple-net basis; (ii) leasing of dark fiber and selling of lit services on our existing fiber network assets that we either constructed or acquired; (iii) whole company acquisitions, which may include the use of one or more TRSs that are permitted under the tax laws to acquire and operate non-REIT businesses and assets subject to certain limitations; (iv) capital investment financing, whereby we offer communication service providers a cost efficient method of raising funds for discrete capital investments to upgrade or expand their network; and (v) mergers and acquisitions financing, whereby we facilitate mergers and acquisition transactions as a capital partner, including through operating company-property company (“OpCo-PropCo”) structures. Consistent with this strategy, we regularly evaluate and consider potential opportunities.

 

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Segments

We have historically managed our operations as the four reportable business segments listed below (in addition to our corporate operations), but due to the sale of our towers business and wind down of the Consumer CLEC Business, effective January 1, 2021, we manage our operations focused on our two primary businesses, Leasing and Fiber Infrastructure:

Leasing Segment: Represents the results from our leasing business, Uniti Leasing, which is engaged in the acquisition of mission-critical communications assets and leasing them to anchor customers on either an exclusive or shared-tenant basis.  Uniti Leasing is a component of our REIT operations.

Fiber Infrastructure Segment: Represents the operations of our fiber business, Uniti Fiber, which is a leading provider of infrastructure solutions, including cell site backhaul and dark fiber, to the telecommunications industry.

Towers Segment: Represents the operations of our former towers business, Uniti Towers, through which we acquired and constructed tower and tower-related real estate and leased space on communications towers to wireless service providers and other tenants in the United States.  Starting in 2019, the Company completed a series of transactions to largely divest of its towers business and on April 2, 2019, May 23, 2019 and June 1, 2020, the Company completed the sales of its Latin American business, substantially all of its U.S. ground lease business, and its U.S. tower business, respectively.  Portions of our former towers business were a component of our REIT operations, while the remainder were owned and operated by our TRSs.

Consumer CLEC Segment: Represents the operations of Talk America through which we operated the Consumer CLEC Business that, prior to the Spin-Off, was reported as an integrated operation within Windstream. Talk America provided local telephone, high-speed internet and long-distance services to customers in the eastern and central United States.  As of the end of the second quarter of 2020, we substantially completed a wind down of our Consumer CLEC Business.

Corporate Operations: Represents our corporate office and shared service functions. Certain costs and expenses, primarily related to headcount, information technology systems, insurance, professional fees and similar charges, that are directly attributable to operations of our business segments are allocated to the respective segments.

We evaluate the performance of each segment based on Adjusted EBITDA, which is a segment performance measure we define as net income determined in accordance with GAAP, before interest expense, provision for income taxes, depreciation and amortization, stock-based compensation expense and the impact, which may be recurring in nature, of transaction and integration related costs, costs associated with Windstream’s bankruptcy, costs associated with litigation claims made against us, costs associated with the implementation of our enterprise resource planning system, costs related to the settlement with Windstream, amortization of non-cash rights-of-use, the write off of unamortized deferred financing costs, costs incurred as a result of the early repayment of debt, including early tender premiums and costs associated with the termination of related hedging activities, gains or losses on dispositions, changes in the fair value of contingent consideration and financial instruments, and other similar or infrequent items (although we may not have had such charges in the periods presented). Adjusted EBITDA includes adjustments to reflect the Company’s share of Adjusted EBITDA from unconsolidated entities.  For more information on Adjusted EBITDA, see “Non-GAAP Financial Measures.” Detailed information about our segments can be found in Note 13 to our accompanying Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Significant Business Developments

Secured Notes Offering and Redemption. On April 20, 2021, the Operating Partnership, Uniti Group Finance 2019 Inc. and CSL Capital, LLC, as co-issuers collectively, the “Issuers,” issued $570 million aggregate principal amount of 4.750% Senior Secured Notes due 2028 (the “2028 Secured Notes”) and used the proceeds to fund the redemption of their outstanding 6.00% Senior Secured Notes due 2023 (the “2023 Secured Notes”). The Issuers satisfied and discharged their respective obligations under the indenture governing the 2023 Secured Notes on April 20, 2021 and redeemed the 2023 Secured Notes in full on May 6, 2021.

Everstream Solutions LLC OpCo-PropCo Transaction. On May 28, 2021, the Company completed its previously announced strategic transaction with Everstream Solutions LLC (“Everstream”).  As part of the transaction, Uniti entered into two 20-year IRU lease agreements with Everstream on Uniti owned fiber.  Concurrently, Uniti sold its Uniti Fiber Northeast operations and certain dark fiber IRU contracts acquired as part of the Windstream settlement to Everstream.  Total cash consideration, including upfront IRU payments, was approximately $135 million.  In addition to the upfront proceeds, Uniti will receive fees of approximately $3 million annually from Everstream over the initial 20-year term of the IRU lease agreements, subject to an annual escalator of 2%.  During the

 

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second quarter, we recorded a gain of $28.1 million related to this transaction, which is included in gain on sale of operations in our Condensed Consolidated Statements of Income (Loss).

Results of Operations

Comparison of the three months ended June 30, 2021 and 2020

The following table sets forth, for the periods indicated, our results of operations expressed as dollars and as a percentage of total revenues:

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

(Thousands)

 

Amount

 

 

% of Revenues

 

 

Amount

 

 

% of Revenues

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

$

196,057

 

 

73.1%

 

 

$

185,320

 

 

69.4%

 

Fiber Infrastructure

 

 

72,123

 

 

26.9%

 

 

 

79,140

 

 

29.7%

 

Tower

 

 

-

 

 

0.0%

 

 

 

2,392

 

 

0.9%

 

Consumer CLEC

 

 

-

 

 

0.0%

 

 

 

(32

)

 

0.0%

 

Total revenues

 

 

268,180

 

 

100.0%

 

 

 

266,820

 

 

100.0%

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

106,388

 

 

39.6%

 

 

 

107,243

 

 

40.1%

 

Depreciation and amortization

 

 

69,671

 

 

26.0%

 

 

 

84,969

 

 

31.7%

 

General and administrative expense

 

 

24,900

 

 

9.3%

 

 

 

27,894

 

 

10.5%

 

Operating expense

 

 

33,185

 

 

12.4%

 

 

 

40,167

 

 

15.1%

 

Settlement expense

 

 

-

 

 

0.0%

 

 

 

650,000

 

 

243.6%

 

Transaction related and other costs

 

 

424

 

 

0.2%

 

 

 

18,556

 

 

7.0%

 

Gain on sale of real estate

 

 

(442

)

 

(0.2%)

 

 

 

(63,818

)

 

(23.9%)

 

Gain on sale of operations

 

 

(28,143

)

 

(10.5%)

 

 

 

-

 

 

0.0%

 

Other expense, net

 

 

8,021

 

 

3.0%

 

 

 

6,013

 

 

2.3%

 

Total costs and expenses

 

 

214,004

 

 

79.8%

 

 

 

871,024

 

 

326.4%

 

Income (loss) before income taxes and equity in earnings from unconsolidated entities

 

 

54,176

 

 

20.2%

 

 

 

(604,204

)

 

(226.4%)

 

Income tax expense (benefit)

 

 

5,084

 

 

1.9%

 

 

 

(5,875

)

 

(2.2%)

 

Equity in (earnings) from unconsolidated entities

 

 

(547

)

 

(0.2%)

 

 

 

-

 

 

0.0%

 

Net income (loss)

 

 

49,639

 

 

18.5%

 

 

 

(598,329

)

 

(224.2%)

 

Net income (loss) attributable to noncontrolling interests

 

 

732

 

 

0.3%

 

 

 

(10,585

)

 

(3.9%)

 

Net income (loss) attributable to shareholders

 

 

48,907

 

 

18.2%

 

 

 

(587,744

)

 

(220.3%)

 

Participating securities' share in earnings

 

 

(333

)

 

(0.1%)

 

 

 

(424

)

 

(0.1%)

 

Dividends declared on convertible preferred stock

 

 

(2

)

 

(0.0%)

 

 

 

(1

)

 

(0.0%)

 

Net income (loss) attributable to common shareholders

 

$

48,572

 

 

18.1%

 

 

$

(588,169

)

 

(220.4%)

 

 

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Table of Contents

 

 

The following tables set forth, for the three months ended June 30, 2021 and 2020, revenues, Adjusted EBITDA and net (loss) income of our reportable segments:

 

 

 

Three Months Ended June 30, 2021

 

(Thousands)

 

Leasing

 

 

Fiber Infrastructure

 

 

Towers

 

 

Consumer CLEC

 

 

Corporate

 

 

Subtotal of Reportable Segments

 

Revenues

 

$

196,057

 

 

$

72,123

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

268,180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

192,137

 

 

$

29,439

 

 

$

-

 

 

$

-

 

 

$

(5,842

)

 

$

215,734

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

106,388

 

Depreciation and amortization

 

 

40,474

 

 

 

29,132

 

 

 

-

 

 

 

-

 

 

 

65

 

 

 

69,671

 

Other expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,779

 

Transaction related and other costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

424

 

Gain on sale of real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(442

)

Gain on sale of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,143

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,462

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,084

 

Adjustments for equity in earnings from unconsolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

872

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

49,639

 

 

 

 

Three Months Ended June 30, 2020

 

(Thousands)

 

Leasing

 

 

Fiber Infrastructure

 

 

Towers

 

 

Consumer CLEC

 

 

Corporate

 

 

Subtotal of Reportable Segments

 

Revenues

 

$

185,320

 

 

$

79,140

 

 

$

2,392

 

 

 

(32

)

 

$

-

 

 

$

266,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

182,810

 

 

$

28,493

 

 

$

85

 

 

$

(292

)

 

$

(8,227

)

 

$

202,869

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

107,243

 

Depreciation and amortization

 

 

52,405

 

 

 

32,279

 

 

 

14

 

 

 

197

 

 

 

74

 

 

 

84,969

 

Other expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,013

 

Settlement expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

650,000

 

Transaction related and other costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,556

 

Gain on sale of real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(63,818

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,110

 

Income tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,875

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(598,329

)

 

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Summary of Operating Metrics

 

 

 

Operating Metrics

 

 

 

As of June 30,

 

 

 

2021

 

 

2020

 

 

% Increase / (Decrease)

 

Operating metrics:

 

 

 

 

 

 

 

 

 

 

 

 

Leasing:

 

 

 

 

 

 

 

 

 

 

 

 

Fiber strand miles

 

 

4,600,000

 

 

 

4,400,000

 

 

4.5%

 

Copper strand miles

 

 

230,000

 

 

 

230,000

 

 

0.0%

 

Fiber Infrastructure:

 

 

 

 

 

 

 

 

 

 

 

 

Fiber strand miles

 

 

2,540,000

 

 

 

2,130,000

 

 

19.2%

 

Customer connections

 

 

25,383

 

 

 

24,288

 

 

4.5%

 

Revenues

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

(Thousands)

 

Amount

 

 

% of Consolidated Revenues

 

 

Amount

 

 

% of Consolidated Revenues

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

$

196,057

 

 

73.1%

 

 

$

185,320

 

 

69.4%

 

Fiber Infrastructure

 

 

72,123

 

 

26.9%

 

 

 

79,140

 

 

29.7%

 

Towers

 

 

-

 

 

0.0%

 

 

 

2,392

 

 

0.9%

 

Consumer CLEC

 

 

-

 

 

0.0%

 

 

 

(32

)

 

0.0%

 

Total revenues

 

$

268,180

 

 

100.0%

 

 

$

266,820

 

 

100.0%

 

Leasing – Leasing revenues are primarily attributable to rental revenue from leasing our Distribution Systems to Windstream pursuant to the Windstream Leases (and historically, the Master Lease). Under the Windstream Leases, Windstream is responsible for the costs related to operating the Distribution Systems, including property taxes, insurance, and maintenance and repair costs. As a result, we do not record an obligation related to the payment of property taxes, as Windstream makes direct payments to the taxing authorities.  The initial term of the Windstream Leases expires on April 30, 2030. The aggregate initial annual rent under the Windstream Leases is $663 million, equal to the annual rent under the Master Lease previously in effect, and is subject to annual escalation at a rate of 0.5%.

The rent for the first year of each renewal term will be an amount agreed to by us and Windstream.  While the agreement requires that the renewal rent be “Fair Market Rent,” if we are unable to agree, the renewal Fair Market Rent will be determined by an independent appraisal process.  Commencing with the second year of each renewal term, the renewal rent will increase at an escalation rate of 0.5%.

Pursuant to the Windstream Leases, Windstream (or any successor tenant under a Windstream Lease) has the right to cause Uniti to reimburse up to an aggregate $1.75 billion for certain growth capital improvements in long-term fiber and related assets made by Windstream (or the applicable tenant under the Windstream Lease) to certain ILEC and CLEC properties (the “Growth Capital Improvements”). Uniti’s reimbursement commitment for Growth Capital Improvements does not require Uniti to reimburse Windstream for maintenance or repair expenditures (except for costs incurred for fiber replacements to the CLEC MLA leased property, up to $70 million during the term), and each such reimbursement is subject to underwriting standards. Uniti’s total annual reimbursement commitments for the Growth Capital Improvements under both Windstream Leases (and under separate equipment loan facilities) are limited to $225 million per year in 2021 through 2024; $175 million per year in 2025 and 2026; and $125 million per year in 2027 through 2029.  If the cost incurred by Windstream (or the successor tenant under a Windstream Lease) for Growth Capital Improvements in any calendar year exceeds the annual limit for such calendar year, Windstream (or such tenant, as the case may be) may submit such excess costs for reimbursement in any subsequent year and such excess costs shall be funded from the annual commitment amounts in such subsequent period.  In addition, to the extent that reimbursements for Growth Capital Improvements funded in any calendar year during the term is less than the annual limit for such calendar year, the unfunded amount in any calendar year will carry-over and may be added to the annual limits for subsequent calendar years, subject to an annual limit of $250 million in any calendar year, except that, during calendar year 2021, Uniti’s combined total obligation to fund Growth Capital Improvements may exceed $250 million to the extent of any unfunded excess amounts from calendar year 2020.  Accordingly,

 

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because we funded $84.7 million of the $125 million limit in 2020, we are committed to fund up to $265.3 million of Growth Capital Improvements in 2021.

Starting on the first anniversary of each installment of reimbursement for a Growth Capital Improvement, the rent payable by Windstream under the applicable Windstream Lease will increase by an amount equal to 8.0% (the “Rent Rate”) of such installment of reimbursement. The Rent Rate will thereafter increase to 100.5% of the prior Rent Rate on each anniversary of each reimbursement. In the event that the tenant’s interest in either Windstream Lease is transferred by Windstream under the terms thereof (unless transferred to the same transferee), or if Uniti transfers its interests as landlord under either Windstream Lease (unless to the same transferee), the reimbursement rights and obligations will be allocated between the ILEC MLA and the CLEC MLA by Windstream, provided that the maximum that may be allocated to the CLEC MLA following such transfer is $20 million per year. If Uniti fails to reimburse any Growth Capital Improvement reimbursement payment or equipment loan funding request as and when it is required to do so under the terms of the Windstream Leases, and such failure continues for thirty (30) days, then such unreimbursed amounts may be applied as an offset against the rent owed by Windstream under the Windstream Leases (and such amounts will thereafter be treated as if Uniti had reimbursed them).

Uniti and Windstream have entered into separate ILEC and CLEC Equipment Loan and Security Agreements (collectively “Equipment Loan Agreement”) in which Uniti will provide up to $125 million (limited to $25 million in any calendar year) of the $1.75 billion of Growth Capital Improvements commitments discussed above in the form of loans for Windstream to purchase equipment related to network upgrades or to be used in connection with the Windstream Leases. Interest on these loans will accrue at 8% from the date of the borrowing. All equipment financed through the Equipment Loan Agreement is the sole property of Windstream; however, Uniti will receive a first-lien security interest in the equipment purchased with the loans. No such loans were made to Windstream during quarter ended June 30, 2021.

The Windstream Leases provide that tenant funded capital improvements (“TCIs”), defined as maintenance, repair, overbuild, upgrade or replacement to the Distribution Systems, including without limitation, the replacement of copper distribution systems with fiber distribution systems, automatically become property of Uniti upon their construction by Windstream. We receive non-monetary consideration related to TCIs as they automatically become our property, and we recognize the cost basis of TCIs that are capital in nature as real estate investments and deferred revenue. We depreciate the real estate investments over their estimated useful lives and amortize the deferred revenue as additional leasing revenues over the same depreciable life of the TCI assets.  TCIs exclude Growth Capital Improvements as and when reimbursed by Uniti.

During the three months ended June 30, 2021, Uniti reimbursed $49.4 million of Growth Capital Improvements.  Subsequent to June 30, 2021, Windstream requested, and we reimbursed $11.8 million of qualifying Growth Capital Improvements.  As of the date of this Quarterly Report on Form 10-Q, we have reimbursed a total of $188.6 million of Growth Capital Improvements.

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

(Thousands)

 

Amount

 

 

% of Segment Revenues

 

 

Amount

 

 

% of Segment Revenues

 

Leasing revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Windstream Leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash rent

 

$

166.4

 

 

84.9%

 

 

$

165.6

 

 

89.4%

 

Non-cash revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TCI revenue

 

 

9.5

 

 

4.8%

 

 

 

8.7

 

 

4.7%

 

Straight-line revenue

 

 

6.0

 

 

3.1%

 

 

 

-

 

 

0.0%

 

Total non-cash revenue

 

 

15.5

 

 

7.9%

 

 

 

8.7

 

 

4.7%

 

Total Windstream revenue

 

 

181.9

 

 

92.8%

 

 

 

174.3

 

 

94.1%

 

Other triple-net leasing and dark fiber IRU

 

 

14.2

 

 

7.2%

 

 

 

11.0

 

 

5.9%

 

Total Leasing revenues

 

$

196.1

 

 

100.0%

 

 

$

185.3

 

 

100.0%

 

The increase in TCI revenue is attributable to continued investment by Windstream, which invested $43.9 million in TCIs during the three months ended June 30, 2021.  The total amount invested in TCIs by Windstream since the inception of the Windstream Leases and Master Lease was $952.5 million as of June 30, 2021.  For the three months ended June 30, 2021, we recognized $14.2 million of leasing revenues from non-Windstream triple-net leasing and dark fiber indefeasible rights of use (“IRU”) arrangements. For the three months ended June 30, 2020, we recognized $11.0 million from non-Windstream triple-net leasing and dark fiber IRU arrangements.

 

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Because a substantial portion of our revenue and cash flows are derived from lease payments by Windstream pursuant to the Windstream Leases, there could be a material adverse impact on our consolidated results of operations, liquidity, financial condition and/or ability to maintain our status as a REIT and service debt if Windstream were to become unable to generate sufficient cash to make payments to us.

Prior to its emergence from bankruptcy on September 21, 2020, Windstream was a publicly traded company and was subject to the periodic filing requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Windstream’s historic filings through their quarter ended June 30, 2020 can be found at www.sec.gov. Additionally, the Windstream audited financial statements as of December 31, 2020 and for the period from September 22, 2020 to December 31, 2020 and as of December 31, 2019 and for the period from January 1, 2020 to September 21, 2020 and for each of the two years in the period ended December 31, 2019 are included as an exhibit to our Annual Report.  On September 22, 2020, Windstream filed a Form 15 to terminate all filing obligations under Section 12(g) and 15(d) under the Exchange Act.  Windstream filings are not incorporated by reference in this Quarterly Report on Form 10-Q.

We monitor the credit quality of Windstream through numerous methods, including by (i) reviewing credit ratings of Windstream by nationally recognized credit agencies, (ii) reviewing the financial statements of Windstream that are required to be delivered to us pursuant to the Windstream Leases, (iii) monitoring news reports regarding Windstream and its business, (iv) conducting research to ascertain industry trends potentially affecting Windstream, (v) monitoring Windstream’s compliance with the terms of the Windstream Leases and (vi) monitoring the timeliness of its payments under the Windstream Leases.

As of the date of this Quarterly Report on Form 10-Q, Windstream is current on all lease payments.  We note that in August 2020, Moody’s Investor Service assigned a B3 corporate family rating with a stable outlook to Windstream in connection with its post-emergence exit financing.  At the same time, S&P Global Ratings assigned Windstream a B- issuer rating with a stable outlook.  In order to assist us in our continuing assessment of Windstream’s creditworthiness, we receive certain confidential financial information and metrics from Windstream.

Fiber Infrastructure – Fiber Infrastructure revenues for the three months ended June 30, 2021 and 2020 consisted of the following:

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

(Thousands)

 

Amount

 

 

% of Segment Revenues

 

 

Amount

 

 

% of Segment Revenues

 

Fiber Infrastructure revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lit backhaul services

 

$

22,979

 

 

31.9%

 

 

$

27,216

 

 

34.3%

 

Enterprise and wholesale

 

 

21,327

 

 

29.6%

 

 

 

19,628

 

 

24.8%

 

E-Rate and government

 

 

15,926

 

 

22.1%

 

 

 

21,821

 

 

27.6%

 

Dark fiber and small cells

 

 

11,067

 

 

15.3%

 

 

 

9,720

 

 

12.3%

 

Other services

 

 

824

 

 

1.1%

 

 

 

755

 

 

1.0%

 

Total Fiber Infrastructure revenues

 

$

72,123

 

 

100.0%

 

 

$

79,140

 

 

100.0%

 

For the three months ended June 30, 2021, Fiber Infrastructure revenues totaled $72.1 million as compared to $79.1 million for the three months ended June 30, 2020. As of June 30, 2021, we had approximately 25,383 customer connections, up from 24,288 customer connections as of June 30, 2020.

Towers – For the three months ended June 30, 2021, we recognized no revenue from the Towers business, as we completed the sale of our U.S. tower business on June 1, 2020.

Consumer CLEC – For the three months ended June 30, 2021, we recognized no revenue from the Consumer CLEC Business, as we substantially completed the wind down of the business as of the end of the second quarter of 2020.

 

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Table of Contents

 

Interest Expense, net

 

 

 

Three Months Ended June 30,

 

(Thousands)

 

2021

 

 

2020

 

 

Increase / (Decrease)

 

Interest expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

Cash:

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured term loan B - variable rate (1)

 

$

-

 

 

$

2,830

 

 

$

(2,830

)

Senior secured notes - 4.75%, 6.00% and 7.875%

 

 

54,312

 

 

 

53,430

 

 

 

882

 

Senior unsecured notes - 4.00%, 6.50%. 7.125% and 8.25%

 

 

32,377

 

 

 

37,030

 

 

 

(4,653

)

Senior secured revolving credit facility - variable rate

 

 

2,571

 

 

 

4,532

 

 

 

(1,961

)

Early redemption payment

 

 

2,991

 

 

 

-

 

 

 

2,991

 

Other

 

 

3,612

 

 

 

1,109

 

 

 

2,503

 

Total cash interest

 

 

95,863

 

 

 

98,931

 

 

 

(3,068

)

Non-cash:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of deferred financing costs and debt discount

 

 

4,412

 

 

 

8,958

 

 

 

(4,546

)

Write off of deferred financing costs and debt discount

 

 

2,413

 

 

 

-

 

 

 

2,413

 

Accretion of settlement payable

 

 

4,326

 

 

 

-

 

 

 

4,326

 

Capitalized Interest

 

 

(626

)

 

 

(646

)

 

 

20

 

Total non-cash interest

 

 

10,525

 

 

 

8,312

 

 

 

2,213

 

Total interest expense, net

 

$

106,388

 

 

$

107,243

 

 

$

(855

)

(1) Swapped to fixed rate. See Note 9

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense for the three months ended June 30, 2021 decreased $0.9 million compared to the three months ended June 30, 2020. The decrease is primarily due to lower cash interest expense resulting from the extinguishment of 2023 Secured Notes and 8.25% Senior Unsecured Notes due October 15, 2023 (the “2023 Notes”), partially offset by the debt extinguishment loss of $5.4 million on the 2023 Secured Notes for three months ended June 30, 2021.

Depreciation and Amortization Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

 

(Thousands)

 

2021

 

 

2020

 

 

Increase / (Decrease)

 

 

 

Depreciation and amortization expense by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

$

41,419

 

 

$

50,732

 

 

$

(9,313

)

 

 

Fiber Infrastructure

 

 

23,414

 

 

 

26,309

 

 

 

(2,895

)

 

 

Corporate

 

 

65

 

 

 

74

 

 

 

(9

)

 

 

Towers

 

 

-

 

 

 

14

 

 

 

(14

)

 

 

Consumer CLEC

 

 

-

 

 

 

-

 

 

 

-

 

 

 

Total depreciation expense

 

 

64,898

 

 

 

77,129

 

 

 

(12,231

)

 

 

Amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

 

(945

)

 

 

1,673

 

 

 

(2,618

)

 

 

Fiber Infrastructure

 

 

5,718

 

 

 

5,970

 

 

 

(252

)

 

 

Corporate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

Towers

 

 

-

 

 

 

-

 

 

 

-

 

 

 

Consumer CLEC

 

 

-

 

 

 

197

 

 

 

(197

)

 

 

Total amortization expense

 

 

4,773

 

 

 

7,840

 

 

 

(3,067

)

 

 

Total depreciation and amortization expense

 

$

69,671

 

 

$

84,969

 

 

$

(15,298

)

 

 

We incur depreciation and amortization expense related to our property, plant and equipment, corporate assets and intangible assets and liabilities. Charges for depreciation and amortization for the three months ended June 30, 2021 totaled $69.7 million, which included $64.9 million of depreciation expense and $4.8 million of amortization expense. Charges for depreciation and amortization

 

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for the three months ended June 30, 2020 totaled $85.0 million, which included $77.2 million of depreciation expense and $7.8 million of amortization expense.

General and Administrative Expense

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

(Thousands)

 

Amount

 

 

% of Consolidated Revenues

 

 

Amount

 

 

% of Consolidated Revenues

 

General and administrative expense by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiber Infrastructure

 

$

13,926

 

 

5.2%

 

 

$

13,731

 

 

5.2%

 

Leasing

 

 

2,612

 

 

1.0%

 

 

 

1,774

 

 

0.7%

 

Corporate

 

 

8,362

 

 

3.1%

 

 

 

11,306

 

 

4.2%

 

Towers

 

 

-

 

 

0.0%

 

 

 

995

 

 

0.4%

 

Consumer CLEC

 

 

-

 

 

0.0%

 

 

 

88

 

 

0.0%

 

Total general and administrative expenses

 

$

24,900

 

 

9.3%

 

 

$

27,894

 

 

10.5%

 

General and administrative expenses include compensation costs, including stock-based compensation awards, professional and legal services, corporate office costs and other costs associated with administrative activities. For the three months ended June 30, 2021, general and administrative costs totaled $24.9 million, which includes $3.5 million of stock-based compensation.  For the three months ended June 30, 2020, general and administrative costs totaled $27.9 million, which included $4.1 million of stock-based compensation expense.

Operating Expense

Operating expense for the three months ended June 30, 2021 decreased by $7.0 million from the three months ended June 30, 2020, which was primarily attributable to decreases in Fiber Infrastructure, Towers and Consumer CLEC Business operating expenses offset by an increase in Leasing operating expenses discussed below.  Operating expense for our reportable segments for the three months ended June 30, 2021 and 2020 consisted of the following:

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

(Thousands)

 

Amount

 

 

% of Consolidated Revenues

 

 

Amount

 

 

% of Consolidated Revenues

 

Operating expenses by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiber Infrastructure

 

$

29,572

 

 

11.1%

 

 

$

37,697

 

 

14.2%

 

Leasing

 

 

3,613

 

 

1.3%

 

 

 

868

 

 

0.3%

 

Towers

 

 

-

 

 

0.0%

 

 

 

1,430

 

 

0.5%

 

CLEC

 

 

-

 

 

0.0%

 

 

 

172

 

 

0.1%

 

Total operating expenses

 

$

33,185

 

 

12.4%

 

 

$

40,167

 

 

15.1%

 

Fiber InfrastructureFor the three months ended June 30, 2021, Fiber Infrastructure operating expenses totaled $29.6 million as compared to $37.7 million for the three months ended June 30, 2020.  Operating expense consists of network related costs, such as dark fiber and tower rents, and lit service and maintenance expense.  In addition, costs associated with our construction activities are presented within operating expenses. The decrease in operating expenses is primarily attributable to a decrease of $5.6 million in construction related expenses.

Leasing – Leasing operating expense was $3.6 million and $0.9 million for the three months ended June 30, 2021 and 2020, respectively.  The increase is primarily driven by a $2.1 million increase in network expenses due to the asset purchase agreement the Company entered into with Windstream which was completed in the third quarter of 2020.

Towers – For the three months ended June 30, 2021, Towers operating expenses were not incurred as the U.S. tower business sale was completed on June 1, 2020.  Towers operating expense was $1.4 million for the three months ended June 30, 2020.

 

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Consumer CLEC – For the three months ended June 30, 2021, Consumer CLEC Business operating expenses were not incurred, as we substantially completed the wind down of the business as of the end of the second quarter of 2020.

 

 

Transaction Related and Other Costs

Transaction related and other costs included incremental acquisition, pursuit, transaction and integration costs (including unsuccessful acquisition pursuit costs), costs incurred as a result of Windstream’s bankruptcy filing, costs associated with Windstream’s claims against us and costs associated with the implementation of our new enterprise resource planning system.  For the three months ended June 30, 2021, we incurred $0.4 million of transaction related and other costs, compared to $18.6 million of such costs during the three months ended June 30, 2020. The decrease is primarily related to incurring $10.8 million of total costs related to the Windstream bankruptcy for the three months ended June 30, 2020, and we incurred $3.8 million in costs related to the sale of our U.S. towers business during the three months ended June 30, 2020.

Income Tax Benefit

The income tax benefit recorded for the three months ended June 30, 2021 and 2020, respectively, is related to the tax impact of the following:

 

 

 

Three Months Ended June 30,

 

(Thousands)

 

2021

 

 

2020

 

Income tax (benefit) expense

 

 

 

 

 

 

 

 

Pre-tax loss (Fiber Infrastructure)

 

$

(2,949

)

 

$

(6,149

)

Gain on sale of operations

 

 

7,041

 

 

 

-

 

Other undistributed REIT taxable income

 

 

467

 

 

 

-

 

REIT state and local taxes

 

 

561

 

 

 

-

 

Other

 

 

(36

)

 

 

274

 

Total income tax benefit

 

$

5,084

 

 

$

(5,875

)

 

46


Table of Contents

 

 

Comparison of the six months ended June 30, 2021 and 2020

The following table sets forth, for the periods indicated, our results of operations expressed as dollars and as a percentage of total revenues:

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

(Thousands)

 

Amount

 

 

% of Revenues

 

 

Amount

 

 

% of Revenues

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

$

390,993

 

 

72.3%

 

 

$

369,672

 

 

69.4%

 

Fiber Infrastructure

 

 

149,773

 

 

27.7%

 

 

 

156,547

 

 

29.4%

 

Tower

 

 

-

 

 

0.0%

 

 

 

6,112

 

 

1.1%

 

Consumer CLEC

 

 

-

 

 

0.0%

 

 

 

651

 

 

0.1%

 

Total revenues

 

 

540,766

 

 

100.0%

 

 

 

532,982

 

 

100.0%

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

246,969

 

 

45.7%

 

 

 

285,636

 

 

53.6%

 

Depreciation and amortization

 

 

140,635

 

 

26.0%

 

 

 

171,090

 

 

32.1%

 

General and administrative expense

 

 

50,723

 

 

9.4%

 

 

 

55,027

 

 

10.3%

 

Operating expense

 

 

71,269

 

 

13.2%

 

 

 

80,477

 

 

15.1%

 

Settlement expense

 

 

-

 

 

0.0%

 

 

 

650,000

 

 

122.0%

 

Transaction related and other costs

 

 

4,561

 

 

0.8%

 

 

 

34,528

 

 

6.5%

 

Gain on sale of real estate

 

 

(442

)

 

(0.1%)

 

 

 

(63,818

)

 

(12.0%)

 

Gain on sale of operations

 

 

(28,143

)

 

(5.2%)

 

 

 

-

 

 

0.0%

 

Other expense (income)

 

 

8,475

 

 

1.6%

 

 

 

9,088

 

 

1.7%

 

Total costs and expenses

 

 

494,047

 

 

91.4%

 

 

 

1,222,028

 

 

229.3%

 

Income (loss) before income taxes and equity in earnings from unconsolidated entities

 

 

46,719

 

 

8.6%

 

 

 

(689,046

)

 

(129.3%)

 

Income tax expense (benefit)

 

 

2,527

 

 

0.5%

 

 

 

(10,451

)

 

(1.9%)

 

Equity in (earnings) from unconsolidated entities

 

 

(945

)

 

(0.2%)

 

 

 

-

 

 

0.0%

 

Net income (loss)

 

 

45,137

 

 

8.3%

 

 

 

(678,595

)

 

(127.3%)

 

Net income (loss) attributable to noncontrolling interests

 

 

668

 

 

0.1%

 

 

 

(11,998

)

 

(2.3%)

 

Net income (loss) attributable to shareholders

 

 

44,469

 

 

8.2%

 

 

 

(666,597

)

 

(125.1%)

 

Participating securities' share in earnings

 

 

(581

)

 

(0.1%)

 

 

 

(624

)

 

(0.1%)

 

Dividends declared on convertible preferred stock

 

 

(5

)

 

(0.0%)

 

 

 

(4

)

 

(0.0%)

 

Net income (loss) attributable to common shareholders

 

$

43,883

 

 

8.1%

 

 

$

(667,225

)

 

(125.2%)

 

 

47


Table of Contents

 

 

The following tables set forth, for the six months ended June 30, 2021 and 2020, revenues, Adjusted EBITDA and net (loss) income of our reportable segments:

 

 

Six Months Ended June 30, 2021

 

(Thousands)

 

Leasing

 

 

Fiber Infrastructure

 

 

Towers

 

 

Consumer CLEC

 

 

Corporate

 

 

Subtotal of Reportable Segments

 

Revenues

 

$

390,993

 

 

$

149,773

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

540,766

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

383,634

 

 

$

59,160

 

 

$

-

 

 

$

-

 

 

$

(12,812

)

 

$

429,982

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

246,969

 

Depreciation and amortization

 

 

82,700

 

 

 

57,802

 

 

 

-

 

 

 

-

 

 

 

133

 

 

 

140,635

 

Other income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,097

 

Transaction related and other costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,561

 

Gain on sale of real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(442

)

Gain on sale of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,143

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,797

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,527

 

Adjustments for equity in earnings from unconsolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,844

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

45,137

 

 

 

 

Six Months Ended June 30, 2020

 

(Thousands)

 

Leasing

 

 

Fiber Infrastructure

 

 

Towers

 

 

Consumer CLEC

 

 

Corporate

 

 

Subtotal of Reportable Segments

 

Revenues

 

$

369,672

 

 

$

156,547

 

 

$

6,112

 

 

$

651

 

 

$

-

 

 

$

532,982

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

364,689

 

 

$

56,034

 

 

$

77

 

 

$

(275

)

 

$

(15,942

)

 

$

404,583

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

285,636

 

Depreciation and amortization

 

 

107,027

 

 

 

62,340

 

 

 

783

 

 

 

791

 

 

 

149

 

 

 

171,090

 

Other income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,088

 

Settlement expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

650,000

 

Transaction related and other costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34,528

 

Gain on sale of real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(63,818

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,105

 

Income tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,451

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(678,595

)

 

 

��

 

48


Table of Contents

 

 

 

 

Revenues

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

(Thousands)

 

Amount

 

 

% of Consolidated Revenues

 

 

Amount

 

 

% of Consolidated Revenues

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

$

390,993

 

 

72.3%

 

 

$

369,672

 

 

69.4%

 

Fiber Infrastructure

 

 

149,773

 

 

27.7%

 

 

 

156,547

 

 

29.4%

 

Towers

 

 

-

 

 

0.0%

 

 

 

6,112

 

 

1.1%

 

Consumer CLEC

 

 

-

 

 

0.0%

 

 

 

651

 

 

0.1%

 

Total revenues

 

$

540,766

 

 

100.0%

 

 

$

532,982

 

 

100.0%

 

LeasingDuring the six months ended June 30, 2021, Uniti reimbursed $92.1 million of Growth Capital Improvements, of which $28.5 million, as allowed for under the Settlement, represented the reimbursement of capital improvements completed in 2020 that were previously classified as TCIs.  Upon reimbursement, the Company reduced the unamortized portion of deferred revenue related to these capital improvements and capitalized the difference between the cash provided to Windstream and the unamortized deferred revenue as a lease incentive.  This lease incentive, which is $0.9 million and reported within other assets on our Condensed Consolidated Balance Sheet as of June 30, 2021, will be amortized against revenue over the initial term of the Windstream Leases.  Subsequent to June 30, 2021, Windstream requested, and we reimbursed $11.8 million of qualifying Growth Capital Improvements.  As of the date of this Quarterly Report on Form 10-Q, we have reimbursed a total of $188.6 million of Growth Capital Improvements.

<

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

(Thousands)

 

Amount

 

 

% of Segment Revenues

 

 

Amount

 

 

% of Segment Revenues

 

Leasing revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Windstream leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash rent

 

$

332.2

 

 

85.0%

 

 

$

330.6

 

 

89.4%

 

Non-cash revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TCI revenue

 

 

18.8

 

 

4.8%

 

 

 

16.9

 

 

4.6%

 

Straight-line revenue

 

 

11.6

 

 

3.0%

 

 

 

-

 

 

0.0%

 

Total non-cash revenue

 

 

30.4

 

 

7.8%

 

 

 

16.9

 

 

4.6%

 

Total Windstream revenue

 

 

362.6