Uniti Group Inc. (UNIT) Q4 2021 Earnings Report, Transcript and Summary

Welcome to Uniti Group's Fourth Quarter 2021 Conference Call. My name is Kevin, and I'll be your operator for today. A webcast of this call will be available on the company's website at www.uniti.com beginning February 25, 2022, and 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 morning 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 these 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.

Thank you. Good morning, everyone, and thank you for joining. Starting on Slide 3. 2021 was a terrific year for Uniti. At a time when fiber has never been more valuable, our national fiber network of 128,000 route miles is one of the largest and most robust networks in the country today. We added nearly 6,000 route miles of new fiber in 2021, and our networks are intentionally constructed with high strand fiber in order to capitalize on highly accretive lease up opportunities. As proof, we just completed our third consecutive quarter of $1 million in MRR of new consolidated bookings. Consolidated bookings of $3.5 million for full year 2021 represent a 40% increase year-over-year. In 2021, the lease-up opportunities sold within Uniti Fiber alone are expected to generate $20 million of annual revenue when fully installed and almost 50% increase from the prior year. We've achieved this growth all while our capital intensity continues to decline and our net leverage at year-end was at its lowest level since mid-2017. The trends going into 2022 are equally exciting. We're the third largest independent fiber operator in the country with an intentional focus on wholesale. Approximately 90% of all business generated today, including lease-up is wholesale in nature. The demand for our portfolio of small cells, connected buildings, macro towers and homes passed is driven by the need for more investment by our customers in 5G networks, 10-gig upgrades, fiber-to-the-home, fiber backhaul and small cells. These investments provide Uniti with a unique opportunity to expand our network with anchor economics, setting the foundation for even more future lease-up. As evidenced on Slide 4, Uniti is tracking well on the shared infrastructure economics. As a reminder, we believe that a healthy mix of anchor and lease-up bookings represents the most effective way to drive profitable economics. Uniti acquires or builds new fiber largely for our wireless customers with long-term anchor cash flow yields in the mid- to high single digits. We're then successfully adding additional tenants with very high margins and minimal CapEx, resulting in a cumulative cash flow yield today of approximately 19%, an almost threefold increase from the anchor yield and all within the past 5 years. Slide 5 illustrates an important part of our healthy business mix. As I mentioned earlier, we had our third consecutive quarter of consolidated bookings of approximately $1 million, an 80% increase from the fourth quarter of 2020. The amount of new bookings itself, however, is only part of our positive story. We continue to show a gradually growing mix of new bookings that are lease-up in nature. This focus on a good balance of wholesale, nonwholesale and anchor lease-up is intentional on our part and has resulted in outsized margin enhancement and AFFO growth, and we expect this focus to continue. This business mix results and predictable cash flow with 0.2% monthly churn and average remaining contract term of 9 years and a business, which is relatively immune to swings in the economy which was evidenced by our largely uninterrupted progress during the height of the COVID-19 pandemic. Turning to Uniti Fiber. Sales bookings in the fourth quarter were $0.8 million of MRR, an increase of over 50% from the fourth quarter of 2020 and our third consecutive quarter of bookings at this level. In fact, wireless bookings alone in 2021 increased over threefold from the prior year, driven by the strong demand we continue to see from carriers. In terms of mix, 60% of our bookings during the quarter came from lease-up of major wireless anchor bills. December was a record-setting month for enterprise bookings and one of the highest months on record for consolidated new bookings all while offering Lit services in only approximately 20 metro markets. However, we own and have access to metro fiber in nearly 300 markets which represents terrific capital and margin-efficient growth potential. Given the proven success of our anchor lease-up strategy, we're actively prioritizing these metro markets for expansion in both 2022 and beyond. We view these not only as organic growth opportunities, but also markets that could facilitate acquisitions outside our traditional Southeast footprint to accelerate growth in these fiber metro markets. Turning to Slide 6. In Uniti Leasing, we continue to actively market over 3 million strand miles of fiber, making us one of the largest players in the wholesale fiber market. Our national -- our nonwireless carrier customers, such as the FAANG Group and national MSOs continue to be active as they expand their cloud-based services. For example, we recently announced 2 sizable long-term dark fiber IRU agreements with an international carrier and leading infrastructure provider. These 2 deals alone utilize almost 3,500 route miles of our existing metro and long-haul fiber network, have a total contract value of over $60 million and represent approximately $3 million of annualized revenue. As I mentioned last quarter, although we report Uniti Fiber and leasing separately, both businesses are marketed to our customers on 1 consolidated -- as one 1 consolidated fiber business. An increasing number of customers and network solutions are a mix of Uniti Leasing and Uniti Fiber networks, and we fully expect and encourage that trend to continue. With that, I'll now turn the call over to Paul.

Thank you, Kenny. Good morning, everyone. I'd like to begin this morning by providing a review of our fourth quarter and full year 2021 performance followed by an overview of our 2022 outlook for each of our business units and on a consolidated basis. As Kenny mentioned, 2021 was a very strong year for Uniti. The trends within our industry have never been better, and we continue to successfully execute on our strategy of leasing up our existing fiber network with high-margin recurring revenue opportunities, while at the same time pursuing attractive new greenfield builds. All of this is reflected in our 2022 guidance that I will cover in more detail in just a bit. Finally, I will provide commentary on our current balance sheet and capital structure. Please turn to Slide 7, and I'll start with comments on our fourth quarter. We reported consolidated revenues of $293 million, consolidated adjusted EBITDA of $231 million, AFFO attributed to common shares of $114 million and AFFO per diluted common share of $0.44. Net income attributable to common shares for the fourth quarter was approximately $36 million or $0.15 per diluted share. At Uniti Leasing, we reported segment revenues of $211 million and adjusted EBITDA of $206 million, up 9% and 8%, respectively, from the prior year. Accordingly, Uniti Leasing has achieved an adjusted EBITDA margin of 98% for the quarter. The year-over-year growth reflects the dark fiber IRU contracts we acquired from Windstream, the straight-line rent recognition under the Windstream MLAs and GCI investments subsequent to our settlement agreement, the impact of the Everstream transaction annual lease escalators and a onetime noncash adjustment in the amount of $8 million during the quarter related to the straight-line revenue associated with the dark fiber IRU contracts and other assets we acquired from Windstream as part of our settlement agreement. Excluding the impact of the straight-line revenue adjustment, revenue and adjusted EBITDA grew approximately 5% and 4%, respectively, for the period. Turning to Slide 8. Our growth capital investment program continues to perform within our expectations and yield positive results for Uniti. As a reminder, our tenant has invested approximately $1 billion of tenant capital improvements in our network over the past 6 years. Uniti continues to invest its own capital in long-term value-accretive fiber largely focused on highly valuable last mile fiber, including fiber in commercial parks and fiber-to-the-home. Collectively, these investments have resulted in 12,500 route miles of newly constructed fiber and 21% of the legacy copper network being overbuilt with fiber. Both of these numbers continue to gradually increase each quarter, and we expect they will increase materially over the coming years. During the fourth quarter, Uniti Leasing deployed approximately $71 million towards growth capital investment initiatives, with almost all of the investments relating to the Windstream GCI program. These GCI investments added around 1,900 route miles of fiber to Uniti's own network across several different markets. As of December 31, Uniti has invested over $300 million of capital to date under the GCI program with Windstream, adding around 8,100 route miles and 308,000 strand miles of fiber to our network. As a reminder, these investments will be added to the master leases at an 8% initial yield at the 1-year anniversary of Uniti making such investments. They are subject to a 0.5% annual escalator and resulted in nearly 100% margin. The investments we have made to date will ultimately generate approximately $25 million of annualized cash rent. At Uniti Fiber, we turned over 185 lit backhaul, dark fiber and small cell sites for our wireless carriers across our Southeast footprint during the fourth quarter. These installs added annualized revenues of approximately $1.6 million. For the full year 2021, we installed 830 lit backhaul, dark fiber and small cell sites, adding over $5 million of annualized revenue. We currently have around 1,600 lit backhaul, dark fiber and small cell sites remaining in our backlog that we expect to deploy within the next few years. This wireless backlog represents an incremental $13.5 million of annualized revenue. At Uniti Fiber, we reported revenues of $82 million during the quarter. While core recurring revenues were once again in line with our expectations, core nonrecurring revenue was slightly below expectations due to the timing of early termination fee. Adjusted EBITDA for the fourth quarter was $32 million, representing a margin of 39%. For the full year 2021, adjusted EBITDA margin was 40%, a 390 basis point improvement from 2020. Uniti Fiber net success-based CapEx was $34 million in the fourth quarter. We also incurred $2 million of maintenance CapEx or about 2% of revenues. Please turn to Slide 9, and I will now cover our 2022 guidance. Our 2022 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. Our full year outlook for 2022 includes the following for each segment. Beginning with Uniti Leasing. We expect revenues and adjusted EBITDA to be $819 million and $797 million, respectively, at the midpoint, representing adjusted EBITDA margins of approximately 97%. Revenue and adjusted EBITDA each include $14 million of cash rent associated with the GCI investments and $26 million related to the straight-line rent associated with the Windstream master lease and GCI investments. We expect to deploy $275 million of success-based CapEx at the midpoint of our guidance, of which $250 million relates to estimated Windstream GCI investments. Most of the markets where we are making GCI investments are similar to our own Tier 2, Tier 3 markets, providing Windstream with substantial growth opportunities over time. Turning to Slide 10. We expect Uniti Fiber to contribute $308 million of revenues at the midpoint and adjusted EBITDA of $118 million for full year 2022. When adjusting for the Everstream transaction that occurred in May 2021, the year-over-year revenue and adjusted EBITDA growth is 6% and 5%, respectively. This strong growth reflects our continued efforts to pursue and execute on lease-up that leverages our existing dense Southeast fiber footprint. Although the majority of our revenue at Uniti Fiber is recurring and fairly predictable in nature, I do want to call out that our nonrecurring revenues such as equipment sales and installs, onetime fiber sales and ETLs can be lumpy due to the mix of our bookings activity and the timing of delivery. Net success-based CapEx for Uniti Fiber this year is expected to be $120 million at the midpoint of our guidance, a 12% decrease from levels in 2021. Turning to Slide 11. For 2022, we expect full year AFFO to range between $1.71 and $1.78 per diluted common share with a midpoint of $1.75 per diluted share, a 4% increase from 2021. On a consolidated basis, we expect revenues to be $1.1 billion and adjusted EBITDA to be $890 million at the midpoint. Our guidance contemplates consolidated interest expense for the full year of approximately $388 million. Corporate SG&A, excluding amounts allocated to our business segments, is expected to be approximately $33 million, including $8 million of stock-based compensation expense. We expect weighted average diluted common shares outstanding for full year 2022 to be around 265 million shares. As a reminder, guidance ranges for key components of our outlook are included in the appendix to our presentation. Turning now to our capital structure. Through the successful debt refinancings we executed in 2021, we have significantly improved our financial flexibility, lowered our borrowing costs substantially with over $25 million in expected annual interest cost savings and extended our debt maturities by several years. We continue to monitor capital markets and expect to be opportunistic as it relates to taking advantage of attractive opportunities to further improve our cost of capital. At year-end, we had approximately $420 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity. Our leverage ratio stood at 5.55x based on net debt to last quarter annualized EBITDA, which, as Kenny mentioned earlier, is the lowest it has been since mid-2017. Yesterday, our Board declared a dividend of $0.15 per share to stockholders of record on April 1, payable April 15. We expect dividends attributable to our capital stock for the 2022 tax year to be approximately $178 million, including the dividend paid in January and the one declared yesterday. This represents our estimate of 90% of our taxable income this year, excluding capital gains, and is currently the maximum amount we can distribute under our debt agreements. With that, I'll now turn the call back over to Kenny.

Thanks, Paul. Please turn to Slide 12. Over the past few months, we've gotten many questions about the disclosure Windstream made regarding the renewal rent of the master lease in 2030. So I wanted to spend some time discussing Uniti's views. The first column shows the assumptions Windstream used in their disclosure and their estimated renewal rent. In short, the assumptions and methodology used in their analysis neither reflect fair market value, which is required under the MLA nor is the analysis consistent with our professional appraisers’ estimated fair market value in 2020. Windstream is incorrectly using an undiscounted residual value to compute the current value at the time of renewal, as well as incorrectly estimating the value of the CLEC assets by basing that value on a fiber strand mile basis rather than using route miles. The CLEC fiber rights Uniti received as part of the settlement agreement were not utilized by Windstream and therefore, has a de minimis effect on the value of the network when removed for purposes of calculating the rent. The second column on the slide shows that if we were to correct for these 2 inaccurate assumptions while keeping all of Windstream's other assumptions unchanged, the implied annual rent would increase to approximately $600 million. To be clear, the MLAs state that the renewal rent must be calculated consistently with the methods used in the 2020 appraisal report, which as an aside, was largely consistent with the 2015 appraisal. The third column represents the estimated 2030 rent calculated by the big 4 appraiser in 2020. This column not only applies to methodology correctly, but it also makes more reasonable assumptions regarding other inputs. In our view, this reflects conservative assumptions around the GCI program and the annual growth in the value of those investments. In fact, as the last column illustrates, if you assume Windstream utilizes the entire $1.75 billion of GCI and a slightly higher growth rate in the value of the investment, the implied annual rent is over $800 million. While we do not pretend to know the precise renewal rent 8 years from today, we are confident based on the independent appraisal reports we've received, the clear language in the MLAs and the favorable trends in our industry that the rent will be a step function higher than what Windstream is claiming. Turning to M&A. We continue to spend time with our Board evaluating our ability to separate our assets in a tax and value efficient manner. Based upon that work, we're now confident we could separate our Windstream and non-Windstream businesses in a tax-efficient manner. While we are not suggesting that we will definitively pursue this separation, we do believe the enhanced optionality provides Uniti multiple avenues for value accretive M&A with our highly valuable assets. Our current strategic discussions not only reinforce to us that these themes are still true but we are confident that a transformative value accretive transaction for Uniti is possible. As I mentioned at the outset, as we close the books on an outstanding 2021, we're looking forward to the prospects for 2022. The trends in the communications infrastructure space have never been better, and we remain uniquely positioned to benefit from them. With that, operator, we're now ready to take questions.

[Operator Instructions] Our first question comes from Phil Cusick with JPMorgan.

A couple if I can. First, let me follow up, Kenny, on your comment just a second ago. The transformative value accretive transaction, any evolution on either discussions with things like that or smaller deals that you can use to create more value in the meantime?

Phil, yes, we've definitely been prioritizing the larger transformative-type transactions in our more recent dialogue more recent meeting in the past 6 months or so. And so I would say that we continue to advance those discussions in a material way and probably should leave it at that. But I think we remain confident in our messaging regarding the value-accretive nature of those opportunities.

Is there a -- there's never a perfect time line. But is there something in your mind in terms of timing that, listen, if we don't get this done in the next 2, 4 quarters that maybe it's time to move on and get back to doing smaller deals that drive value in the meantime?

Yes. Great question, Phil. We think about that. We talk about it a lot. I think the -- from our perspective, our core business has never been better. Our balance sheet has never been better. Liquidity has never been better. So all of those things give us the ability to be patient but we also recognize our shareholders have always valued M&A as an important part of our strategy. And so including larger opportunities as well as smaller ones, bolt-ons. And so we do want to get back to that. We think we're really good at it. We think we've got a great platform for it. So there is a limited time line. But with all that said, I think that patients right now is important for shareholders because that's the critical ingredient for us to unlock value.

Okay. And then on the business, you mentioned the consolidated new sales bookings were, I think, 80% above 4Q '20. Can you dive into the time line from book to bill and netted against churn, does that imply an eventual acceleration in revenue?

Yes. I'll let Paul comment on this, too. Phil. But I certainly -- we certainly think so. I mean we're working through the Sprint churn in our business today, and we didn't see a lot of that in 2021, but we're going to see some of it, probably the bulk of it actually in 2022. So that masks some of the organic growth this year. But I think beyond that, you're going to see an acceleration. And also, we really haven't seen DISH ramping up from a revenue perspective yet. We're not forecasting much of that for this year. And so those 2 things together, you're going to start to see more of that in the coming quarters and beyond 2022. But Paul, jump in if you have anything to add.

No, I think that's right, Kenny. I think -- but I think we are seeing acceleration in our enterprise business, in particular as a result of the increased bookings activity. So while that's a smaller piece of the pie. And as like Kenny said, kind of masked by the larger -- some of the larger wireless puts and takes that are going on. I definitely agree that that acceleration is something we do expect to see as we go forward.

Our next question comes from Frank Louthan with Raymond James.

If you are not looking to make the separation, why do the work and even approached by some entities that might want to acquire some of the assets. And then separately, could you comment on your confidence that Windstream has all the supply chain needs that they have -- that they need locked up to complete their part of the GCI program for the year.

Frank, yes, on your first question, look, I think we -- first of all, we like the commercial arrangement that we have with Windstream. We think it's an attractive MLA for our shareholders. It's very cash accretive, allows us to pay a dividend, service the debt, grow our business, invest in our business. But we just don't think the public markets value -- are currently valuing it nearly at the level of the intrinsic value that we see. And there's a lot of reasons for that. And there's been a well-documented history over the past several years that have attributed to that. But we think the private markets probably put a put a higher value on it than the public markets. And we think there's a conglomerate discount applied to our overall business because of because of our tenant and their perceived health. And so I think as a result of that and as a result of the fact that we think there's interest among the private market, especially in fiber-to-the-home these days, we see options that allow us to monetize parts of our business in a value-accretive way. And so preparing, doing the groundwork, the background work to make sure that options like that can be done tax efficiently gives us confidence in pursuing those options. And so that's really the short version on why we're looking at it. And it also dovetails Frank, with some of the valuation methodology we've talked about in the past in terms of trying to highlight the different value parts of our business. And so just wanting shareholders to have as much information as we can give them and understanding that there are some paths forward there. So we're not definitively saying we will or won't pursue those paths, but we want to make sure they're on people's dashboards. . With respect to your second question, we don't have a lot we can share there. We are hopeful that Windstream will be able to deploy the full amount of the GCI as you can tell from guidance, we're forecasting the full amount. Last year, it came in a little short. I think $230 million versus the $250 million. So it could be $225 million to $250 million. But we're certainly hopeful that we're able to deploy the full amount.

And did it come in short because of the supply chain issues? Or was it -- or what was the reason for that?

I'd say a variety of things, Frank. I wouldn't rank any 1 thing too highly, and we don't have perfect visibility into the decisions that Windstream is making about where to deploy that capital, vis-a-vis, other non-Uniti markets. So just -- I don't have a lot of visibility into that. But we have daily, weekly, monthly sessions with their team on deploying this capital. And based upon what we see in the funnel and have good visibility on, we're pretty confident about the $225 million to $250 million range for this year.

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

And thanks for Slide 12. I want to ask a couple of questions around that, if I could. I mean obviously, you've been stating for a long time that there's -- your open options large and small for extracting value for shareholders. One particular path seemed to emerge late last year with the possibility of a 3-way kind of sale combination your stock went to 15 in recognition of the fact that shareholders like that idea. And now it's kind of faded. And with this presentation of kind of your perspective, which seems to be miles away from the Windstream perspective, is it fair to say that this conversation is over with? Or is there a process and you guys are going back and forth?

Yes, David, I won't confirm or deny any rumors from last year, obviously. I think as I said in our prepared remarks, our strategic conversations continue. I think they are developing very nicely. We're optimistic about opportunities on our dashboard. And so I think in terms of negotiating value or doing disclosures we'd rather not get into that publicly. We prefer not to do that. Our disclosure today is really a result of disclosure made by our tenant last year and us getting a lot of questions about it and us feeling the duty to our shareholders and, frankly, requested by a lot of shareholders to make this disclosure. So I don't want to -- with all respect to the question, which is a good one, I don't want to get too much into a back and forth.

Okay. I mean my second question would be maybe either for you or Paul, which is -- I mean you've got some relatively high coupon paper out there. You guys had a pretty successful financing in October. Have -- are you at all concerned that as you kind of think about the uncertainty that this conversation creates impacts your ability to optimize the balance sheet and come to market with, say, 5-year paper knowing that in November 2027, you 2 guys have to come up with your own values and go into arbitration and figure this out. Is this something that we should be thinking about? And how do you think about it?

Yes, I'll start on that one, Dave, and then Paul can actually comment on more near-term opportunities. I'm not worried about it. I think that our disclosure is important. It's important for us to get our perspective out there. Our -- the reaction that we've gotten from investors is that they tend to understand it, get it. And I think it's important to have proof validation support for our point of view, which we do. And I think there's a lot of time between now and the 2027, 2028 time line that you mentioned, and that's ample opportunity for us to show the evidence of our disclosure. So I'm not worried about it. And I think, Paul, if you want to comment on just capital markets near term.

Yes. Sure, Kenny. No, I totally agree with your comments there. We're -- I think we remain confident in our ability to access the capital markets and to continue to optimize the balance sheet in a way that's optimal to the business. In terms of short term, I think it's just what I said in my comments, we're going to very much continue to be opportunistic. We did a lot of work in 2021 to optimize the balance sheet, push out in maturities and lower our cost of capital and we're going to continue to be opportunistic to do so. Even further, the markets are a bit volatile at the moment. So timing has got to be right. The economics has got to be right on some of that high coupon paper that you mentioned, David, in your question. But when the opportunity is right, we're confident in our ability to continue to transact and continue to optimize our balance sheet.

Great. And then I guess my last question on that, just the relationship between Wind and Uniti has evolved from just kind of a tenant lessor relationship to now this kind of circular relationship with the GCI investments and then building the lease. Is the working relationship with Windstream smooth in light of kind of the higher-level boardroom type of drama.

David, I think the day-to-day working relationship is constructive. We have very large complicated MLAs with Verizon, AT&T, T-Mobile, DISH, Google, Amazon. And so the complexity and the circular nature of our relationship with Windstream is front and center just because of the size of it and the relative value to our overall company. But the complexity of it and the circular nature is not dissimilar from a lot of the other large MLAs that we have. And frankly, that's true of a lot of other infrastructure companies and their MLA relationships. So we're very accustomed to the day-to-day bump and grind with our tenants. There's always issues on the dashboard to deal with. And I think back to some of the earlier questions about the GCI deployment. I mean this is a -- it's a unique program and it was first deployed in for a full year last year, and I think it went great. We almost topped out on the maximum amount of the deployment. I think that we're very happy with the nature of the investments that are being made. We think Windstream is making good decisions there. And obviously, we've got some approval rights. But for the most part, we're relying upon their decision-making, which we think is very positive and we're very supportive. So clearly, things to work through. But day-to-day, I think it's working well, and we're looking forward to accelerating that in 2022. .

Our next question comes from Greg Williams from Cowen.

Great. Kenny, you mentioned the disparity between public and private multiples and you've heard that very much so in the past. But more recently, we're hearing mixed messages. Specifically, yesterday, DigitalBridge was mentioning that private multiples could in fact be competing in some areas of common [froth]. Just wondering if you're kind of seeing the same thing. Next question is just on your Lit Services business. You said you'd be moving up the stack for more lit services. I'm just wondering what that might be and the go-to-market strategy and the success and the products that you have in mind?

Yes. I'll start, Greg, with your second question. Really, what we're referring to there when I made the comments about lit services in about 20 markets and expanding that. We're currently offering enterprise services in about 20 markets. And these are relatively simple, straightforward services. We do a little bit of white glove managed services. But for the most part, it's Internet, Ethernet -- boy, very straightforward outside the office type services. And --but it's critical to our lease-up strategy. This is the business that's growing 10%, 15%, 20% a year, and it's really driving very high margin low CapEx returns to the business. It's what we're overlaying on our wireless anchor builds. So we're offering that in about 20 markets, but we -- with us owning metro fiber in 300 markets around the country, a lot of them Tier 2 and Tier 3 markets, and many of them are geographically contiguous to our Southeastern footprint, expanding out into Arkansas, Texas, Oklahoma, et cetera, we think there's just a lot of opportunity there to grow that enterprise business in a capital-efficient and margin-efficient fashion. So it's really not adding services so much, but it's expanding that enterprise lease up into new markets and keeping the product suite pretty straightforward and simple. With respect to your first question, I didn't hear Mark's comments yesterday. I'll listen to them at some point. But look, I think that the private market multiples ebb and flow, and it's not necessarily a reflection of interest from parties. I think it's really more a commentary on quality of assets. And in the deals that we've seen more recently, the higher-quality assets are still commanding those higher multiples. And higher quality, meaning parties that own their networks that have a large percentage of revenue that's contractual and predictable. And a large percentage of revenue that's on net, I think those types of businesses, whether they be commercial wholesale fiber or fiber to the home, I think those businesses are still commanding high multiples. But the fact that those multiples ebb and flow across quality of assets, I think is a reflection of the fact that many of these new funds that have entered the infrastructure space over the past 2 or 3 years, 4 years, have just become smarter buyers. They've done diligence on assets and the -- and in some cases, they've actually had the opportunity to own some of these assets and just become more familiar with the operating complexity and therefore, are putting a premium on higher-quality assets versus lower quality. So I think it's just a reflection of the industry getting smarter, but I don't think that changes our view on the quality of our assets and the value of our assets as they might be valued in the private market. .

[Operator Instructions] Our next question comes from Michael Rollins with Citi.

Just want to go back to the discussion on Page 12, again on the slides regarding the leasing relationship with Windstream. It seems like over the last few months, each side has had a counterpoint for each other's point in their discussion. And as you've engaged with investors, as you were describing earlier on the call, and people are taking an independent look at the situation, are there certain aspects of the information or the disclosures that you're finding those investors are gravitating to just to help understand what the forward implications are? And then the second question is just looking at the slide, there's a large range of annual cash rent numbers, and should investors expect the base case somewhere in between the bookends of this slide? Or is there a certain level of conviction that you want to describe from Uniti's perspective as to where the rent will end up versus the exit rate in 2030 that you'll establish?

Yes, Michael, let me start with the second question about kind of a range to try to anchor people to -- or one of those columns, if you will. I think -- so let me reiterate what I've said in my prepared remarks. We're not pretending to know with a great deal of precision what the renewal rent will be in 10 years because that would be hypocritical of us to say that. It's going to be a fair market value analysis, and it's going to be dependent upon what the industry and the quality of these assets will be at that time. But based upon the trends that we're seeing, based on the analysis that we've done and based upon the analysis that was done by the professional appraiser back in 2020, we do think that third column is a good place to anchor around. That analysis, by the way, was done back in 2020 before any of the recent disclosures made by Windstream or Uniti. So it predates all of the current back-and-forth point and counterpoint. And I think that gives it a little more credibility, at least in my view. And so when we go in and scrutinize that analysis and refresh on that analysis, we definitely see assumptions in there that we think are too conservative, like we pointed out the one on the GCI program. But there are others in there that you could debate and speculate how much of the copper is going to depreciate for example, and how much of the CLEC will depreciate or be decommissioned and so forth. So there are lots of different important points to debate, but I think that's a good column to kind of anchor around, especially given that analysis was done by a professional appraiser and it was done before some of the recent back and forth. And look, I think on your first question, Michael, I'd rather not get into -- I think your point about the point counterpoint, I agree. And we'll probably -- that will probably continue. We wish it wouldn't. We'd rather move on, but probably will continue. With that said, in our conversations with investors, and our refresh on the analysis from 2020 and frankly, 2015, we're very confident that what we're disclosing here is accurate and reflects -- and certainly reflects our view -- and our view of what's going to happen in 10 years.

And if I could just throw in one other quick question on the balance sheet. I think the press release noted that net debt leverage was -- was it 5.55 in the press release. And just curious where you are relative to the opportunity to get through those covenants that have limited the dividend payment and if there's any new perspectives to share on that front.

Michael, this is Paul. I'll take that one. So the 5.55x that I mentioned in my comments is a last quarter annualized number. Our debt covenants are based around a trailing 12-month number. And that number for the most -- for the year-end was 5.88x. And so -- and that covenant level is 5.75x, I'll remind you. So we are making progress towards or hitting that reversion covenant. And I think we expect to continue to do so. I'm not going to put out a comment on exact timing, we think we would hit, a prediction on when we would hit that reversion covenant. But we are, as you can see by our last quarter and the leverage for that quarter annualized, we are making progress towards that reversion covenant. So stay tuned.

Our next question comes from Simon Flannery from Morgan Stanley.

Kenny, moving forward now with the Infrastructure Act implementations, a lot of money out there. I know you're not directly looking to build residential fiber. You obviously have a play through Windstream. But it'd be great to think about what are the opportunities you see for Uniti from some of these projects that are going to get funded? And also on the other side, how should we think about the impact on supply of and pricing of fiber and other components and also of construction labor?

Yes, Simon, good question. I'm going to let Paul take the supply chain question. But on your first question about the infrastructure bill and the funding coming, you're right. We're not going to be receiving any of that directly. But we're very happy with the funding itself. And it's just a continuation of both federal and state investments in the space and a recognition that the country is woefully underpenetrated from a broadband perspective, especially in the more rural areas. And to that point, that's the opportunity for us. I mean, our network, you see the map, and we've got network in 45-ish states. And a lot of that network is in more suburban rural areas. And I'm not just talking about the ILEC network, that's fiber-to-the-home or copper to the home that's leased exclusively to Windstream and really talking about our own fiber that we have rights to and that we own outright. It's really a lot of -- in a lot of these more suburban and rural areas. And so the recipients of that infrastructure funding are building in these areas, and they're building -- they're spending those dollars largely to build the fiber to the home or they're building that last mile connection and they need that middle mile and that backhaul from those more rural and suburban areas to get back to the core. And that's the opportunity for us. We're -- there's a lot of -- an increasing amount of wholesale opportunities that we're seeing from existing customers, but from customers who haven't used as much of that backhaul as they have in the past. And so I can't put a number on it. I wouldn't say there's any material effect in 2022 for sure. But in terms of the customer type conversations that we're having, we feel very optimistic about that and very pleased with the federal subsidy. Paul, do you want to? Yes, sure.

Yes. Yes, Simon, I'll take your second question about supply. I think we've seen this movie before. We -- for -- in previous stimulus or other government funding sort of booms, we've definitely seen fiber supply become an issue for different providers. And so that's something we anticipate and something we've been working very hard to make sure that we stay on top of. And so we've been talking with -- working with our suppliers, and we remain confident in our agreement with our suppliers that we'll continue to have an uninterrupted supply of fiber as we go forward. I think it does -- just the supply chain issues and inflation in general, I think, are definitely affecting the price of some of the inputs into fiber construction, including fiber cable. So we are seeing, as everybody else is, in our industry, I imagine, a bit of a tick-up in the cost of some of those inputs, including fiber cable. But again, I think we've worked hard with our with our suppliers to make sure that we maintain a competitive price. We understand what that price is going to be throughout the year and that we've got commitments to maintain the supply we need to continue to deliver for our customers.

Our next question comes from Bora Lee with RBC Capital Markets.

So 2, I think, relatively quick ones. I guess following up on Simon's question about inflation. Can we talk about if you're seeing much in the way of labor inflation and if there are any issues with labor availability? And then I'll have a follow-up.

Yes, sure. Thank you for the question. So I'm going to -- my response is, I think you were talking about labor in terms of the construction labor primarily that we use to deploy our networks, which is largely -- yes, okay, which is largely a contractor workforce. So we have actually worked really hard to make sure that we maintain consistent labor rates. And we have not, to date, really seen any major material impact to labor rates or to the supply of labor for construction. And I attribute that to a few things. I think our team has done a really good job of having a relationship with our key contractors. We provide a lot of work. We're a large customer for those contractors, particularly in the Southeast, as you know. And we've got a competitive pool of contractors that continue to be interested in working with us. And are providing us with competitive rates. So we really haven't seen a tick up at all to date with regard to the labor inputs to our construction and it’s something that we're going to continue to work hard to monitor and stay on top of.

Great. And then can you also remind us how we should be thinking back to our capital allocation priorities and particularly dividends versus M&A when dividends do become a possibility.

Yes, Bora, I'll take that one. I think nothing new to say there. Our Board evaluates the dividend each quarter. Evaluates capital allocation each quarter. We think I've said this many times, as a management team, we try to create as many good options for our Board as we can. And I think we're in a place where we've got several good options, including deploying capital in M&A. We've been -- we've proven to be good at that. We've got really good growth -- organic growth potential. We've intentionally been bringing capital intensity down, but the reality is we could ratchet that up, and I feel highly confident if we were to ratchet it up, there'd be really good growth associated with it, profitable growth. And then thirdly, yes, there's the opportunity to raise the dividend. So I think, as Paul mentioned, the covenant reversion date is approaching. And so before then, it's really just more theoretical in terms of discussion. But as that date approaches, there will be a more substantive discussion about that and probably a higher priority on the list. But that will be up to the Board when the time comes. .

And I'm not showing any further questions at this time. I'd like to turn the call for any closing remarks.

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

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.