Good day, ladies and gentlemen, and welcome to the Third Quarter 2015 CS&L Earnings Conference Call. My name is Stephanie, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Mark Wallace, the company's Senior Vice President, Chief Financial Officer and Treasurer, for opening remarks. Please go ahead, Mr. Wallace.

Thank you, and good morning, everyone. Before we start, I'd like to remind you that our discussions during this conference call will 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 our filings with the SEC. Discussions during the call will also include certain financial measures that are 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 on our current report on Form 8-K dated today. I'll now turn the call over to Kenny Gunderman, our President and Chief Executive Officer.

Thank you, Mark, and good morning, everyone. Today, I'd like to give you an update on further refinements of our strategy as well as our continued progress towards diversification. As mentioned before, our goal is to acquire or build mission-critical communications infrastructure assets and either lease them to creditworthy customers or operate them ourselves. We view those assets as being predominantly fiber, towers, data centers and next-generation consumer broadband connections. There are numerous common characteristics among these assets, including: number one, they all represent a critical part of the communications infrastructure; number two, carriers have demonstrated a comfort with not owning these assets but rather leasing them on a long-term basis; number three, we expect the assets to increase in value over time; number four, there are opportunities for us to own existing assets and to build assets in each of these classes; and finally, number five, these assets and related income are generally REIT qualifying. The quantity and quality of opportunities in our pipeline continues to grow, and we are more confident today than ever of our ability to grow and diversify our business. There is a growing trend among communications operators of leasing physical infrastructure as opposed to owning it or even selling owned infrastructure entirely. We are seeing this as we talk to carriers and other players that utilize all of these asset categories. We believe these circumstances create tremendous opportunities for CS&L to diversify across various asset classes and transaction structures. In fact, of the deals on our active pipeline, 55% are related to fiber assets, 25% involve tower-related assets, 10% relate to data centers and only 10% are related to consumer broadband. We believe that demand for long-term passive capital to help fuel the development of communications infrastructure is tremendous. Since our last call, we have moved aggressively toward more of an execution mode on deals as opposed to building the pipeline. At this stage, we have executed term sheets, are working with advisers and are in substantive negotiations on a number of transactions. Based upon this and the overall quality of our pipeline and activity level, we expect to be in a position to announce the addition of new assets and customers by the end of the first quarter of 2016 or earlier. Of course, given the highly strategic nature of our discussions, we cannot precisely predict timing, and we will remain disciplined and not work towards artificial deadlines. Now I will turn the call back to Mark.

Thanks, Kenny. For the quarter, we reported FFO of $0.64 per diluted common share and AFFO of $0.65 per diluted common share. Net income attributable to common shares was $9 million or $0.06 per diluted share. Weighted average common shares outstanding during the period was 149.8 million. Consolidated revenues were $173.6 million, with consolidated adjusted EBITDA of $165 million. Leasing revenues were $167 million, including $4.3 million of straight-line rental income. Revenues from Talk America were $6.7 million, with adjusted EBITDA of $1.5 million. G&A expense was $4.2 million, including $780,000 of noncash stock-based compensation expense. As I mentioned on our last call, reported G&A is exclusively related to our leasing segment as all costs related to Talk America are included in CLEC operating cost. Transaction-related expenses were just over $800,000. Interest expense was $66.5 million, including the effect of our interest rate swaps. Cash interest expense was $62.9 million. We continue to have substantial liquidity at quarter-end, with $210 million of unrestricted cash and cash equivalents and $500 million of undrawn borrowing capacity under our revolving credit facility. Our leverage ratio was 5.6x based on debt-to-annualized adjusted EBITDA and 5.2x based on net debt-to-annualized adjusted EBITDA. On November 6, our Board of Directors declared a quarterly cash dividend of $0.60 per share payable January 15, 2016 to stockholders of record on December 31, 2015. This represents an annual dividend rate of $2.40 per share. Turning to our guidance. We are raising our outlook for 2015. We now expect FFO per diluted common share for the period from our spin-off to year-end to range between $1.74 to $1.76 and AFFO per diluted share for the same period to range between $1.76 and $1.78. The guidance revision principally reflects or relates to the expected timing of G&A expenses. Our guidance does not include the impact of any acquisitions, capital market or other transaction activity. And finally, we expect our Form 10-Q will be filed by close of business today. That concludes my prepared remarks. I'll now turn the call back to Kenny.

Thanks, Mark. In closing, let me say that I believe we are successfully executing our strategy and have developed an actionable and robust pipeline. We have identified the highest priority prospects and are engaged in substantive discussions. We're focused on growth and diversification while continuing to deliver a sizable and predictable dividend to our shareholders. We'd now like to open the call up for questions. Operator?

[Operator Instructions] Our first question comes from Eric Pan with JPMorgan.

Can you just give us some color on the type of assets that you've executed term sheets on? And would you be able to fund it entirely with your revolver? What do you need to raise new funding?

Eric, it's Kenny. I'll take the first one, and I'll let Mark take the second one. But with respect to assets that we've executed term sheets on, I think it's -- the mix of assets that we have on the pipeline is a good indicator of not only where we're focused but also the types of transactions that we're prioritizing. So I think that's a good proxy for the answer to your question.

So Eric, this is Mark. So most of the transaction in our pipeline, the majority we could finance either with existing cash on hand or on our line of credit.

Got it. And in terms of your original expectations regarding the timing of the deals, has reality strayed far from that? And if so, what would you point to be the reason?

Eric, I don't think so. I mean, we've been public now for about 7 months, and the team really came together in March or April of this year right before the spin. And so we've really been active for 6, 7, 8 months. And we spent the first couple several months really developing the pipeline, getting it to critical mass and getting it to a point where we're able to comfortably say that we have a good sense of what our opportunity set is and a point where we're able to comfortably prioritize the opportunities that we think are the best opportunities for CS&L and its shareholders. And since that point, we've really focused in on those high-priority opportunities and we've really pivoted to more of execution mode since then. So when you just think about that and the time that it takes to execute what we consider to be highly-strategic transaction, because we're talking about very valuable assets here that we think are critical to the communications infrastructure, it takes time. And so as I mentioned in my remarks, we feel better today than we ever have about our ability to execute and diversify, and we're working aggressively towards revealing some of that to the marketplace.

Got it. That's helpful. And then last one for me. What would you say your max deal capacity is? There's been some talk that Verizon is looking to sell their enterprise assets. And would you be able to take a deal -- take on a deal of that size?

Yes, Eric. Let me start, and Mark can comment as well. But I think one of the considerations we have to think about is the fact that we were spun out of the tax-free spin. And so having a "change of control" in our equity is a consideration. I'm not suggesting that we couldn't do that, but it's certainly a consideration. That's probably the upper band on size for us to think about. I think anything between there and a smaller transaction is -- we think, is very actionable. Mark, I don't know if you want to add anything to that.

No, just on what Kenny had mentioned is, generally, we can -- within a 2-year from spin-off, generally, we can't issue more than 100% of our equity values. So -- but that's a pretty -- as Kenny said, that's a pretty large upper band. So we could easily do a transaction. Just from a limitation standpoint, that would be pretty substantial.

Our next question comes from David Barden with Bank of America.

I guess, my first one, Kenny, is just looking at the kind of mix of assets that you're targeting that seem to be in the pipeline, the fiber and towers. I was -- it's intriguing because one of the things I thought this was really about was if you looked at wire line multiples, they're trading around, say, 4 to 5x if you look at the Verizon-Frontier deal. And you look at Communications Sales & Leasing, and you guys are even now still trading around 10x. And so there's a big valuation gap between where you are, where the wire line companies are. And in the middle is a place where they can make money selling you assets where you can make money buying them at a discount to yourself. And that makes a lot of sense, I think. But can you kind of walk us through the math between the tower and the fiber side? Because tower company multiples are 14, 15x fiber multiples, even are 11, 12 these days. How do those deals work in the same kind of way?

David, good question. I think, first of all, as it relates to the multiple differential between where carriers trade today and where we trade, I think you're absolutely right. I think that as we've commented before, the reason you haven't necessarily seen more consumer broadband transactions is not just because or necessarily because others haven't wanted to transact with us. It could be a combination that we may not want to transact with them. And the point there is that we have been focused on the assets that I mentioned and that you just referenced as we believe those are truly mission-critical type of assets. The second thing I'd say is that many of the carriers who still own these assets, whether it be fiber or towers or are building fiber or are building towers, still trade at those multiples that you mentioned. And so if there are pure-play companies out there that are tower companies or fiber companies, they may be trading at the multiples you mentioned. But many of the carriers who own those assets or are still deploying them do trade at multiple differentials. And the last thing I'd say is we -- 90%-plus of the transactions that are in our pipeline are actually exclusive or proprietary discussions versus a typical banker-run process where you're competing against the universe of buyers. And I make that point because it emphasizes that the nature of our discussion areas are highly strategic, and we expect that to continue. And I think it also helps us with respect to how many of the transactions are priced.

Got it. Okay. So it's kind of like lift-outs of maybe more attractive assets than the consumer broadband assets, and the fact that the portfolio seems still stacked with them is maybe a function of your directed efforts to kind of go after those kind of assets?

I think that's right, a lot of it [ph] but yes.

This -- the second question was regarding the comment you made about the first quarter being kind of a target date for at least the transaction. Is it all transaction? Or is it several transactions? Or -- and then after that, is it another year for more transactions? Or could you kind of maybe give us a little bit more color on the cadence?

Yes, David. So I think we're not really targeting first quarter. I think it's really more a function of the pipelines developed, and our conversations have developed to a point where we're confident saying that announcements are coming. And so we're not really picking a specific time and saying this is when it's going to happen. We're just really saying based upon our experience in the deal world and our experience with many of these counterparties and just the magnitude and the quality of the pipeline. We're confident that there will be things to talk about in the first quarter, if not sooner. And with respect to the number, I think it could certainly be more than one, just given the number of good quality conversations that we're having. So it could be more than one. And with respect to your last question, look, I think, as I mentioned in the earlier question, we spent some time, some good quality time, building up the pipeline to critical mass. We think that is, or was, the right thing to do for the company to give us the ability to assess the opportunity set. The pipeline's a critical mass. And I think once we start announcing transactions, there won't be the same level of delay that you've seen. I think you'll see announcements on a more regular basis.

Great. And then just the last question as it relates to Windstream. This is more a technical issue. But Windstream, I know, when they spun you out, had to account for their leases, a capital lease, because of the ongoing involvement of the company in the assets that you now hold in the form of the pole attachment rights and the easement. And they've been working to -- they said that they're working with you guys to retitle those assets and get to a point where their auditors might say, "Okay, we can account for this as an operating lease," and I think that, that might help the optics of Windstream's leverage and perception about it and then obviously help you guys by extension. Is that a process that's ongoing at this stage? Or is it just beginning? Or could you kind of elaborate a little bit on that?

Dave, we've had discussions with Windstream about those issues. And we're always -- certainly, are willing to work with them and have worked with them of those issues in terms of actually progress that they're making and discussions on how progress would affect their accounting. That's really between them and their auditors, and so it's probably a question that for the most part is best directed towards Windstream.

Our next question comes from Barry McCarver with Stephens.

A couple of questions. I guess, first off, following along the question we had on data center deals earlier. We have seen several networks announce initiatives to shed some data center and managed service assets. Does that change kind of your opinion or your thoughts on potentially investing or requiring that space, the fact that a number of networks are beginning to exit?

Barry, I think it -- first of all, I think it -- that trend in data centers is a good indication of what we see happening across various asset classes and communications, as I mentioned in my remarks. So I think that's a good indicator. Secondly, as I mentioned, we are looking at data centers. We've talked about that in the past, and I think more of those opportunities will become available. I think that we are going to remain disciplined about the assets that have been -- that are on the market and ones that we expect coming. So it hasn't really changed our view other than reinforce our view about different asset classes being divestible.

All right. And then just secondly, could you just run through your CapEx commitments to Windstream so far and then what we might be expecting to see in 4Q?

Yes, so Barry, this is Mark. So the really only commitment we had at Windstream is the $50 million that we -- for this year, and I fully expect them to request the full $50 million and for us to fund it in the fourth quarter of this year. There's no revenue associated with that, that's impacting our forecast or our guidance for this year because I expect it to be light in the year and not have really any significant impact on this year's results. So the income will actually come next year, but I do expect to fully fund the $50 million. On the other, the $250 million, they have not requested anything. They have not made a request for the $250 million. And frankly, I really don't know if they're going to request the $250 million or not. So when we hear something from them, we have more -- know more about it. We'll certainly be glad to share that. But at that this time, no request has been made.

And then just lastly, I noticed in the press release, on the cash flow statement, a pretty significant increase in the tenant capital improvements. Help me understand what that is. Is that just when Windstream is upgrading, most likely copper to fiber, and you're taking a write-up on the balance sheet? Is that what that is?

Yes, and it's a pretty astute observation that you make. So as we've kind of said over time is that as Windstream overbuilds our copper network with fiber that those capital improvements become our property. And so what those nonmonetary transactions are -- that are listed at the bottom of the cash flow statement indicate is that those are assets that Windstream has constructed that fit into that definition, and we record those on our balance sheet as an asset and then we defer that revenue and amortize the revenue over the life of the asset, which works out to be about 30 years. So as we go forward, and you'll actually see in the AFFO reconciliations, you'll see, I believe, it's $161,000 of amortization. So we're putting those on the balance sheet, deferring the revenue and then amortizing it into income.

Our next question comes from James Moorman with D. A. Davidson.

Just a follow-up on Barry's question about data center. So I know you had mentioned that you -- most of your discussions, you -- for them to be kind of one-on-one. So does that change -- I mean, how did that all turn? Because it seems like most of these data centers have been out for the highest bidder and have gone -- been more public, does that change or maybe you're looking for more smaller stuff than the -- more of the stuff we've been hearing about. And then just can you talk about any change that you've seen in terms of reception from REIT investors incur, is that something you think will happen more kind of once you start making transactions?

Sure. In terms of the first question, look, I think you've put together the 2 data points that 90-plus percent are more one-on-one proprietary discussions versus the data center deals that you've seen or heard about are more portfolios of data centers that -- where companies have hired advisers, and robust processes have been run. I can't comment specifically whether we were involved or not or looked at those assets or not. But just given my comment about 90-plus percent, you can surmise that, that's not, generally speaking, not a type of situation where we're focused.

This is Mark. In terms of your question about REIT investors, so we're doing more and more outreach to REIT investors. In fact, I'll be at the NAREIT conference next week out of Las Vegas to meet with a lot of REIT investors. I think in terms of REIT investors coming into our stock, it's just going to take -- it will take time. We are a nearly spun-off company. It's a little bit of a different asset class, and there is kind of an educational process that needs to take place. And so -- but we are having more outreach with real estate investors.

Our next question comes from Simon Flannery with Morgan Stanley.

It's Spencer for Simon. In the past, I guess you have talked about the opportunity with your taxable REIT subsidiary. I think you said 25% of your assets can be in that bucket. Can you just remind us -- or any update on the opportunities there?

I think we still have substantial capacity in our TRS for operating businesses. So I think the capacity there is about $1.5 million of value today.

Billion.

Yes, I'm sorry, $1.5 billion of value today that we could put into our TRS. So that opportunity is still there.

Okay. And then just a quick follow-up to the previous question. Do you guys know if you are in this running REIT index inclusion?

Not that we know of at this time.

[Operator Instructions] Our next question comes from Arun Seshadri with Credit Suisse.

Just a couple of things. First, I think in prior quarters, you disclosed the size of your pipeline in terms of number of opportunities. I think you said 100 last time. Can you update us on that?

Yes, I would say it's grown since the last quarter. I would say that, as I've previously mentioned, we've definitely focused more on execution in the last few months as opposed to growing the pipeline by design. So we've got it to a point where we considered it to be a critical mass for the reasons I mentioned. And since then, we've been really prioritizing the opportunities in there that are most appealing to us and have been focused on bringing those to completion. But despite that, it has still grown from our last quarterly call.

Great. I appreciate that. And I think the last time you also gave us some sense for sort of the proportion of sort of sale leasebacks versus M&A partnering versus acquiring entire companies. Would you be able to say anything on those lines?

Sure. We didn't include it in our remarks, but we definitely track that. And so I've got some numbers here we can share with you. In terms of sale leaseback, it's about 48%; whole company, about 30%; M&A sale leasebacks, about 13%; and about 9% CapEx.

Okay. Fantastic. And then the last question for me is really -- and have you -- are rating agencies -- sort of opinions on debt, any sort of significant constraint on any of the opportunities you're currently pursuing as part as closing the transactions?

No, no. Not at all. I mean, we fully have the capability from a capital market standpoint to fund any transactions in our pipeline.

And I'm showing no further questions. I will now return the call back over to Kenny Gunderman for closing remarks.

Well, great. Thank you. In closing, let me say that I believe we have successfully executed our strategy and have developed an actionable and robust pipeline. We have identified the highest priority prospects and are engaged in substantive discussions. We're now focused on growth and diversification while continuing to deliver a sizable and predictable dividend to our shareholders. Thank you all, and good morning.

Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect. And everyone, have a great day.