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Uniti Group Inc. (NASDAQ:UNIT)
Q2 2020 Earnings Call
Aug 10, 2020, 4:15 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Welcome to Uniti Group's second-quarter 2020 conference call. My name is Dilem, and I'll be your operator for today. A webcast of this call will be available on the company's website, www.uniti.com, beginning August 10, 2020, and will remain available for 14 days. [Operator instructions] 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 the generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company's current report on Form 8-K dated today.

I would now like to turn the call over to Uniti Group's chief executive officer, Kenny Gunderman. Please go ahead, Mr. Gunderman.

Kenny Gunderman -- Chief Executive Officer

Thanks, Dilem. Good afternoon, everyone, and thank you for joining. Please turn to Slide 4 in our presentation. Second quarter showed continued positive momentum for Uniti.

Our largest customer received approval for its plan of reorganization, putting it on a path to emerge from bankruptcy later this year as a substantially healthier tenant. Our settlement will also become effective, providing Uniti with a 90% increase in leasable fiber, approximately $30 million of new third-party revenue and a hardened master lease. We're also responding well to the COVID-19 crisis. The majority of our employees are working from home, while our remaining employee base is actively working in the field with first-responder designation.

Our installation activity in the second quarter was one of our strongest ever with a 40% increase in activity from the prior quarter. Our network continues to perform well with no degradation and has normalized after we saw an uptick in traffic last quarter. To date, we have not seen any order nor service cancellations from customers as a result of COVID-19, and we continue to see only marginal delays relating to new sales and install activity. For example, only about 13,000 of MRR to be installed continues to be delayed, compared to 50,000 of MRR last quarter.

Depending on how long businesses in our market continue to be impacted, there could be a potential for another 50,000 to 75,000 of MRR delayed in the second half of this year. Less than 5% of our revenue is from enterprise customers, and 75% of those enterprises provide essential services. Thus, we expect any future impact from COVID to continue to be minimal. On the flip side, we continue to see increased demand from these critical industries, including healthcare customers for communications infrastructure upgrades and builds as more providers turn to telemedicine and other high-bandwidth usage technologies to serve their patients.

Demand in installation activity from our wireless customers remains very robust, and we currently expect that trend to continue with the increased rollout of 5G services in our markets, especially given working from home is likely to persist. We are driving high-margin, low-churn recurring revenue in all of our business units, and the results from our core business continues to be in line with our expectations. We've deemphasized or sold noncore operations that do not fit our strategies, such as our nonstrategic construction business, which we expect to be mostly wound down by the end of this year. We fully wound down our residential CLEC business, Talk America, this quarter as well.

As a result of our actions, 97% of our revenue is now recurring with an average term of approximately nine years. Companywide churn also remains low and for the quarter was less than 0.3%. We are focusing on leasing up our existing fiber network, both at Uniti Fiber and Uniti Leasing, with high-margin, cash-accretive opportunities. As I'll discuss further later, approximately three-quarters of our new sales at Uniti Fiber are to non-wireless or non-anchor customers.

At Uniti Leasing, we've generated meaningful proceeds from opco/propco and IRU transactions in the past two years, and the fiber we are acquiring as part of the Windstream settlement will increase our leasable capacity by 90%. We expanded our strategic partnership with Macquarie as we sold a portion of our ownership interest in the propco entity that leases our Midwest fiber network assets to Bluebird on July 1. When including the proceeds from the Macquarie transaction, our available liquidity immediately after quarter end was $550 million, and we currently foresee no requirement to raise new capital at least through 2021. We also continue to demonstrate success at executing on our highly proprietary M&A funnel as evidenced by our recent transaction with Macquarie, and we have additional opportunities in the second half of this year and into 2021.

Finally, the quality of our portfolio of 6.5 million strand miles of owned fiber continues to be underappreciated. We are one of the select few providers of the critical components that are enabling the 5G revolution. And as a result, the opportunity set is tremendous for sustainable growth for many years to come. Our infrastructure provides highly predictable revenue and cash flow with material lease-up potential at attractive margins.

I'll now provide an update on our operational results for the second quarter. In Uniti Fiber, the focus has been leasing up our wireless anchor builds, including additional wireless and non-wireless customers. As Slide 5 illustrates, over the past four years, we've already booked incremental lease-up of almost three times the recurring revenue on the major wireless anchor builds that have either been completed or will be later this year. Said differently, we've added the equivalent of three new tenants in these markets over the past four years.

We've also seen substantial lease-up progress this year, having sold $7 million of annualized lease-up revenue that is expected to generate incremental yields of approximately 40%. These relatively new markets are still highly underutilized, and we expect it to yield additional lease-up in the coming years. With this proven success, we will continue to pursue select anchor greenfield builds and lease-up of those networks with a mix of additional wireless and non-wireless customers. As further evidence of this strategy, Uniti Fiber sales bookings in the second quarter were approximately $0.7 million of MRR, and approximately three-quarters of our sales bookings came from non-wireless customers.

Wholesale and enterprise bookings during the quarter increased over 20% from prior-year levels, reflecting our continued focus to drive cash-accretive lease-up. For example, we signed a long-term dark fiber IRU agreement with a regional carrier during the quarter that included $14 million of upfront IRU fees and represents approximately $1 million of annualized revenue. Despite the challenges posed from COVID-19, we were able to renew almost all of our existing E-Rate customers this year. We recently installed and delivered services with a large enterprise -- large metropolitan school district in Florida that will add over 100,000 of MRR.

The remaining 25% of our bookings activity came from the four national wireless carriers as we continue to focus on adding select on-net/near-net sites while pursuing strategic greenfield opportunities. Uniti Fiber installed $0.9 million of MRR during the second quarter with 70% of gross installs related to non-wireless opportunities, 20% related to wireless and 10% related to bandwidth upgrades. Turning to Slide 6. Through lease-up of our fiber infrastructure, Uniti Leasing, we've generated an additional $90 million of proceeds through opco/propco and IRU transactions over the past two years.

We continue to expect similar activities in the coming 12 to 24 months could potentially generate meaningful proceeds. In the second quarter, for example, we signed three sizable dark fiber IRU agreements with wireless carriers and a national cable provider that, when combined, represent $3 million of upfront IRU fees and approximately $850,000 of annualized revenue. We've also seen a material increase in interest from our wholesale customers after announcing our settlement with Windstream in February for the fiber we are acquiring as part of that agreement. Our sales pipeline has roughly doubled from the previous quarter and now represents nearly $1 billion of total contract value and $44 million of annual revenue, reflecting the significant opportunity these additional fiber strands provide us, demonstrating the strategic value of this fiber to Uniti.

Over 75% of the deals we're currently pursuing will utilize fiber we're acquiring as part of the settlement. As a frame of reference on Slide 7, we previously acquired a national network from CenturyLink in 2018, which has contributed lease-up of approximately $52 million of upfront IRU payments and $14 million of annual recurring revenue in a span of just two years. Our newly acquired assets and rights equate to 2.2 million fiber strand miles or roughly 10 times the capacity of the CenturyLink network and includes metro fiber in numerous tier one markets, providing additional sales opportunities, such as small cells, fiber to the tower and enterprise services, all of which we are not able to offer utilizing the CenturyLink routes as they are long-haul routes only. In summary, our already attractive Uniti Leasing business has materially enhanced growth potential going forward.

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

Mark Wallace -- Executive Vice President, Chief Financial Officer, and Treasurer

Thanks, Kenny. Good afternoon, everyone. I'll start my comments today with a summary of a few developments that affect both our actual results this quarter and our outlook for the full year. First, Windstream received court approval of its Chapter 11 plan of reorganization in early May, and Uniti recently received the REIT and true lease opinions pertaining to the bifurcated ILEC and CLEC leases that were important conditions precedent to our settlement becoming effective, which we expect to occur later this summer.

Accordingly, we are updating our guidance today for the first time to include our preliminary estimated impact from the settlement. For financial accounting purposes, we are generally required to identify material and separable components of our settlement agreements and record those at estimated fair values. Accordingly, in the second quarter, we recorded a $650 million litigation charge related to the settlement. The charge is an estimate and subject to change in future periods.

We have excluded the charge from both adjusted EBITDA and AFFO. The asset purchase, stock issuance and other components of the settlement are not expected to be recorded until closing upon Windstream's emergence, and I'll cover those more in my guidance comments. Additionally, we closed the sale of our U.S. tower business to Melody in June with proceeds of approximately $220 million, and we closed on the sale to Macquarie of an ownership stake in the entity that controls the Bluebird PropCo, generating $168 million in proceeds on July 1.

Gains related to these transactions are also excluded from both adjusted EBITDA and AFFO. Collectively, these transactions significantly strengthened our balance sheet, secure our future Windstream cash flows and position Uniti very well for growth and enhancing value for our stakeholders going forward. With that introduction, please turn to Slide 8, and I'll provide a review of our second-quarter results. We reported consolidated revenues of $267 million, consolidated adjusted EBITDA of $203 million, AFFO attributable to common shares of $94 million, and AFFO per diluted common share of $0.44.

Net loss attributable to common shares for the quarter was $588 million or $3.06 per diluted share, including the Windstream settlement charge and $19 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 $4 million of capital associated with growth capital investment initiatives, principally for Bluebird. Windstream made $50 million of improvements to our network with their capital during the quarter, bringing the cumulative amount since our spin-off to approximately $860 million of tenant capital improvements.

At Uniti Fiber, we turned over 190 dark fiber and small cell sites for wireless carriers across our Southeast footprint, adding annualized revenues of $1.3 million. Year to date, we have turned over approximately 500 dark fiber and small cells, representing about $4 million of annualized revenue. We currently have 950 dark fiber and small cell sites remaining in our backlog that we expect to deploy over the next two years, representing $5 million of annualized revenues. Core revenues and margins were in line with our expectations.

When compared to the same quarter last year, remember that our second-quarter 2020 results do not include revenue or adjusted EBITDA relating to our Uniti Fiber Midwest operations that were sold to Macquarie as part of the Bluebird transaction on August 30, 2019. Also, the second quarter of last year's results included $6 million of insurance recoveries related to Hurricane Michael which benefited adjusted EBITDA during that period. Uniti Fiber net success-based capex was $22 million in the second quarter or approximately $9 million lower than expected due to better-than-anticipated collection of upfront customer NRC payments. We also incurred $1 million of integration capex and $2 million of maintenance capex or about 3% of revenues.

We continue to complete deployment of our major dark fiber and small cell builds with the two remaining projects expected to be completed by the end of this year. The completed projects have achieved an aggregate initial anchor yield of 7%. Financial results for the tower segment this quarter reflects operations up until June 1 closing date. At towers, we incurred $9 million of capex spend in the second quarter and completed the construction of 18 towers.

We reported a pre-tax gain on the sale of the U.S. tower business of $64 million. Please turn to Slide 9, and I'll now cover our updated 2020 guidance. We are revising our prior outlook, primarily for the following items: first, the preliminary estimated impact from our settlement agreement with Windstream; second, the impact from the partial sale of the Bluebird PropCo; third, transaction-related and other items reported in the second quarter of this year; and four, other relatively modest business unit-level revisions.

Our outlook continues to anticipate that the Windstream lease continues in full force in effect and Windstream continues to make all these payments on time. Our current outlook excludes future acquisitions, capital market transactions, future transaction-related and other costs not specifically mentioned herein. Accurate 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 and the effects of the Windstream settlement on our guidance, our outlook assumes settlement effectiveness occurs on September 30. We expect to recognize rental revenue on the bifurcated ILEC and CLEC master leases starting in the fourth quarter. As you'll recall, the aggregate cash rent remains unchanged and is currently $665 million annually.

Uniti Leasing's outlook also includes expected revenue and adjusted EBITDA relating to the assets at dark fiber IRU contracts we are acquiring from Windstream of $8 million and $6 million, respectively. After incorporating all of the aforementioned items, we now expect Uniti Leasing's revenues and adjusted EBITDA to be $739 million and $728 million, respectively, at the midpoint, representing adjusted EBITDA margins of approximately 99%. Regarding Uniti's remaining interest in the Bluebird PropCo, we will report our continuing investment as an unconsolidated entity under the equity method of accounting. Our proportionate share of the rent from the lease, net of expenses, will be reported as equity and earnings from unconsolidated entities in our income statement.

We will report a pre-tax gain on the sale of the Bluebird propco of approximately $23 million in the third quarter. Our current guidance reflects $123 million of net success-based capex at Uniti Leasing, of which $108 million relates to the estimated GCI investments that are part of the Windstream settlement agreement. Other components of Uniti Leasing capex included $7 million of investments in the Bluebird network made in the first half of this year and $8 million we expect to invest for other tenants. Turning to Slide 10.

We are maintaining our P&L guidance for Uniti Fiber and continue to expect Uniti Fiber revenues of $306 million and adjusted EBITDA of $116 million at the midpoint of our 2020 outlook. Net success-based capex for Uniti Fiber this year is still expected to be approximately $100 million at the midpoint. We expect Uniti Fiber's net success-based capital intensity to be about 33% this year, declining from 45% in the first half of this year to about 20% in the second half of this year. We continue to expect integration and maintenance capex for 2020 of about $6 million each, respectively.

As we've mentioned before, we continue to be focused on managing down Uniti Fiber's capital intensity, realizing the inherent value embedded in the investments we've made over the last few years. As such, we expect Uniti Fiber's net success-based capital intensity to be in the 30% to 35% range or lower as we continue to pursue a handful of greenfield dark fiber and small cell builds and leverage our existing anchor fiber networks that drive incremental lease-up opportunities that are substantially less capital intensive. Turning to Slide 11. For 2020, we now expect full-year AFFO to range between $1.70 and $1.73 per diluted common share with a midpoint of $1.71 per diluted common share.

On a consolidated basis, we expect revenues to be approximately $1.1 billion and adjusted EBITDA to be $809 million at the midpoint. Our guidance now contemplates consolidated interest expense for the full year of approximately $419 million, excluding deferred financing cost write-offs. Reported interest expense this year includes an additional $73 million write-off of deferred financing costs that we reported in the first quarter of this year relating to the payoff of our term loans. Corporate G&A, excluding amounts allocated to business segments, should be approximately $43 million, including $9 million of stock-based compensation expense.

We now expect weighted average diluted common shares outstanding for the full-year 2020 to be approximately 232 million shares, compared to 222 million shares in our prior guidance. The increase reflects the incremental shares we will issue to certain creditors of Windstream as part of the settlement agreement. We expect weighted average diluted common shares outstanding for the third quarter and fourth quarter of this year to be approximately 222 million and 261 million shares, respectively. As a reminder, guidance ranges for key components of our outlook are included in the appendix to our presentation.

On Slide 7, we have -- I'm sorry, on Slide 12, we have provided a tabular reconciliation of our prior guidance to our updated outlook, which summarizes my comments this afternoon. Turning now to our capital structure. On August 4, our board declared a dividend of $0.15 per share to stockholders of record on September 18, payable October 2. At quarter end, we had approximately $378 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity.

Immediately following quarter end, in the Bluebird PropCo transaction, we had approximately $550 million of combined unrestricted cash and cash equivalents, including fully undrawn revolver capacity. Our leverage ratio at the end of the second quarter stood at 6.1 times based on net debt to annualized adjusted EBITDA. Before I turn the call back to Kenny, I'd like to cover a few topics that investors have recently expressed interest in. First, we continue to have discussions with all three major rating agencies, and I expect each to take action near the time of Windstream's emergence from bankruptcy.

As you know, Fitch and S&P have had us on credit outlook positive since March, and Moody's recently indicated that our ratings are under review for an upgrade. Second, we continue to make substantial progress to strengthen our liquidity and balance sheet, such that we currently don't foresee a requirement to raise new capital through 2021. That said, we are focused on refinancing our revolver, which matures in April 2022, and has started a discussion with our bank group. Furthermore, we always monitor capital markets closely and may take advantage of attractive opportunities to optimize our capital structure.

Third, I want to emphasize that the bifurcated master leases had significant credit enhancements relative to the current lease, such as underwriting standards, financial, and other covenants. Windstream Holdings, Windstream Services, and certain direct and indirect subsidiaries of Windstream Services are all tenants and guarantors under the new leases. Furthermore, the bifurcated master leases are both cross-collateralized and cross-guaranteed. Last, we expect to file our 10-Q later today.

You will see in our updated disclosures, we believe we have made substantial progress in alleviating the going concern-related risk that we have previously identified. In closing, we are fortunate to operate in the communications infrastructure industry that has proven to be incredibly stable and resilient in times of crisis, similar to towers and data centers. With the Windstream's emergence from bankruptcy expected to occur soon and our strengthened balance sheet, we expect our cost of capital to continue to improve and are focused on continued growth, diversification, and value creation. And with that, I'll turn the call back over to Kenny.

Kenny Gunderman -- Chief Executive Officer

Thanks, Mark. Please turn to Slide 13. We recently sold a portion of our ownership stake in the propco that controls our Midwest Fiber network assets to Macquarie for approximately $168 million. The assets in propco include the fiber that was originally leased to Bluebird as part of the opco/propco transaction.

Uniti will retain an ownership interest in the propco, and we'll receive an incremental earn-out payment in 2023 if Bluebird achieves certain milestones. Macquarie and Bluebird are highly valued partners, and discussions remain ongoing to expand our relationship in the future. For example, we're working to lease Bluebird additional fiber Uniti owns in adjacent footprints, including strands we're acquiring as part of the settlement. Importantly, this propco partnership also provides a blueprint for future potential of propco partners and efficient capital sources to expand our real estate portfolio.

In closing, to reiterate, we are fortunate to operate in an infrastructure industry that should experience secular tailwinds for many years. When compared to other publicly traded communications infrastructure REITs, as shown on Slide 14, many of our fundamentals compare favorably, and we believe there's a substantial valuation discount applied to Uniti as a result of Windstream's bankruptcy. With that uncertainty resolved and with our high recurring revenue, low churn and proven lease-up model, along with ample liquidity, Uniti is now poised for accelerated accretive, organic, and inorganic growth. With that, operator, we're now ready to take questions.

Questions & Answers:


Operator

Thank you, sir [Operator instructions] I show our first question comes from the line of Frank Louthan from Raymond James. Please go ahead.

Frank Louthan -- Raymond James -- Analyst

Hey, thank you. can you give us an idea on a couple of things? One, the additional capital that you can spend for Windstream, have you begun any of that? And how much of that do you expect to spend in 2020? And then can you give us some color on the $650 million in cost with the settlement? Is any of that to do with any of the payments you're making to Windstream? Or is that just full legal cost and so forth? Thanks.

Mark Wallace -- Executive Vice President, Chief Financial Officer, and Treasurer

Yeah. So --

Kenny Gunderman -- Chief Executive Officer

Mark, do you want to take that?

Mark Wallace -- Executive Vice President, Chief Financial Officer, and Treasurer

Yeah. So Frank, I'll start. The amount of GCIs that we expect for Windstream this year is $108 million. That's the estimate that is based on their most recent forecast in the bankruptcy proceedings that we have access to.

So that's what we have in. Some of that would be in the -- that would be primarily -- we haven't spent any of it so far, so it would only be incurred after they emerge from bankruptcy. Now that number could change depending on what they've actually completed this year and the timing on when they emerge, but that's our expectation based on the September 30 emergence day. And then on the $650 million.

So as I said in my remarks, the $650 million litigation charge, it's really just an allocation of the total value as part of the Windstream settlement agreement. And so really, you take the different components. You take the overall settlement valuation. You take the different components, and you try -- you value each one of those separately using different methodologies that are appropriate for the circumstances.

And that's the number that -- working with our auditors and working with outside valuation experts that we thought was the appropriate amount.

Frank Louthan -- Raymond James -- Analyst

OK, great. Thank you.

Mark Wallace -- Executive Vice President, Chief Financial Officer, and Treasurer

Sure thing.

Operator

Thank you. Our next question comes from Phil Cusick from JP Morgan. Please go ahead.

Phil Cusick -- J.P. Morgan -- Analyst

Hi, guys. Thanks. Can you talk about the impact of COVID on the pipeline of potential deals? Anything significant in terms of either accelerating companies that need money more urgently or holding off?

Kenny Gunderman -- Chief Executive Officer

Yeah. Phil, it's Kenny. I'll take that. So with respect to our business, our operating business, I think my prepared remarks hit that.

And essentially, the impact has been minimal to both installs and bookings, and I'm happy to elaborate on that. But it's been quite small, and we expect that to continue going forward. But I think your question is probably related to M&A. And if it's not, you can correct me.

But I don't -- it hasn't had really much of an impact. I think a lot of the businesses that we would be interested in as an acquirer are very infrastructure heavy. And of course, that includes fiber, predominantly fiber. And I think many of those businesses, certainly the private ones, are seeing the same resiliency in their businesses as we are.

So I don't think there's any -- there's certainly no feeling of forced sellers out there. In fact, maybe just the opposite given the resiliency that these businesses are showing. So I would say our -- and look, our pipeline is not really dependent upon companies that are for sellers, anyway. It's not dependent upon companies that hire bankers and go and run a process.

It's really much more of a bespoke proprietary pipeline, anyway, and that's always been the case and will continue to be going forward. So we've not seen a pickup nor a degradation, I would say.

Phil Cusick -- J.P. Morgan -- Analyst

OK. Thank you. And then second, on the dividend, we're getting close to the time when you're going to be sort of a normal company again, which is paid. And I'm just curious your thoughts because you're not really being paid for your dividend now.

Or in the past, you weren't being paid for your dividend. You're going to need capital, if not this year or next year, which is great. But it sounds like there's a lot of things you can do with your capital rather than pay it out. How do you think about the need or desire to be paying a bigger dividend every time?

Kenny Gunderman -- Chief Executive Officer

Yeah. So Phil, I'll take that. And Mark, you can add on if you want. But it's a great question, and we actually think we've always been a normal company.

We've just been through a period of time where the rhetoric and the noise around our story has been -- has clouded the fundamentals. And -- but I think your point is well taken now that we're about to emerge. It's certainly a time that we think investors should refocus on our story and our fundamentals and refocus on us as an investable story. So I agree with your conclusion.

And with respect to the dividend, as we say, and the talking points are every quarter, our board evaluates it. And you can bet that we have debates at the board about capital allocation, the best way to spend our capital, the best way to spend our cash flow. And I think, as we've demonstrated, we've got ample liquidity, and we continue to generate cash flow. We also have great opportunities to invest that capital organically.

We're showing the proof of our model, which is anchor -- attractive anchor economics but really attractive lease-up successes. We've also proven that we've got great M&A opportunities, and those are going to continue. So I think there's always a healthy debate. I think it's dependent upon a lot of different things.

I can't give you any more color than that, other than we've got lots of good opportunities to spend our capital on, and we'll continue to evaluate the merits of a higher dividend going forward.

Phil Cusick -- J.P. Morgan -- Analyst

Thank, Kenny.

Kenny Gunderman -- Chief Executive Officer

Sure.

Operator

Thank you. Our next question comes from the line of Simon Flannery from Morgan Stanley. Please go ahead.

Simon Flannery -- Morgan Stanley -- Analyst

Great. Thanks very much. Good evening. I wonder if you could just get into the details of the partial sale of Bluebird PropCo a little bit more.

What's the percentages there? And what was the rationale for going back and kind of doing a second piece of this deal at this point? And then, just more broadly, in the past, the goal has been really to reduce your exposure to Windstream, and obviously, the lease bifurcation helps with that. But do you have sort of percentage targets that you're looking at over the next couple of years on that?

Kenny Gunderman -- Chief Executive Officer

Yeah. Simon, it's Kenny. The rationale on the propco sale to Macquarie was partially that it was something that our partner was interested in doing, and that was clear really from the outset. I think many infrastructure investors find the propco component of what we're doing to be really interesting.

There's -- it's an investment in infrastructure with a highly predictable cash flow stream in a mission-critical asset, and that is right in line with what a lot of the infrastructure funds want to do. And so my comments in my prepared remarks about this being a blueprint for future deals is very important because we view it as that in addition to it being something that our partner was interested in doing -- our financial partner in this transaction was interested in doing. And also, it's good liquidity at a time when we're beefing up the balance sheet and beefing up liquidity. So those three things together are what led us to that conclusion, and we're very pleased with the outcome, very pleased with the valuation and our --

Simon Flannery -- Morgan Stanley -- Analyst

What's the economics you have in it now?

Kenny Gunderman -- Chief Executive Officer

We have not disclosed the split, Simon, but I would tell you that the majority of the -- we sold the majority of the partnership and retained a minority stake.

Simon Flannery -- Morgan Stanley -- Analyst

Right. And then on the diversification?

Kenny Gunderman -- Chief Executive Officer

Yes. So our goal there, Simon, continues to be to get Windstream below 50% as the next goal, which has not changed from what we were saying prior to the bankruptcy. Obviously, that's been delayed a little bit a year or so because of the bankruptcy, but that continues to be our focus, and we think that's very much within our reach.

Simon Flannery -- Morgan Stanley -- Analyst

OK, great. Thank you.

Kenny Gunderman -- Chief Executive Officer

Sure.

Operator

Thank you [Operator instructions] Our next question comes from David Barden from Bank of America. Please go ahead.

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

Hey, guys. Thanks so much. So first, Kenny, I think last quarter, we talked about this Windstream settlement being kind of a one-plus-one-equals-three type of arrangement. But here, you've taken a $650 million charge-off to reflect the negatives.

Could you kind of revisit maybe the positives and how you think that they offset that $650 million charge estimate? And then second, Mark, you've given kind of this guidance that you don't think you need to access the capital markets or raise new funds through 2021. Could you kind of give us the sources and uses that backs that up? Because the sources is pretty straightforward based on the business with the lease and the fiber business, but the uses have gone up a lot in terms of the capital contributions to Windstream, the acquisition of the fiber, the $400 million installment payments, etc. Could you kind of walk us through that and tell us how you get to that conclusion? Thank you.

Kenny Gunderman -- Chief Executive Officer

So David, first, on the settlement charge, I think the first point to make there is that none of the economics of the settlement have changed. This is just how we're accounting for it from a GAAP perspective. And I would also point out that there's not a lot of precedence for this situation where we have this massive settlement agreement that was in the context of a bankruptcy and in the context of us being sued, not only by our customer, but also by numerous creditors involved in the bankruptcy. So it's a highly unprecedented situation.

And as a result, I wouldn't try to put it into a typical box that you may have seen in the past. So it doesn't change the economics. It's somewhat unprecedented. And our chosen path of accounting for it here is relatively straightforward.

We're trying to show it in a way that puts it behind us as a one-time charge and keeps the focus for our investors going forward on the benefits of the transaction and our ability to utilize the valuable parts of the settlement, which to your -- to the second part of your point, none of those have changed. In fact, as time has gone on in the past several months, I would say I feel better and better about the economics of the settlement to us. So -- and they're all on strategy for what we have pursued with other customers and what we were pursuing with -- even with Windstream prior to the bankruptcy, including the majority of the capital here is a capex program, where the net amount being invested from our perspective is about $1 billion in the GCI program. So net of the incremental rent that we will get, about $1 billion spent over 10 years, so over a long period of time, that will be used to upgrade our network.

And we will see the benefits of that at renewal. So every dollar that goes in the ground, we're hardening our network and securing our future, in addition to obviously helping our customer who has recently shown the success of investing in the ILEC business with incremental broadband ads. And so we think there's proven success there with the roughly $800 million of TCI that's been invested historically. And so on top of that, the incremental roughly $1 billion that we're investing going forward, we feel very good about the return on that, especially since we're getting a market return on it over the next 10 years.

And then on top of that, we're getting another 40 -- roughly 42,000 miles of fiber. We're getting roughly $30 million of EBITDA from third-party revenue, attractive third-party revenue. And the ability to use that fiber in that network, we're already seeing the benefits of that, and we're trying to show the proof of the opportunity set for us through the incremental funnel. And I'm confident that, in the near term, you're going to start to see some prints related to that funnel as well.

And we'll get a nice uptick in return from that fiber. And when you think about, David, what that means for our business on a pro forma basis, we're going to have 125,000 route mile fiber network which is comparable to many of the national networks out there today. So that makes us a much more strategic business than we were before, and we're very, very excited about that. Lastly, and I don't think it's talked about enough, but -- and Mark referenced this in his prepared remarks, but the credit enhancements and the hardening of the master lease or the master leases now have real value for us.

The tenant has been moved from a holding company down to the services level. We've gotten covenants added to the master leases. And obviously, we have a healthier tenant, in addition to all the things I just mentioned. So we feel really, really good about this deal.

I continue to believe it's a valuable deal for Windstream, and I continue to say it is a one-plus-one-equals-three outcome because this is not a value transfer from Uniti to Windstream. This is a commercially negotiated valuable outcome for both parties, and how we're accounting for it from a GAAP perspective does not change that.

Mark Wallace -- Executive Vice President, Chief Financial Officer, and Treasurer

David, this is Mark. I'll try to address your question. Obviously, we haven't given 2021 guidance yet, except for the comment I made regarding not needing to raise any capital or not having a capital raise requirement. But generally, the things to consider here and that go into the calculus are: there's the current liquidity; there's the lower capital intensity that we've talked about at Uniti Fiber coming down; there's also the $1 billion lease-up leasing pipeline at Uniti Leasing that Kenny talked about earlier.

Some of that we expect to come to fruition in terms of actually curating revenue. But also, as we've mentioned, previously, I think Kenny mentioned in his remarks in many cases on those type of lease-up deals, in many cases, we also get substantial IRU fees as well so that also contributes to additional liquidity. And then there's also in there some -- there's also transactions in 2021. They're included in that $1 billion pipeline, as well as others, that we're also contemplating that we'll go into more detail when we get 2021 guidance.

But those are the key things in addition to what Kenny had already mentioned about the additional $30 million of EBITDA or revenue that we're getting from the Windstream contracts as well.

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

Got it. Thanks, Mark. So Kenny, if I could ask just one follow-up, I apologize. Relatively soon, I guess, September 30, based on your assumptions, you have an investor that's going to be one of your biggest, if not the biggest investor, in your company.

And that investor has been very critical of the fiber investment strategy of another company out there, saying that the fiber investments have been subpar returns and such. Have you had any conversations with that investor about their views on fiber investment and the kinds of fiber investments you should be making? Have they weighed in on any of that with you at all to this point?

Kenny Gunderman -- Chief Executive Officer

Yeah. So David, I don't want to get into conversations that we may or may not have had with any particular investors, but I will say it's a good question. And I will say we follow what this particular investor says very closely. We follow our competitors in the industry, and so we're very familiar with what you're referring to.

And I would say we think a lot of the observations made are correct when we look at them through the Uniti lens. I'm not commenting on anyone else's business. But when we look at it through our lens, we think a lot of those observations are right, including a focus on return on capital and including a focus on the lease-up of those -- of networks, fiber networks. And from our perspective, it's really one of the things that has led us to show a little more disclosure this quarter on the success of leasing up our network, including the 16 recent large builds that we've been talking about rather publicly.

And the distinction I would point out is that, in our markets, generally tier two markets that are generally less competitive, we have always talked about the importance of targeting non-wireless customers, in addition to wireless customers. So we don't have a small cell-centric-focused business. We never have. We've focused on wireless, whether it's fiber to the tower or small cells as an anchor customer, but then focused on all other customers to lease up the networks and to drive optimal return on capital.

And you can see from our prepared remarks that, generally, we're doing that. Roughly a quarter of our business is anchor, and then roughly three-quarters of the revenue, three-quarters of bookings and three-quarters of installs are on the second and third and fourth tenants. And I think that's important in terms of driving return on capital and driving optimal economics. And I think another part of what this particular investor was referring to, and not Uniti specific, but referring to a comparison of fiber to towers.

And obviously, we know both of those businesses well. And I think we believe one of the things where fiber really, really compares very favorably to towers is the lease-up potential in fiber, we think, is materially higher just because you've got a lot more capacity and because you've got a lot more customers to pursue, and we've been demonstrating that success in our business. So long-winded answer, David, sorry, but we've certainly been following that back and forth very closely.

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

Thank you.

Operator

I show no further questions in the queue. At this time, I'd like to turn the call back to Mr. Kenny Gunderman for closing remarks. Please go ahead, sir.

Kenny Gunderman -- Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Kenny Gunderman -- Chief Executive Officer

Mark Wallace -- Executive Vice President, Chief Financial Officer, and Treasurer

Frank Louthan -- Raymond James -- Analyst

Phil Cusick -- J.P. Morgan -- Analyst

Simon Flannery -- Morgan Stanley -- Analyst

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

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