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Uniti Group Inc. (NASDAQ:UNIT)
Q1 2020 Earnings Call
May 11, 2020, 4:15 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Uniti Group's First Quarter 2020 Conference Call. My name is Ann and I will be your operator for today. A webcast of this call will be available on the company's website, www.uniti.com beginning May 11, 2020 and will remain available for 14 days. At this time, all participants are in a listen-only mode. Participants on the call will have the opportunity to ask questions following the company's prepared comments.

The company would like to remind you that today's remarks include forward-looking statements and actual results could differ materially from those projected in these statements. The factors that could cause actual results to differ are discussed in the company's filings with the SEC. The company's remarks this afternoon will reference slides posted on its website and you are encouraged to refer to those materials during this call.

Discussions during the call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company's current report on Form 8-K dated today.

I would now like to turn the call over to Uniti Group's, Chief Executive Officer, Kenny Gunderman. Please go ahead, Mr. Gunderman.

Kenny Gunderman -- President And Chief Executive Officer

Thank you. Good afternoon everyone and thank you for joining. Please turn to slide four in our presentation. Before I review our operational performance for the first quarter, I'd like to first discuss how Uniti has been impacted and is responding to the COVID-19 pandemic. First and foremost, Uniti is focused on the health and safety of our employees', customers and vendors and is vigilantly following federal and state suggested guidelines.

As a result, approximately 70% of our employees are working from home. Our remaining employee base remains active working in the field with first responder designation, maintaining our network servicing existing customers and installing services for new customers. We're taking every precaution to keep these employees safe while remaining active especially since our customers are demanding our mission-critical service now more than ever.

In fact, our installation activity in the first quarter was quite strong and that momentum has continued into the second quarter. Also, our network continues to perform well. And although we've been -- we've seen a decrease in IP traffic due to stay-at-home, orders wireless carrier traffic has increased by 20% with no degradation in the performance of our network.

To date we have not seen any order or service cancellations from customers as a result of COVID-19 and the only discernible negative effects thus far are small and timing-related. For example, approximately 50,000 whose physical locations must remain closed and the timing of installs relating to permitting delays. There's also the potential for another 50,000 to 75,000 of MRR delay related to new bookings from enterprise sales depending on how long businesses and our markets continue to be impacted by COVID-19.

Conversely, we have seen a more than offsetting increase in requests from numerous critical industries including healthcare customers and government entities for communications infrastructure upgrades and builds as more providers turn to telemedicine and other high bandwidth usage technologies to serve their patients and customers. We also recently built and turned up an emergency command center in New Orleans within 24 hours for the Department of Defense to help support treatment and response efforts in that region. Importantly demand and insulation activity from our wireless customers is very robust and we currently expect that trend to continue. In short, our business has proven highly resilient and truly mission-critical.

Looking forward to a post COVID-19 world, we believe there are many trends that will prove positive for our business. On the demand side, we believe distributed work environments are likely to persist, creating greater urgency for 5G bandwidth and network security. Other high bandwidth functions such as telemedicine corporate video conferencing and virtual educational instruction will be more widely accepted sooner than expected.

With respect to installs, this crisis has highlighted the significance of our infrastructure at the federal and state and municipal levels like never before, which we believe will result in more fluid access to permitting. For example, some permitting agencies are already adopting new technologies that allow them to accept digital submissions, which we believe will be a significant positive for Uniti in the industry moving forward as it allows for a more streamlined and efficient process.

Turning to Windstream. We're pleased that the U.S. Bankruptcy Court for the Southern District of New York approved our previously announced settlement agreement with Windstream on Friday. We believe this agreement adds significant strategic value for Uniti, as it further expands and enhances the value of our national network, strengthens Windstream's competitive position and provides Uniti with a clear path forward. We're also announcing today improved terms for the previously announced sale of our U.S. towers.

As you may recall, Uniti had an exclusive dough shop period to evaluate offers from other parties. Following this period, Uniti has now agreed to sell 90% of its U.S. tower business to Melody Investment Advisors, while retaining a 10% investment interest. This transaction realizes significant value for Uniti, while allowing the company to own a meaningful interest in a scale wireless tower owner and operator. I'll provide more details on the revised sale of our towers and the Windstream settlement agreement later in my prepared remarks.

We continue to drive high margin low churn recurring revenue in all of our business units and the results from our core business, continue to be in line with our expectations. We continue to deemphasize noncore operations that do not fit our strategy, such as our nonstrategic construction business and our residential CLEC business called Talk America, both of which are non-readable low margin nonrecurring businesses.

As a result of our actions, 97% of our revenue is now recurring with an average term of approximately nine years. Companywide churn although remains low and for the quarter was less than 0.3%. We continue to evaluate opportunities that optimize as well as monetize the highly valuable infrastructure assets within our portfolio.

In the past two years alone, inclusive of our recently announced U.S. tower sale, we've generated approximately $350 million of proceeds from recycling capital at premium multiple transactions, including our Latin American tower business our U.S. ground lease portfolio and sale of our U.S. tower business. Through lease-up of our fiber infrastructure at Uniti Leasing we have generated an additional approximately $90 million of proceeds through opco/propco and IRU transactions. We expect similar activities in the coming 12 to 24 months to generate meaningful proceeds.

Let me now provide an update on our operational results for the first quarter. Uniti Fiber sales bookings in the first quarter were approximately $0.6 million of MRR. Approximately, 85% of our sales bookings in the quarter came from local enterprises, government, schools and wholesale customers. Enterprise bookings during the quarter increased 40% from prior year levels, reflecting our continued focus to drive lease-up on our southeast markets.

We also added over 10,000 on-net near-net buildings in our markets, providing significant opportunity for future lease-up. Due to COVID-19, the E-Rate submission deadlines for new awards has been extended 30 days. We'll provide a more comprehensive update next quarter on E-Rate, but early indications are we are able to renew virtually all of our customers and are pursuing several new opportunities.

The remaining 15% of our bookings activity came from the four national wireless carriers, as we continue to focus on adding on-net near-net sites, while pursuing a handful of greenfield opportunities. As I mentioned earlier, we've seen minimal impact so far from bookings from COVID-19. Uniti Fiber sold $0.6 million of MRR during the first quarter, with 65% of gross installs related to non-wireless opportunities, 25% related to wireless and 10% related to bandwidth upgrades.

In Uniti Leasing, we continue to pursue additional lease-up opportunities that utilize our existing fiber network, as well as pursue larger scale sale-leaseback and opco/propco transactions. We're actively working several opportunities with a well-diversified customer base that includes wireless carriers, national and regional cable providers and global content providers. We've also seen a material increase in interest from our wholesale customers after announcing our settlement agreement with Windstream in February for the fiber we are acquiring as part of this agreement.

With that, I will turn the call over to Mark.

Mark A. Wallace -- Vice President Chief Financial Officer And Treasurer

[Technical Issues]

It proves to be incredibly stable and resilient even in times of crisis and economic downturns, on par with towers and data centers. Accordingly, our operations performed exceedingly well across the board during he quarter and that translated to solid core financial results.

Our updated guidance for this year remains largely in line with our previous outlook. We are adjusting our guidance primarily for the timing and change in structure of the sale of our U.S. towers business and slightly higher corporate cost this year, which we expect to decrease to normalized levels in 2021.

Please turn to slide five and I'll provide a brief update on our first quarter results. We reported consolidated revenues of $266 million, consolidated adjusted EBITDA of $202 million, AFFO attributable to common shares of $97 million and AFFO per diluted common share of $0.45.

Net loss attributable to common shares for the quarter was $79 million, or $0.41 per diluted common share, and included a $73 million write-off of non-cash unamortized debt discount and issuance cost, as a result of the full repayment of our term loans on February 10 and $16 million of transaction-related and other costs.

Our Uniti Leasing segment revenues and adjusted EBITDA increased 5% and 4% respectively over the year ago period. During the quarter, Uniti Leasing deployed approximately $5 million of capital, associated with growth capital investment initiatives, principally for Bluebird, at an initial yield of 9.25%. Windstream made $36 million of improvements to our network with their capital during the quarter, bringing the cumulative amount since our spin-off to just over $800 million of tenant capital improvements.

Turning to Uniti Fiber. During the quarter, we turned over 300 dark fiber and small cell sites for wireless carriers across multiple markets, adding annualized revenues of $2.5 million. We currently have over 1,100 dark fiber and small cell sites remaining in our backlog, representing an incremental $5.3 million of annualized revenues.

Uniti Fiber core revenues and margins were in line with our expectations. When compared to the same quarter last year, it's important to remember that our first quarter 2020 results do not include revenue or adjusted EBITDA related to our Uniti Fiber Midwest operations, as they were sold to Macquarie as part of the Bluebird transaction in August of last year.

Non-core construction revenues at Uniti Fiber were consistent with our expectations, while the related adjusted EBITDA was lower-than-expected by approximately $2 million, due to compressed margins on certain construction projects. As previously noted, we continue to deemphasize lower margin non-recurring products and services that are not strategic to our fiber business.

Uniti Fiber net success-based capex was approximately $49 million in the first quarter and was higher-than-expected due to the timing of upfront customer NRC payments that are now expected to be received over the next two quarters. We also we also incurred $1 million of integration capex and $1 million of maintenance capex, or about 1% of revenues.

As I mentioned last quarter we continue to complete deployment of the remaining three out of the original 14 major dark fiber and small cell builds and still expect all of these to be completed by the end of this year. The completed projects achieved an aggregate initial anchor yield of 7%.

At Uniti Towers we incurred $16 million of capex spend in the first quarter, while completing the construction of 32 towers and decommissioning one tower, bringing our completed and in-service tower count to 703 towers at quarter end.

Please turn to slide six and I'll now cover our updated 2020 guidance. As I mentioned, we are revising our prior guidance for primarily the following items: first, the impact from the timing and final structure of the sale of our U.S. tower business; two, transaction-related costs and other items reported in the first quarter of this year; and last, other relatively modest business unit level revisions. Our guidance excludes any impact from the court-approved settlement with Windstream related to its reorganization process as the effective date and the accounting treatment are uncertain at this time.

Our outlook anticipates that Windstream lease continues in full force in effect and that Windstream continues to make all lease payments on time under the existing master lease. Our current outlook excludes future acquisitions, capital market transactions and future transaction and other costs not specifically mentioned. Actual results could differ materially from these forward-looking statements. A reconciliation of our prior 2020 outlook to our current outlook is included in the presentation materials posted on our website today.

Our current full year outlook for 2020 includes the following for each segment. Starting with Uniti Leasing. We now expect Uniti Leasing revenues and adjusted EBITDA to be $740 million and $729 million respectively at the midpoint representing adjusted EBITDA margins of 98%. The slight increase from our prior guidance is due to incremental TCI revenues recognized in the first quarter of this year.

The Uniti Leasing sales team is currently focused on leasing up our existing fiber portfolio as well as 2.2 million fiber strands we are receiving as part of the Windstream settlement agreement. Uniti Leasing sales funnel represents $510 million of total contract value and $23 million of annual revenue consistent with the prior quarter and we continue to assume lease-up activity this year contributes $4.5 million of annualized incremental revenue.

Our current guidance continues to reflect $28 million of net success-based capex at Uniti Leasing principally related to Bluebird. As a reminder, the investments in the Bluebird network will earn an initial yield of 9.25% resulting in incremental annualized cash rent of just over $2 million.

Turning to slide seven. We expect Uniti Fiber revenues of $306 million and adjusted EBITDA of $116 million at the midpoint of our 2020 outlook, which remains in line with our prior guidance. Net success-based capex for Uniti Fiber this year is expected to be about $100 million at the midpoint, up about $10 million from our prior guidance due to the timing of capex spend on some of our fiber builds. Of the remaining -- of the three remaining large dark fiber and small cell projects, we now expect one of the projects to be completed by the end of next quarter with the two remaining projects completed by year-end. Once all 14 projects are completed they will represent annualized recurring revenue of over $20 million.

We continue to focus on leasing up our anchor wireless builds and are actively selling to numerous enterprise and wholesale customers as well as schools and government facilities in many of our markets. Our enterprise sales bookings activity was strong during the quarter exceeding our expectations by over 20%. While there is potential to see some delays in bookings related to COVID-19, we are optimistic the momentum we saw in the first quarter will continue later this year, as we continue to ramp up sales activities in our recently completed anchor markets.

We expect Uniti Fiber net success-based capital intensity to now be about 33% this year, declining from 50% in the first half of 2020 to about 12% in the second half of this year. We expect integration and maintenance capex for 2020 of about $6 million each respectively.

Going forward, we expect Uniti Fiber's net success-based capital intensity to be in the 30% to 35% range or lower as we continue to build -- continue to pursue a handful of greenfield dark fiber and small cell builds. We are very focused on managing down Uniti Fiber's capital intensity and realizing the value embedded in the investments we've made over the last few years.

Turning to towers. As Kenny mentioned earlier, we have signed an agreement to sell 90% of our U.S. tower business to Melody for cash consideration of approximately $220 million implying a 34 times annualized tower cash flow multiple for the entire business. Uniti will retain a 10% investment interest through an affiliate of Melody. Also as part of the agreement, Uniti will receive an incremental earn-out payment in March 2021 for each additional pipeline tower completed in 2020, which we currently estimate to be about $2 million.

We expect the transaction to close by the end of the second quarter and have included operating results in our 2020 guidance only up to that estimated closing date. For the full year 2020, we now expect towers revenues to be about $7 million with reported adjusted EBITDA loss of $1 million. The expected pre-tax gain on the sale of the U.S. towers business of $38 million is expected to be reported as a gain on sale of real estate and accordingly will be excluded from our reported revenues, adjusted EBITDA and AFFO.

As a result of the change in timing structure of the sale of our tower business, we expect tech capital expenditures for the full year at Uniti Towers to range from $20 million to $25 million reflecting approximately 50 towers constructed during the first half of the year. Upon closing of the transaction with Melody, we do not expect any further tower-related capital expenditures for the remainder of the year.

Turning to slide nine. For 2020, we now expect full year AFFO to range between $1.79 and $1.83 per diluted common share with a midpoint of $1.81 per diluted share. On a consolidated basis, we now expect revenues to be $1.1 billion and adjusted EBITDA to be $810 million at the midpoint. Our guidance now contemplates consolidated interest expense for the full year of approximately $420 million excluding any deferred financing cost write-offs. As noted, reported interest expense in 2020 includes an additional $73 million of non-cash write-off of deferred financing cost that was reported in the first quarter of this year related to the payoff of our term loans.

Corporate SG&A excluding amounts allocated to our business segments should be approximately $42 million including $9 million of stock-based compensation expense. We now expect weighted average diluted shares outstanding for full year 2020 to be approximately 222 million shares.

As a reminder, guidance ranges for key components of our outlook are included in the appendix to our presentation. On slide 10 we have provided a tabular reconciliation of our prior guidance to our updated 2020 outlook, which summarizes my comments this afternoon.

Now turning to the capital structure. This morning our Board declared a dividend of $0.15 per share to stockholders of record on June 26, payable July 10. We expect our Board will continue to evaluate our dividend policy, its key developments in Windstream's reorganization occur and order form Windstream's emergence from bankruptcy. Any decision to change our dividend policy will be made by our Board of Directors at the appropriate time.

At quarter end we had approximately $149 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity. Our leverage ratio at the end of the first quarter stood at 6.4 times based on net debt to annualized adjusted EBITDA. Proceeds from the sale of our tower business will provide additional liquidity and ensures that we have no need to raise additional capital this year. It will also be slightly deleveraging as we currently expect to initially use the net proceeds to repay borrowings on our revolving credit facility but ultimately reinvest the proceeds into fiber assets.

We expect to continue our emphasis on optimizing and monetizing our portfolio. Given the recent volatility in the capital markets, we believe it is prudent to focus on recycling capital at attractive valuations where appropriate. While our outlook does not include any capital market transactions, we continue to monitor and evaluate the capital markets, engage with market participants routinely and may take advantage of attractive opportunities.

Looking forward, we believe the court approval of our settlement agreement with an ultimate emergence of Windstream from bankruptcy, opens up a wide range of strategic optionality for Uniti. We remain optimistic about the fundamentals of our business, the long-term demand for communication infrastructure and our ability to deliver value for our stockholders.

And with that I'll turn the call back over to Kenny.

Kenny Gunderman -- President And Chief Executive Officer

Thanks, Mark. Please turn to slide 11. We've agreed to sell 90% of our U.S. tower business to Melody for approximately $220 million or roughly 34 times annual tower cash flows, a premium of approximately $30 million to the previously disclosed transaction.

Uniti will also retain a minority investment interest in the tower business. As part of the transaction, Uniti will receive an incremental earn-out for each additional pipeline tower completed in 2020. We believe this transaction realizes significant value for our stockholders, as it represents an economic gain of approximately $55 million and an unlevered IRR of approximately 20%, which does not factor in potential future upside from our retained investment interest and ongoing strategic partnership.

The transaction also allows us to reduce our ongoing capex investment while at the same time solidifies a strategic relationship with the new tower company that will enable us to serve wireless carriers with integrated solutions.

Turning to slide 12. Our settlement agreement with Windstream will now become effective at the earlier of Windstream's emergence from bankruptcy and February 28, 2021. The effectiveness of the settlement is still subject to finalizing and executing various definitive documentation, federal and state regulatory approvals and that Uniti received true lease and REIT opinions.

We expect that all these conditions will be met. As a reminder, all litigation is stayed during the pendency of the settlement and the master lease remains in full force and effect with Windstream remaining current on its monthly lease payments. On Windstream's emergence from bankruptcy and our agreements becoming effective, we expect to be well positioned for accelerated growth for years to come.

Slide 13 illustrates the many long-term benefits our court-approved settlement provides for Uniti including making the master lease stronger, helping Windstream become a healthier tenant and acquiring attractive fiber assets, while at the same time making long-term fiber investments that are value accretive to Uniti.

As it relates to making Windstream a healthier tenant, it's important to remember that 90% of our capital is being used to acquire or build mission-critical fiber infrastructure at attractive yields, which is consistent with our historical strategy. Further, we fully expect this agreement will enable a reorganization of Windstream and emergence from bankruptcy with ample liquidity and a deleveraged balance sheet at emergence while positioning Windstream for sustainable growth and margin expansion.

Slide 14 demonstrates how our new MLAs with Windstream will be substantially enhanced for Uniti's benefit in a number of ways. First our ability to add financial covenants to the lease agreements as well as including both Windstream Holdings and Windstream Services as tenants under the lease provides enhanced security versus our existing lease.

Second annual aggregate rent is not expected to change as we've consistently stated before. Finally, we believe bifurcating the master lease into two separate leases that govern the ILEC and CLEC networks, separately unlocks value and strategic optionality for both Uniti and Windstream, while providing enhanced diversification for Uniti and Windstream's new owners decide to sell the CLEC or ILEC.

Slide 15 expands on the potential diversification opportunity. Based on the midpoint of our 2020 outlook, Windstream represents 65% of our total revenue. However, if Windstream were to sell a CLEC and transfer the lease to a third-party and if you were to layer in the approximately $30 million of incremental EBITDA from the dark fiber IRUs we're acquiring, the revenue diversity should shift significantly to where Windstream would represent less than half of our total revenue, which as you may recall was the goal we originally set out to achieve before Windstream entered restructuring.

Turning to slide 16, we're acquiring 440,000 fiber strand miles that are currently not owned by Uniti today, as well as gaining rights to sell or lease to third parties 1.8 million strand miles that are part of the Uniti-owned Windstream lease network.

Together these additional 2.2 million fiber strand miles increase our leasable fiber available to third parties by approximately 90%. This national network not only brings substantial lease-up potential, but also synergies with Uniti Fiber and Uniti Leasing. Importantly, the expanded footprint also greatly enhances our opportunity set for additional opco/propco and company acquisitions.

As a frame of reference on slide 17, we previously acquired a national network from CenturyLink in 2018, which has contributed lease-up of approximately $50 million of upfront IRU payments and $10 million of annual recurring revenue in a span of just two years. Our newly acquired assets and rights equate to 2.2 million strand miles or roughly 10 times the capacity of the CenturyLink network, and includes metro fiber in numerous markets providing additional sale opportunities such as small cells, fiber-to-the-tower and enterprise services, all of which are not able to be sold utilizing the current CenturyLink routes as they long-haul routes only.

As I mentioned earlier, we expect similar success monetizing the acquired fiber assets and rights from the Windstream settlement after the effective date. In addition, we're acquiring dark fiber IRU contracts that currently generate approximately $30 million of EBITDA today and are comprised of a mix of well diversified customers as detailed on slide 18. This is high-quality revenue with 100% of the customer's on-net and approximately 75% of the acquired revenue from top 25 customers or existing customers of Uniti. Similar to the existing lease-up, our Uniti Leasing network this revenue is also near 100% margin with little to no incremental capex required.

Slide 19 illustrates the benefits of the GCI capex program. As part of its post-emergence business plan, Windstream has stated an intent to increase its fiber-to-the-home footprint with a plan to bring 1-gig broadband service to over 50% of its homes past by 2028. This compares favorably to most other national ILECs today, which should enable Windstream to be more competitive in most of its markets.

The GCI investments will enable these high speeds and the assets will immediately, become Uniti's assets generating an initial yield of 8%, which compares favorably to most of our existing Uniti Leasing and Uniti Fiber contracts as highlighted on slide 20.

In addition, we'll have numerous additional lease-up opportunities during the 10-year initial term based upon our new contractual ability under the new MLAs to joint build new fiber with shared use to Uniti and Windstream as an anchor customer. We continue to be very excited about this agreement we've reached with Windstream. Not only does this agreement enable restructured Windstream to emerge at a much lower leverage, thus removing the biggest overhang Uniti has had historically. So it's also very strategic to Uniti and substantially enhances our overall portfolio of assets and cash flow.

Turning to slide 21, the quality of our portfolio of almost seven million strand miles of valuable owned fiber and 2,200 small cell locations either in service or in backlog continues to be highly under appreciated. We're one the select view providers of these critical components that are enabling the 5G revolution. And as a result, the opportunity stays tremendous for sustainable growth for many years to come. Our infrastructure provides substantial highly predictable revenue and cash flow, material lease-up potentially and attractive margins.

Uniti is well experienced at managing through times of crisis and our business has proven resilient, not just in the early days of the COVID pandemic, but throughout other crisis in our history.

As slide 23 shows, we've been able to grow consistently our revenue adjusted EBITDA and AFFO over the past four years. Importantly, through our proprietary M&A efforts we've added over three million fiber strand miles to our network 2,200 small cells and 700 towers to our portfolio, since our spin-off in early 2015. Later this year, after the impacts of COVID-19 have hopefully started to subside and Windstream emerges from bankruptcy, we will be a substantially stronger company with a healthier tenant and enhanced validated lease with over $7 billion of predictable high-margin revenue, ample liquidity and no near-term maturities and one of the largest independently owned mission-critical communications infrastructure businesses, with a highly valuable portfolio.

With that operator, we are now ready to take questions.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from the line of Frank Louthan. Your line is now open.

Frank Louthan -- Raymond James -- Analyst

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

Kenny Gunderman -- President And Chief Executive Officer

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

Mark A. Wallace -- Vice President Chief Financial Officer And Treasurer

Yeah, the 10% will be accounted for as an equity and interest. So we'll pick up our share of earnings. That's not in our forecast, because we didn't have a good basis right now to estimate what it was. But it'll be picked up as equity and earnings in our financial results going forward.

On your question about the dividend, I don't think there's -- you should really think about the dividend going forward any differently than what I expressed on our call -- on our last quarter's call. So as you know currently, I've given out what we can pay under the restrictions that we're currently under for this year to the extent that we are able to achieve the conditions to hitting the covenant reversion threshold then we would be able to pay out and may consider paying out 100% of taxable income and may also consider paying out any capital gains that we generate this year, and so I think it's, obviously, in order to hit that the two key thresholds are hitting the covered reversion criteria would be Windstream needs to emerge from bankruptcy. And then we need to get leverage to 5.75 on a net leverage basis.

And we may very well be able to do that. But in order to do so, we need to execute on some of these things as Kenny mentioned earlier about lease-up of our existing portfolio and then some other asset monetizations as well.

Frank Louthan -- Raymond James -- Analyst

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

Kenny Gunderman -- President And Chief Executive Officer

Yes, Frank, I think this partnership -- one of the reasons this partnership is appealing that I didn't mention is that I think there's a substantial amount of capital that's going to be put behind it by Melody and its LPs. And so I think the -- we think the amount of new towers that are going to be built is probably a lot more than it would have been had it continued to be owned outright by Uniti, 100% by Uniti. So on a go-forward basis I think there's going to be a lot of development activity. We're very excited about that. We're excited to retain an interest in the upside potential. And I think probably for the foreseeable future that will be how we're participating in the macro tower investment cycle.

Frank Louthan -- Raymond James -- Analyst

All right, great. Thank you very much.

Operator

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

Greg Williams -- Cowen -- Analyst

Great. Thanks for taking my questions. I just wanted to confirm in your scripted remarks, you said there would be no need to raise additional capital this year. And you did say you would look at recycling capital as you always have. On that question, are you seeing activity in selling possibly your fiber assets? Or are buyers at a pause at the moment?

The last question is, from where you sit when do you anticipate Windstream emerges from bankruptcy, what time frame are you planning for internally? Thanks.

Mark A. Wallace -- Vice President Chief Financial Officer And Treasurer

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

I'll let Kenny address your other question.

Kenny Gunderman -- President And Chief Executive Officer

Yes. So Greg, I think you asked about interest in our fiber asset, Uniti Fiber. The short answer is we get regular inbound interest in that business. So that hasn't changed. In fact maybe the level of interest has probably gone up. It continues to be a very strategic part of our portfolio, has been from the beginning, continues to be. It's a great asset especially now that we've fully integrated the businesses that we've acquired and we're really hitting our stride on the key metrics like bookings, installs, churn, etc, really improving out the lease-up of the model. I think that's critically important.

And there's tremendous opportunity in that business on a go-forward basis with the tailwinds of 5G especially we think accelerated through this COVID pandemic and just the attractive competitive nature of the Tier 2 markets that we're in. And frankly with this settlement with Windstream, the network has been supercharged with a lot of this fiber that we're getting. And so there's going to be off-net -- on-net savings in areas where we currently have lease network. It will become on-net. And we've got an increase in our leasable capacity by 90%. So the interest has been consistent for good reason and as we've always done, and I think as we've proven we'll continue to consider that interest in a shareholder-friendly fashion while also balancing the fact that we're reading long-term holders of assets and eventually we think make the right decisions for our shareholders.

Greg Williams -- Cowen -- Analyst

And then timing on the Windstream bankruptcy, your best guess -- best estimation on that?

Mark A. Wallace -- Vice President Chief Financial Officer And Treasurer

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

Greg Williams -- Cowen -- Analyst

Great. Thank you.

Operator

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

Philip Cusick -- JPMorgan -- Analyst

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

Mark A. Wallace -- Vice President Chief Financial Officer And Treasurer

Yes. Yes. So, we're not -- if you missed my comments earlier, we're actually not required to raise any capital this year for Windstream or otherwise. So, we don't really have any timing of capital raise in our guidance. And so we'll evaluate capital raises as the opportunity presents itself in the capital markets. But we don't have any requirement to do so.

Philip Cusick -- JPMorgan -- Analyst

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

Kenny Gunderman -- President And Chief Executive Officer

Hey Phil it's Kenny. So, the interest in infrastructure assets particularly 5G infrastructure assets like fiber small cells towers has not dissipated. I would say it's probably accelerated certainly held steady at the least during this period, especially when you consider that a lot of the interest historically and continuing through today has come from infrastructure funds or private equity or just non-traditional investors and so that interest has not at all dissipated.

So, I think we foreshadowed a couple of years ago our likelihood of working with partnering with these types of funds and we've done that now in a number of ways, but monetizing assets whether it be towers or partnering on acquisitions like Bluebird or any Uniti Fiber Midwest operations opco/propco structures and we've done that now three or four different times.

And I think there's a likelihood that we'll continue to do that in shareholder friendly value-accretive ways given that interest has not dissipated. So, I think some of the -- probably the public companies where cost of capital are a little bit volatile now there may be some cooling of interest or pause going on. But from our standpoint, both the proprietary M&A discussions and the interest from non-traditional capital sources has not dissipated.

Philip Cusick -- JPMorgan -- Analyst

Thanks guys.

Operator

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

David Barden -- Bank of America Merrill Lynch -- Analyst

Hey guys. Thanks for taking the question. So, I guess, the first question Kenny for you is Windstream is saying that as a function of this settlement that they arrived at with you they've benefited to the tune of $1.25 billion on an NPV basis. You've historically said that you were willing to talk about the lease if it was kind of value neutral.

I was wondering if you could kind of elaborate a little bit on the game theory here and whether this is a one plus one equals three type of situation where them being healthier makes you healthier. If you could kind of walk us through how you thought through this process? And why this settlement is a next good thing for Uniti would be super helpful?

And then I think the second thing is you've talked about this pipeline that's been kind of waiting around obviously, the cost of capital that Uniti has been too high to do a lot of deals that would otherwise be doable. At what velocity might we expect things to start to unlock as we get past the August Windstream bankruptcy reemergence, etc,etc? Thank you.

Kenny Gunderman -- President And Chief Executive Officer

Yes. Good questions David. So, first of all, on the settlement given the public nature of the bankruptcy process it's been somewhat of a challenge for us to comment in a full-throated fashion I would say given how it's been negotiated publicly. And also it's been important for Windstream to be able to articulate to its stakeholders of the value of the settlement in order to get the settlement approved.

And so it isn't uncommon to hear those types of comments. But in reality when you mentioned the $1.250 billion of value that this owner brings to Windstream I think the reality is the number is probably higher.

And I've said that repeatedly during the mediation that I thought what we were bringing to the table for the Windstream state was higher than that. And I think that doesn't mean that the negotiation was a zero-sum negotiation because it never was and we foreshadowed going into the discussions that it wouldn't be.

And what I mean by that is yes, it's valuable to Windstream but it's also materially valuable to Uniti. And when you bifurcate the different parts of the deal and really unpack it and think about it from the standpoint of our historical strategy of investing for our customers, it starts to make more sense.

So, for example, the GCI program when we're investing $1.750 billion to upgrade effectively our network. That's in addition to $800 million -- roughly $800 million of investment that Windstream's already made to our benefit. So, effectively $2.5 billion to upgrade our network which substantially derisks our renewal in 10 years.

And in the meantime Windstream is paying us an 8% cap rate in order to facilitate those investments which is in line with the 5% to 7% to 8% anchor yields that we get on our dark fiber projects with Verizon or AT&T or otherwise.

So, that particular part of the transaction is exactly in line with what we've done historically with other customers and we're excited about how that is going to add a lot of value to Uniti down the road.

And obviously also help Windstream in the meantime, paying roughly $650-ish million for 42,000 route miles of fiber, which is effectively what we're getting here in addition to $25 million to $30 million of valuable readable EBITDA is also on strategy. And as I mentioned, that fiber it's relatively unused by Windstream. So this is -- it's a valuable part of the transaction to them. But it's going to be valuable to us as we lease it up and lease it up consistent with what we've been able to do in the past with other transactions. So this is not a theoretical exercise for us. We have the team and the processes in place to do that to optimize that value.

In addition to the synergies that it brings with our existing business from off-net on-net perspective. So we're enhancing our lease-up potential by 90%. And we're going to be able to I think realize material proceeds from doing that. And even the mix of consideration here in the settlement of using cash and equity, we're always careful about using our equity especially at these prices. But we've also used equity in all of our previous historical material M&A transactions.

And use it as a way to align interests of our stakeholders, the sellers in transactions. And here the owners or the new owners of Windstream the 90% owners of Windstream are going to get -- are going to have 10%, 15%, 20% of our equity having that alignment of interest really for the first time on a go-forward basis I think is going to be very valuable to us. And so that part of the consideration mix was important in terms of aligning that interest.

So all of those are benefits even before you get to the benefit of us having a much stronger healthier customer in Windstream without near-term maturities and plenty of liquidity and all of the enhancements to the MLA -- the MLAs that we talked about previously in our prepared remarks. So net-net, I definitely think Uniti is getting substantial value in this transaction and so is Windstream. So it is really a one plus one equals three transaction, which is what we've contemplated and talked about for really years now leading up to this moment.

Your second question was about the

David Barden -- Bank of America Merrill Lynch -- Analyst

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

Kenny Gunderman -- President And Chief Executive Officer

Yes. Good question as well. So we -- look we've never pressed pause on our M&A discussions over the past year 1.5 years, two years. We've continued those -- and in many case, we talk about the proprietary funnel all the time. And if you look back over the past couple of years, we've actually done transactions I think probably the most material one was the Bluebird transaction. And -- but there have been other bolt-ons, smaller bolt-ons both sale-leasebacks and M&A just full on company acquisitions, which we intentionally lowered the size of the deals we were pursuing, because we didn't want to overexpose ourselves to needing to raise capital given all the volatility.

So we remain very engaged with counterparties that's one of the reasons it's easy for us to -- or easier for us to monetize assets when we need to. It's also one of the things that causes counterparties to continuously call us expressing interest in assets or interest in deal ideas. We're just -- we're very engaged. And so I think when the moment comes, later this year or early next when there's a stabilization of our cost of capital, I think we'll be well-prepared to reengage and be more acquisitive in terms of assets and companies. So we're looking forward to that.

David Barden -- Bank of America Merrill Lynch -- Analyst

Good. Great to hear. Thanks, Ken.

Operator

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

Simon Flannery -- Morgan Stanley -- Analyst

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

Kenny Gunderman -- President And Chief Executive Officer

Simon, it's Kenny. I'll try to take all of those and keep me honest, if I miss them. So on Uniti Fiber, yes, we hit this in our prepared remarks. And the short answer is, there's been very little effect from COVID frankly and we had to kind of dig deep to come up with the effects to help put numbers on our script. But essentially about 50,000 of MRR has been delayed from an install perspective, either because customers are not there for us to install or because of permitting delays. And I would say -- And I would tell you that that number has actually come down post the end of the first quarter, because we're starting to now chip away at that basket.

We've -- I think conservatively estimated that roughly 50,000 to 75,000 of enterprise bookings may be delayed because of COVID because we don't have salespeople out making physical customer calls. They're doing it virtually and there are certain customers who are just not making purchases today. But even that number I would say is conservative and it's an estimate on our part as opposed to an actual effect to our business.

So it's been very minimal. And I think part of that is because when you look at the customer segment across the industry that's been affected the most by COVID it's really the small business area. And small businesses for Uniti represent about 1% of our total revenue. So just that alone causes the effect to be minimal for us.

But secondly, I think proven -- the industry largely has proven that fiber infrastructure is truly mission-critical. And this -- I think this healthcare catastrophe and the fact that our services continue to be mission-critical through that has proven that. Now of course the longer this crisis goes on we'll have to continue to monitor it and we'll keep you posted on any changes thus far we've proved very resilient.

With respect to your questions about the GCI program, so we've not begun to engage actively with Windstream on this. I think one of the features of this program is that we will actually be very engaged with Windstream once the settlement is effective. We'll actually be working hand-in-hand with Windstream on making these investments identifying making -- improving these investments.

But we've not done that yet because the settlement is not actually finalized. It won't be until later this year. So I can't respond to your comment about any timing delays Simon I just have no perspective yet.

I will say on RDOF, again no comments on effects on Windstream yet. But with respect to RDOF, in general, we definitely believe there's lots of opportunities for us to work with other counterparties on facilitating those investments where we have fiber infrastructure in these Tier 2-ish, Tier 3or even Tier 4 type markets.

So we're not going to be using that federal funding ourselves. We're not going to be providing services directly to residential customers ourselves. But we are -- we do have fiber infrastructure in a lot of areas that could be an offtake for those types of investments in some of these more rural communities. So we think that's a nice opportunity for us.

Simon Flannery -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

At this time I would now like to turn the conference back to Mr. Kenny Gunderman for any further comments.

Kenny Gunderman -- President And Chief Executive Officer

Thank you. I'd like to once again thank all of our employees for their continued dedication during these uncertain times as well as our loyal customers who continue to work hard for us every day. We appreciate your interest in Uniti Group and look forward to updating you further on future calls. Thank you for joining us today and please stay safe.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Kenny Gunderman -- President And Chief Executive Officer

Mark A. Wallace -- Vice President Chief Financial Officer And Treasurer

Frank Louthan -- Raymond James -- Analyst

Greg Williams -- Cowen -- Analyst

Philip Cusick -- JPMorgan -- Analyst

David Barden -- Bank of America Merrill Lynch -- Analyst

Simon Flannery -- Morgan Stanley -- Analyst

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