Uniti Group Inc. (UNIT) Q4 2020 Earnings Call Transcript

Uniti Group Inc. (UNIT -2.01%)
Q4 2020 Earnings Call
Mar 01, 2021, 4:15 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Uniti Group's fourth-quarter 2020 conference call. My name is Andrew 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 March 1, 2021 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. All financial results as of, and for the three and 12 months ended December 31, 2020, are preliminary and reflect the company's best estimates based on information available as of the date hereof. Results are subject to change as the company works to complete its financial results and its auditor's work to complete their audit work.

In addition, 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 -- Chief Executive Officer

Thanks, Andrew. Good afternoon, everyone and thank you for joining. Before I review Uniti's operational performance, I'd first like to recap 2020 and refresh on our go-forward strategy. 2020 was a transformational year for Uniti that saw tremendous volatility to our stock and draw our true value-accretive accomplishments that set up Uniti for future success.

First, we successfully participated in a $4 billion deleveraging of our largest customer, while simultaneously entering a value-enhancing settlement which revalidated and strengthened our lease agreement. Secondly, we grew our national network by 90%, and within a few months, have already demonstrated lease-up success of those assets by increasing our sales funnel by $0.5 billion and executing on $150 million of new revenues under contract. Next, we extended our debt maturities and significantly improved our liquidity profile. Lastly, we completed the divestiture of noncore operations from our real estate portfolio that now position us with 95% recurring high-margin revenue with industry-leading 0.2% monthly turn and a focus on fiber.

In short, we had a terrific year operationally. Turning to Slide 4 of our presentation. Fiber is the mission-critical connective tissue for virtually all current and future broadband delivery. As one of the largest independent wholesale providers in the country, we are agnostic to the on-ramps that feed traffic onto our network and are enabling a virtualization of our culture.

5G mobile broadband, fiber to the home, fixed wireless, satellite and other technologies are all enabling greater usage of video conferencing, e-learning, telemedicine and remote work environments as well as a general continued explosion of broadband traffic. In the past four years, our network has seen a roughly 10 times increase in peak daily traffic from roughly 16 gigs to 160 gigs, and we expect that trajectory to only continue. As further proof of the durability of our model, the COVID-19 pandemic not only brought little disruption to our business, but has actually accelerated many of the virtualization trends that have been critical to staying connected. Demand from industries such as healthcare, education, government and wireless customers have been particularly elevated.

Turning to Slide 5. Uniti is addressing these tremendous industry tailwinds with the eighth largest fiber network in the country and a growing portfolio of small cells, connected buildings and homes. We've amassed this valuable and hard-to-replicate portfolio in only five years through our proprietary M&A efforts and unique sales strategy that provide us with anchor customer relationships to build new fiber economically. In the past three years alone, we have built 6,600 route miles and 674,000 strand miles of new fiber with stable long-term anchor economics and shared infrastructure lease-up possibilities.

We're seeing tremendous demand for access to our network and success of our strategy. Turning to Slide 6. At Uniti leasing, as a national wholesale provider across 42 states, we're driving highly profitable, passively managed lease-up revenue on our long-haul and metro routes and opportunistically growing our portfolio through proprietary M&A. At Uniti fiber, we're targeting less competitive Tier 2 and 3 markets, largely in the southeastern U.S.

and providing actively managed fiber solutions including to wireless customers and enterprise, schools and government customers. Our strategy of targeting these underserved markets, along with our national scale and customer relationships, is driving unique demand. As an example, in our recently announced agreement with DISH, we were named as one of the four national fiber providers to provide solutions to DISH in its efforts to build out its 5G network across the United States. Within a few months of making these announcements, we've already begun leveraging our existing dense fiber infrastructure for DISH in our southeastern markets which has given us a speed to market and a cost advantage over our competitors.

With the restructuring volatility now behind us, our portfolio more targeted and our strategy reaffirmed, Uniti is now positioned for tremendous success in 2021. Turning to Slide 7. Our priorities for this year will be a continued focus on driving high-margin recurring revenue through lease-up, while selectively expanding our network with attractive anchor economic driven new builds. We will also continue to opportunistically look to expand our network reach and passive revenue base by executing on our proprietary M&A funnel.

Lastly, we are committed to operating and growing our business in an environmentally and socially responsible manner. In the next few months, Uniti will be publishing its first ESG report that summarizes these efforts including the true mission-critical nature of our network, our unrivaled ability to respond to natural disasters such as COVID-19 and hurricanes and the essential nature of our world-class workforce. Turning now to our operational results. Slide 8 demonstrates the successful year we had in leasing up our Southeast fiber network in 2020.

To date, we've sold incremental lease-up MRR of $5.5 million which is three times the recurring revenue on the major wireless anchor builds that have been completed. In 2020 alone, we sold $1.2 million of lease-up MRR or $14 million on an annualized basis that is expected to generate incremental cash flow yields of approximately 50%. Including the lease-up to date, we've sold, since we began construction on our major wireless builds, we expect to generate a cumulative cash yield of 14% on these projects, doubling the initial anchor yield within a four year time frame. These relatively new networks remain highly underutilized and the expected additional lease-up in the coming years will continue to increase our cumulative cash yield.

The competitive dynamics and resulting growth trajectory in our Tier 2 and 3 markets is very strong. In fact, dark fiber and small cell revenue in the fourth quarter grew over 65% from the prior year, while enterprise revenue grew 10%. These results reinforce that our strategy is working and demonstrates that we are choosing good anchor markets to expand our network in a disciplined manner and that we are executing effectively on follow-on lease-up. Uniti fiber sales bookings in the fourth quarter were approximately $0.5 million of MRR, and approximately 80% of our sales bookings came from nonwireless customers.

For the full year, bookings totaled over $2 million of MRR, with nonwork wireless bookings increasing 14% from the prior year. Uniti fiber installed $0.6 million of MRR during the fourth quarter with 61% of gross installs related to nonwireless opportunities, 33% related to wireless and 6% related to bandwidth upgrades. For the full year, we installed $2.7 million of MRR with non-wireless installs MRR, up 30% from the prior year. Turning to Slide 9.

At Uniti leasing, we continue to actively market over 3 million strand miles of fiber that is available to lease to third parties, making us one of the largest players in the wholesale fiber market. Our sales pipeline today represents approximately $1 billion of total contract value reflecting the continued significant interest from our wholesale customers as well as the strategic value of these fiber strands. Approximately 75% of the opportunities utilize fiber we acquired as part of our settlement with Windstream. We continue to be successful in monetizing our portfolio of assets and to date have executed on opportunities that represent total remaining revenues under contract of $740 million, with an average contract term remaining of 15 years.

Given the proprietary nature of our offerings at Uniti leasing, we thought Slide 10 would be helpful to compare and contrast the different types of opportunities we've executed and are continuing to pursue. Traditional dark fiber IRUs and dark fiber leases have driven $60 million of upfront proceeds and $340 million of remaining revenues under contract primarily on the fiber we have acquired from Lumen and Windstream. These opportunities generate margins of 90% plus with minimal to no capex required. Sale leasebacks are structures where we acquire new fiber to expand our network reach and then immediately enter a long-term lease with a tenant to provide anchor return economics.

Our transactions with TPX, CableSouth and others over the years are examples. OpCo-PropCo are transactions where we sell our existing actively managed lit services revenue at double-digit transaction multiples to an operating partner and then immediately lease access to the underlying fiber network which we retain in the form of a 10 or 20 year IRU. These transactions generate upfront proceeds, grow net contractual revenue and extend the average term of revenue substantially. For example, we sold our Midwest fiber operations as part of our Bluebird transaction, and we recently sold our Northeast operations as part of our Everstream transaction and simultaneously entered into long-term lease agreements with both operators.

Lastly, we provide growth capex programs, whereby we immediately acquire newly built fiber from anchor customers and then lease back access to that fiber at attractive yields to anchor customers who are typically pre-existing sale-leaseback partners. Over the past two years, we've generated total upfront proceeds of approximately $400 million from these various transaction structures. As I mentioned earlier, we currently have $740 million of remaining revenues under contract related to these transactions which generate attractive initial yields of 8% to 10% with fiber capacity available for substantial additional lease-up. Turning to Slide 11.

We invested approximately $85 million of capital in 2020 under the GCI program with Windstream. These investments will be added to the master leases at an 8% initial yield, subject to half a percent annual escalator and results in near 100% margin revenue. In 2021, we expect to deploy $200 million of capital relating to the GCI program primarily within Windstream's ILEC markets. Most of these markets are similar to our Tier 2 and 3 markets with little competition, providing Windstream with substantial growth opportunities over time.

As a reminder, the investments Uniti has committed to making must meet certain underwriting criteria including being long-term value-accretive fiber and have minimal return thresholds for our tenant. Each request made is thoroughly reviewed by Uniti to ensure it meets these criteria. On Slide 12, when combining the lease-up we've sold to date on the major wireless anchor projects with the lease-up we've generated at Uniti leasing, Uniti has sold approximately $72 million of annualized lease-up revenue resulting in more than doubling the initial anchor cash yield from approximately 7% to a cumulative yield of over 16%. With that, I will turn the call over to Mark.

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

Thanks and good afternoon, everyone. The quarterly and full-year information I'll review this afternoon reflects the company's preliminary estimates and is based on information available as of today. We are working to fully complete our financial results and Form 10-K filing, and our independent auditors are working to complete their audit work. We believe both will be completed shortly and expect to file our 10-K no later than March 8.

Actual results may differ from these estimates. With that, I'll now give a brief review of our fourth quarter and full-year 2020 performance, but I want to focus my comments primarily on our 2021 outlook as key number of actions that position Uniti to execute well this year from both a commercial and operational standpoint as we continue to benefit from the long-term investment cycle in communication infrastructure. I'll wrap up today with thoughts on our balance sheet, dividend and capital structure. Please turn to Slide 13, and I will start my comments on our fourth-quarter results.

We expect to report consolidated revenues of $275 million, consolidated adjusted EBITDA of $216 million, AFFO attributable to common shares of $106 million and AFFO per diluted common share of $0.42. Net loss attributable to common shares for the quarter is expected to be $47 million or $0.20 per diluted share which includes an expected $71 million goodwill impairment charge related to our Uniti fiber segment and $9 million of transaction-related and other cost. The goodwill impairment charge is a result of the annual assessment we're required to perform under generally accepted accounting principles. At Uniti leasing, we expect to report segment revenues of $194 million and adjusted EBITDA of $192 million, up approximately 5% each, respectively, from the prior year, while achieving an expected adjusted EBITDA margin of 99%.

The year-over-year growth reflects straight line rent recognition under the Windstream MLAs and GCI investments subsequent to our settlement agreement, the dark fiber IRU contracts we acquired from Windstream as well as annual lease escalators. During the quarter, Uniti leasing deployed approximately $56 million toward growth capital investment initiatives, bringing full-year 2020 investments to $96 million. About $85 million of the full-year investments were related to the Windstream GCI program. These GCI investments were mostly ILEC related and added approximately 2,575 route miles and 84,150 strand miles of valuable fiber to Uniti's owned network across 12 different ILEC states.

As you will recall, these investments are added to the cash rent payments under the master leases at 8% initial yield on the one year anniversary of Uniti, making the investments subject to a 0.5% annual escalator. The investments made during 2020 will ultimately generate $6.8 million of annualized cash rent. At Uniti fiber, we turned over 170 dark fiber and small cell sites for wireless carriers across our Southeast footprint during the fourth quarter, adding annualized revenues of $1.3 million. For the full year, we turned over 850 dark fiber and small cell sites, representing about $6 million of annualized revenue.

We currently have approximately 620 dark fiber and small cell sites remaining in our backlog that we expect to deploy within the next two years, representing an incremental $3.5 million of annualized revenue. Uniti fiber revenues are estimated to be higher than expected for the quarter due to increased non-core recurring revenue, while adjusted EBITDA is expected to be slightly below expectations as a result of higher-than-expected losses within our non-core construction business. That business was substantially wound down by year-end. Excluding non-core construction, adjusted EBITDA should be in line at a margin of 40%.

Uniti fiber net success-based capex was $41 million in the fourth quarter or approximately $26 million higher than expected, attributable to accelerated deployment of capital in support of key fiber build-outs that were previously planned to occur in 2021 and the timing of upfront NRC payments. We also incurred $2 million of maintenance capex or about 3% of revenues. We completed the remaining deployment of our legacy major dark fiber and small cell builds during the quarter, achieving an aggregate initial anchor yield of 7%. As Kenny mentioned earlier including lease-up we have sold to date on these projects, we have generated an aggregate cash yield of 14%, and continued lease-up will drive these yields even higher over time.

Please turn to Slide 14, and I'll now cover our 2021 guidance. Our 2021 outlook includes the previously announced OpCo-PropCo transaction with Everstream, which is expected to close early in the second quarter of this year and the impact of our six and a half unsecured notes offering and related tender. Upon closing of the Everstream transaction, we expect to record a pre-tax book gain of approximately $25 million on the partial sale of our Uniti fiber Northeast operations and sale of certain dark fiber IRU contracts that were acquired as part of the settlement with Windstream. These gains will be excluded from both adjusted EBITDA and AFFO.

Our current outlook excludes future acquisitions, capital market transactions and future transaction-related and other costs not specifically mentioned herein. Actual results could differ materially from these forward-looking statements. A reconciliation of our 2021 outlook to preliminary full-year 2020 results is included in the presentation materials we posted on our website today. Our full-year outlook for 2021 includes the following for each segment.

Beginning with Uniti leasing, we expect revenues and adjusted EBITDA to be $784 million and $766 million, respectively at the midpoint, representing adjusted EBITDA margins of 98%. The expected 5% year-over-year increase in revenues primarily reflects the full-year impact of straight line rent recognition under the Windstream MLAs and GCI investments, the full-year impact of the IRU contracts we acquired from Windstream and master lease escalators. Revenue and adjusted EBITDA each include $26 million related to the straight line rent associated with Windstream master leases and GCI investments. Our outlook reflects $210 million of net success-based capex at yearly leasing, of which $200 million relates to estimated Windstream GCI investments.

We expect most of these investments will support the rollout of Windstream's kinetic high-speed Internet offerings across multiple ILEC markets. As Slide 15 highlights, prime Windstream revenues and adjusted EBITDA continue to grow at a healthy pace and are expected to be $55 million and $42 million, respectively, up 27% and 17% from 2020 levels. This includes the assets and dark fiber IRU contracts we acquired for Windstream, where the revenue is diversified across multiple third parties and the dark fiber IRU leases that are part of the Everstream transaction. We are specifically targeting this area for significant growth over the next several years given the strength of Uniti leasing sales pipeline and available fiber inventory.

For full-year 2021, our guidance includes lease-up of our national fiber network with several opportunities that are expected to generate $5.5 million of annualized revenues when fully deployed, with approximately 40% of the annualized revenue coming from opportunities that utilize fiber we acquired from Windstream. The bookings associated with this lease-up are expected to be more heavily weighted toward the back half of this year given the typical sales cycle. Therefore, the full-year revenue run rate impact is not expected to be realized until next year. While we continue to pursue sale leaseback and OpCo-PropCo transaction opportunities, we have not included any of these in our guidance for 2021 other than the Windstream transaction -- sorry, excuse me, Everstream transaction.

Turning to Slide 16. We expect Uniti fiber to contribute $305 million of revenues and $118 million of adjusted EBITDA reflecting margin expansion from 36% last year to 39% this year at the midpoint of our guidance. Uniti fiber's outlook is impacted by the sale of our Northeast operations as part of the Everstream transaction and the winding down of our non-core construction business I noted earlier. Adjusting for the impact of these two items, revenue and adjusted EBITDA for 2021 at Uniti fiber are expected to increase by 6% and 10%, respectively, from the prior year.

Net success-based capex for Uniti fiber this year is expected to decline $22 million year over year to $125 million. We expect to deploy capital in support of lease-up in those markets where we have recently completed anchor builds as well as continue to pursue a handful of additional greenfield wireless builds. Capital intensity this year is expected to be about 41%, down from 27% in 2020. We expect to continue to manage down our capital intensity over time to be within the mid-30% range.

We expect maintenance capex for '21 of approximately $6 million. Turning to Slide 17. For 2021, we expect full-year AFFO to range between $1.61 and $1.65 per diluted common share with a midpoint of $1.63 per diluted share. On a consolidated basis, we expect revenues to be $1.1 billion and adjusted EBITDA to be $852 million at the midpoint.

Our guidance contemplates consolidated interest expense for the full year of approximately $400 million excluding deferred financing cost write-offs and early tender premium payments. Reported interest expense in 2021 will include an additional $20 million write-off of deferred financing cost and $90 million of early tenure premium payment in the first quarter of this year were related to the tender of our eight and a quarter senior unsecured notes due 2023. Corporate SG&A excluding amounts allocated to our business segments, should be approximately $42 million including $10 million of stock-based compensation expense. We expect weighted average diluted common shares outstanding for the full year of 2021 to be approximately 263 million shares compared to 234 million shares in 2020 reflecting the full-year impact of the 38.6 million shares we issued to certain creditors of Windstream as part of the settlement agreement.

As a reminder, guidance ranges for key components of our outlook are included in the appendix to our presentation. On Slide 18, we have provided a tabular reconciliation of full-year 2020 preliminary results to our 2021 outlook which summarizes some of my comments this afternoon. Turning now to our capital structure. We continue to work to improve our financial flexibility and lower our borrowing cost.

In December, we successfully entered into an amendment to our credit agreement that upsize commitments from new and existing lenders, from 20% -- by 20% to $500 million, significantly improves our pricing and extends the maturity date to December 2024, subject to routine regulatory approvals. Certain limitations were also modified or removed including restrictions related to debt incurrence, restricted payments and permitted investments, providing Uniti greater flexibility in pursuing its strategic initiatives. On February 2, we closed an offering of $1.1 billion of six and a half percent senior unsecured notes due 2029. The net proceeds from the offering, together with cash on hand that were used to purchase approximately $1 million or 95% of the outstanding eight and a quarter senior unsecured notes due 2023.

On February 16, we issued a notice that we'll redeem all remaining outstanding notes due 2023 at par plus accrued and unpaid interest on April 15. With the successful refinancing of our unsecured notes, we expect to realize annual interest cost savings of approximately $19 million and had exceeded the debt maturity by six years. At year-end, we had approximately $528 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity. Our leverage ratio at year-end stood at 5.72 times based on net debt to annualized adjusted EBITDA.

Regarding our dividend outlook for tax year 2021, under our debt agreement, dividends attributable to our capital stock are allowed to be approximately $144 million including the dividend declared on February 25, 2021. This represents our estimate of 90% of taxable income this year excluding capital gains. Accordingly, the board has decided to maintain the dividend at recent levels, and on February 25 declared a dividend of $0.15 per share to stockholders of record on April 1, payable April 16. At these levels, the annualized dividend represents a yield of about 5% based on recent trading levels, with a strong payout ratio of just under 40% based on the midpoint of our 2021 outlook.

Both of these metrics compare favorably to REIT peers today and provide the board's flexibility to grow the dividend in the future, should they decide that that is the appropriate capital allocation decision. As a reminder, we constantly monitor capital markets closely and may take advantage of attractive opportunities to continue to improve our cost of capital. Slide 19 highlights many of the deployments I've made earlier including that Uniti has a set of unique and valuable assets that generate contractual, high-margin recurring revenue through our own through our ongoing lease-up efforts at both Uniti leasing and Uniti fiber. Last, we expect to file our annual report on 10-K by March 8.

We are filing an extension to give the company and our auditors more time to fully complete all of their work on the financial statements and internal controls. Furthermore, several investors have asked about providing financial information regarding Windstream. Our annual report on 10-K, when filed, will include preliminary unaudited fourth quarter and full-year 2020 financial information on Windstream in the MD&A section of that report. We expect to file Windstream's final audited financial statements for last year and a supplemental filing following its completion and receipt by Uniti of those audited statements.

I'll now turn the call back over to Kenny.

Kenny Gunderman -- Chief Executive Officer

Thanks, Mark. Please turn to Slide 20. When compared to other publicly traded communications infrastructure REITs, many of our fundamentals compare favorably, and we believe that there is still a substantial valuation discount applied to Uniti resulting from Windstream's bankruptcy. As Slide 21 highlights, Uniti is a unique opportunity in the communications infrastructure space.

We're in the early years of a multiyear investment cycle that will provide growth tailwinds for Uniti for the foreseeable future. We have a differentiated strategy and a unique, hard-to-replicate REIT structure and portfolio of assets with attractive economics including 95% recurring revenue, monthly churn of 0.2% and $8 billion of revenues under contract, with nine years of average remaining term. We also have a proven track record of organic growth execution and a proprietary value-accretive M&A funnel. With that, operator, we are now ready to take questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Frank Louthan with Raymond James.

Frank Louthan -- Raymond James -- Analyst

All right. Great. So just to be clear on the dividend. I see this new declared dividend.

Can we assume that generally, it's a stable rate that you are looking to have going forward? And then give us a little more detail on the sell-through on the fiber that you got with Windstream, where you are with that process? And now you've had a better look at what do you think kind of the ultimate sort of revenue opportunity is with that? Thanks.

Kenny Gunderman -- Chief Executive Officer

Hey Frank, it's Kenny. I'll take both of those. Yeah, I think the -- on the dividend, we've got terrific options to use our capital, whether it be organic or M&A or paying a dividend. And we also have strong balance sheet, strong liquidity.

And as Mark alluded, our AFFO payout ratio is low compared to the peer group. And so putting all those -- putting that together, I think there's -- as he mentioned in his prepared remarks, there's definitely conversations about raising the dividend, and those discussions continue. But we also balance that against the higher yield. 5% yield, we think, is just way too high.

And so when the board looks at our various uses of capital, I think they should continue to err on the side of investing in the business with terrific organic opportunities that we have. But for sure, the level that we're currently paying is a stable level for the foreseeable future. With respect to the lease-up opportunities on our wholesale national networks, we feel terrific about those. I mean, we talk about doubling the sales funnel from $0.5 billion to $1 billion within a few months.

And I don't think that gets enough focus because when you think about most wholesale sales teams, we have 10 or 11 sales reps that sell our national network, and that's relatively comparable to our peers. And so doubling that funnel to that extent just shows how much demand and opportunity there really is. But clearly, following through on that and showing real revenue in the door is critical. And $150 million of incremental revenue under contract within a few months of closing the settlement, we think is just really, really strong, early indication of success.

And so feel great about it. Frankly, if I compare where I thought we would be with where we are, we're way ahead of where I thought we'd be. So feel really good about it.

Frank Louthan -- Raymond James -- Analyst

OK, great. That's really helpful. Thank you very much.

Kenny Gunderman -- Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Tim Long with Barclays.

Tim Long -- Barclays -- Analyst

Thank you. Two, if I could as well. First, maybe just offer your perspectives on the wireless area. You mentioned DISH and starting going there.

But obviously, there's been a pretty healthy C-band auctions and a lot going on with 5G. So maybe if you could just talk a little bit about appetite there, given there's going to be increased opportunities? And then second, could you talk a little bit about kind of a digital divide and potential government programs and the impacts you think that might have on Tier 2 and 3 markets where you might be participating? Thank you.

Kenny Gunderman -- Chief Executive Officer

Hey, Tim. Yeah, demand from our wireless customers is very, very strong. We saw it. Definitely did not see any slowdown during the COVID months, the heightened COVID months last year and really saw continued strength.

And that's kind of been our MO. I mean, we -- I know people talk about the ebbs and flows. But in our markets, Tier 2 markets, we've seen a really steady, steady amount of demand. And certainly, for us, we're selective about the anchor builds we take on.

So we've never -- and I've said this before, but we've never felt a lack of demand to pursue from our wireless carriers, and that continues to be the case. A couple of trends. One, like others and not unexpected, we're going to see some churn from Sprint sites being decommissioned. We expect to see that this year and next year.

That will be more than offset by ETL revenue, and we think it will certainly be more than offset by the demand coming from DISH. And there's an intuitive symmetry there, right? One wireless carrier going away, another one coming into the market. And we feel really, really great about the opportunity there, and we feel great about the new T-Mobile and their commitments to invest in more rural parts of America. And we said this a couple of years ago when the merger was first announced, that there would be a little near-term volatility related to decommissioning sites, but over the longer term, felt really good about the new T-Mobile being a good customer, especially with our expansive national network that reaches into more Tier 2, 3 and 4 markets.

So we think there's a really nice opportunity. And with the amount of capital that the carriers are going to be spending on the C-band auction and others, I definitely think that for us, that means more demand from them because they need -- we believe, more third-party providers to help them build fiber to offset the capital that they need for other priorities. So net-net, we see strong demand, steady demand. Small cells, I referenced it in my prepared remarks that 65% increase in fourth quarter over the same quarter last year, I think that trajectory is going to continue.

And again, it's a small part of our business today. It's not the central core focus of our fiber business. We've always talked about small cells as a tool in the chest as opposed to the entire chest. But we've also talked about it as a product that would eventually really start growing in our markets as carriers started to prioritize -- started to get deeper into the prioritization of their markets, and we're really starting to see that.

So I feel great about it. With respect to federal subsidies, definitely think those are a net positive for us. We don't get direct subsidies, but our various sale-leaseback partners do of course Windstream does and some of the other sale-leaseback partners. And I think there's just a general -- as many of you know, there's just a general continued bipartisan support for rural broadband.

That's been the case for many decades in telecom, and we think that's going to continue. And so the focus on broadband and broadband infrastructure and revalidated by the mission-critical nature of connectivity during COVID, we think it's going to -- it's just one more of the multitude of tailwinds for Uniti.

Tim Long -- Barclays -- Analyst

OK, thank you.

Operator

Thank you. And our next question comes from the line of David Barden with Bank of America.

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

Hey, guys. Thanks for taking the questions. Kenny, I guess historically, we've had a lot of disclosure around the funnel regarding deals, both in terms of size and nature which we don't have here this quarter. I was wondering if you could kind of give us a picture as to what you kind of think 2021 is going to look like.

And then, Mark, with respect to Windstream obviously thank you for sharing. We'll get more disclosure later, but could you characterize your, I don't know, comfort level, satisfaction with how they're performing relative to plan? And how investors should feel about your relationship with them at this stage? Thank you.

Kenny Gunderman -- Chief Executive Officer

Hey, David. So yeah, the funnel's really strong. And I'll -- I'm trying to reference back to some of the pie charts we used to disclose. And so I'll try to use some of the same terminology.

But still easily, 90% plus of the funnel is proprietary. And of course, by that, I mean just direct conversations with a counterparty as opposed to participating in bank or run processes, right? So 90% plus which in hindsight, over afive, six year track record, that's pretty much what we've demonstrated in terms of actual deals. 90% plus of our deals have been proprietary in nature. So that continues to be what the funnel indicates for future activity.

I would say it's probably about a third leasing related, a third bolt-on and then a third just larger transformative deals. And again, that's consistent with what we've talked about in the past. And I would say, continued focus on leasing deals where we're really acquiring fiber portfolios versus buying companies outright. So that's the funnel.

I would just tell you that the amount of capital including private capital and infrastructure capital focused on our space, continues to be at a fever pitch including focusing on fiber, enterprise fiber, wireless-driven fiber, fiber to the home, small cells and of course, macro towers. And with our portfolio, we bring all those things together. And so there's a tremendous amount of interest in partnering with Uniti in a variety of creative ways, especially since over the past several years, we've actually demonstrated a willingness to work with these unique capital sources. So very, very excited about our opportunities there.

And I think you'll continue to see some activity over the coming quarters. David, I'm going to take your Windstream question too, and Mark can add on. But we don't want to comment specifically on their results. You can imagine some of the -- complexity of us doing that.

But we do recognize the need and the desire of our investors to see results. So as Mark mentioned in his prepared remarks, there's going to be some disclosure coming, and there's also some disclosure on Windstream's website that you can see. We're pleased with the progress. We're particularly pleased with the progress in the kinetic business.

That's the ILEC. That's where they've been investing in the broadband business, and that's really where we're going to be investing with our GCI program and really working to harden our own network over the next five, 10 years. So we feel really good about that progress.

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

Dave, this is Mark. Let me just add on to Kenny's comments. So Windstream did publish some information recently on their -- on our website, and it's investor.windstream.com. So investor singular dot windstream dot com, includes a CEO letter and some other information that provides their perspective on their results side.

I encourage you to read that.

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

Great, Mark. And if I could, just one follow-up this is like, with the 10-year kind of having bounced and rates moving up, is this a good news opportunity for Uniti or a bad news opportunity? How do rising rates and the expectation of rates and inflation moving up affect kind of your weighted average cost of capital and your ability to do deals?

Kenny Gunderman -- Chief Executive Officer

Mark, you want to start with that one?

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

Yeah, sure. So look, I'd say there has -- there clearly has been Treasury rate volatility, particularly over the last couple of weeks. But I'll say this, I'd say that the high-yield market has continued to be very strong. Spreads have moved pretty minimally, and I haven't looked -- had a chance to look today, but I would expect that those -- they probably improve even today.

So in terms of us continuing to expect to be able to improve our cost of capital, certainly our cost of debt, I think improving the cost of debt is a real opportunity for us going forward. And so I continue to look forward to having more opportunities to execute on that. I don't think the Treasury rate volatility that we've seen recently, until it really starts to affect high-yield spreads materially, I don't think that's going to -- I think we're still going to have that opportunity.

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

Great. Thanks guys. Appreciate it.

Operator

Thank you. And our next question comes from the line of Brett Feldman with Goldman Sachs.

Brett Feldman -- Goldman Sachs -- Analyst

Thanks for taking the question. So if I look back to Slide 9, where you have the leasing pipeline and you highlight the $1 billion, I was curious if you could give us any insight as to what the duration of those contracts could be, because that would help us think through what the uplift to annualized revenues could be as you execute against it. And then also, with 75% of those opportunities potentially utilizing the fiber you acquired from Windstream, I would imagine in a lot of those geographies, it is quite literally the only fiber. So I was hoping you could give us some insights as to how competitive this funnel is and your conviction around being able to convert a significant amount of it.

And then just one last follow-up. Mark, I heard you mention there was a one-time noncore, nonrecurring item in the quarter. And I think you've given the revenue impact. I wasn't sure if you had talked about EBITDA.

So if we could quickly revisit that that would be helpful. Thank you.

Kenny Gunderman -- Chief Executive Officer

Yup. Brett, it's Kenny. Good questions. Yes, the -- so as you can imagine, the funnel is made up of hundreds of opportunities, and they range from very large ones to very small ones.

And so if you think about the number, it's going to be weighted toward the bigger opportunities that -- and those terms. But -- so this is -- in other words, this is not a perfect answer, but most of these are going to be longer-term agreements, right? We're selling passive access, wholesale nature. So five, 10, 20 year agreements, but more heavily weighted toward the 10 to 20 year agreements. In terms of your question about the competitive nature, I think you're right directionally.

So there's a lot of unique routes here. Anytime you get beyond the NFL cities, almost by definition, the routes are going to be less competitive and more unique. So I think you're correct about that. What's more -- what gives us I think more of a competitive advantage is when we intertwine these network -- this network with ones we've acquired in the past including the acquisition we made from CenturyLink a couple of years ago, also now known as Lumen.

We also bought a quasi-national network from TPX. We've bought networks from Cable South and from SFN and others, in addition to the almost 7,000 route miles of fiber we've built on our own. So all of those networks intertwined create the opportunity for us to provide unique solutions to our carrier customers. And that's really the trick on the wholesale side, and that's why we're continuing to look to grow that portfolio with proprietary M&A, because the more you grow the funnel, the more unique routes you have, the more tailored creative solutions you can provide to customers on a proprietary basis.

Brett Feldman -- Goldman Sachs -- Analyst

Got it. And on the one-time item?

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

Yeah. Those were mostly equipment sales. So it was about -- we had about $10 million of equipment sales which we classify as noncore revenue. But keep in mind also that those have very little -- those had very little effect on EBITDA because they're lower margin.

Brett Feldman -- Goldman Sachs -- Analyst

Thank you.

Operator

Thank you. Your next question comes from the line of Simon Flannery with Morgan Stanley.

Simon Flannery -- Morgan Stanley -- Analyst

Great. Thank you. Good evening. Kenny, could you just talk again about the Windstream concentration? Good to see we're getting some of the numbers there.

But the GCI, while giving attractive returns, also continues to grow your revenue base with Windstream. So how are you thinking now versus maybe in the past about how you want the business mix to look over time? I think in the past, you've talked about getting that below 50%. Looking at your pipeline of businesses, looking at the GCI, etc. How do you think that's going to evolve? What's the management incentives around that topic? And any insight on the impact of the lease bifurcation? Is that likely to make any difference here? And then, Mark, if you could just give us a little bit more color on the amount and timing of the Sprint churn, that would be great.

Kenny Gunderman -- Chief Executive Officer

Hey, Simon. Good questions. Yeah, we're -- the Windstream -- the core Windstream revenue grows at about half a percent escalator. And with the GCI added on top of that obviously that's going to be a higher number.

So to your point, that is increasing. We feel very confident in that revenue base and resulting cash flow just like we did before the bankruptcy and during the bankruptcy. There's never been a disruption in it. So just to reinforce, we feel very good about that.

With that said, we are very focused on growing the other parts of our business. And talking about 6% growth at fiber and 27% growth in non-Windstream revenue at Uniti leasing, by definition, you're going to have diversification just through organic growth and just through executing on our strategy and growing our business. So over the next four or five years, when I look at our five year plan, we make a lot of headway toward diversifying Windstream closer to that 50% target that you mentioned. And I could tell you exactly when it happens, but I obviously don't want to go beyond just our one year of guidance, but feel great about it, just in terms of organic growth.

And then when you overlay our M&A strategy and your comment about lease bifurcation, I think there -- those are almost like gravy to me in terms of diversification. So we're still very focused on driving that number down, not because we're concerned about the revenue and EBITDA number there, but because we think we've got great growth opportunities in other areas of our business, and we're going to continue to execute on those. Simon, I'm sorry?

Simon Flannery -- Morgan Stanley -- Analyst

Yeah, on the Sprint churn, just given just how much revenue you have there that you expect to churn on these specific timings?

Kenny Gunderman -- Chief Executive Officer

Yeah, the Sprint churn. So yeah, I think over the next year, two years, maybe two and a half years, somewhere between $5 million to $7 million to $10 million of recurring revenue. And again, that will be more than offset by ETL revenue and also the -- I think, the opportunity that we have with DISH.

Simon Flannery -- Morgan Stanley -- Analyst

Thanks.

Operator

Thank you. Your next question comes from the line of Bora Lee with RBC Capital Markets.

Bora Lee -- RBC Capital Markets -- Analyst

Thanks for taking the questions. First, going back to the leasing sales pipeline. Could you provide some color on how you think internally about the breakdown of stages of deals as they actually move through the pipeline? And if you could bracket the time it takes for that sales cycle, from initial contact to revenue recognition? And then secondly, you've mentioned in various forums that you're exploring data centers. Can you just talk a little bit about what you're exploring there in terms of retail or edge data centers? Are you looking to actually operate the assets or sales leasebacks?

Kenny Gunderman -- Chief Executive Officer

Hey, Bora. The short answer to your question on the $1 billion sales funnel at Uniti leasing is, those are longer sales cycles. So anywhere from six to nine to 12 month sales cycles. And the longer answer is, that it obviously varies, and it certainly varies based upon whether it's a new customer or an existing customer.

So for example, now we've got MLAs in place with some very large customers, names you'd recognize, who are buying virtually overnight or within days or weeks, because we've got the MLA in place, and you know how all that works. But with new customers, new logos, six, nine, 12 months again longer because these are bigger deals and because you're putting together complicated solutions in many cases that traverse numerous states in many cases. With respect to data centers, we've looked at all manner of opportunities there. We get shown all types of opportunities.

So back to my comment about the M&A environment. We've never found an opportunity to acquire data centers outright that is economical for us. Similar to towers, we never bought a tower portfolio. We decided that it was a better opportunity for us to enter that space organically by building towers.

And I think at this moment in time, I feel the same way about data centers, because there is an opportunity for us to build edge data centers in some of our markets for some of our carrier customers, who really want those facilities on the edge, and the edge happens to be our fiber network that we're leasing to them. And so that's -- and with respect to whether we -- we would certainly own those facilities, and we would operate them to the extent you're providing power and cooling and so forth and also leasing up those facilities to others. So we are spending a lot of time looking at those opportunities with our good anchor customers. And we may have more to report on that in the coming quarters.

Bora Lee -- RBC Capital Markets -- Analyst

Thank you.

Operator

Thank you. And that is all the time we have today for Q&A. I would now like to turn the call back over to CEO, Kenny Gunderman, for any closing remarks.

Kenny Gunderman -- Chief Executive Officer

Thank you, Andrew. We appreciate all of your interest in Uniti Group and look forward to updating you further on future calls. Thank you all for joining us today.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

Kenny Gunderman -- Chief Executive Officer

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

Frank Louthan -- Raymond James -- Analyst

Tim Long -- Barclays -- Analyst

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

Brett Feldman -- Goldman Sachs -- Analyst

Simon Flannery -- Morgan Stanley -- Analyst

Bora Lee -- RBC Capital Markets -- Analyst

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