Welcome to the CS&L Third Quarter 2016 Earnings Conference Call. My name is Andrew and I will be your operator for today. This call is being recorded and a replay will be available beginning at 1 o’ clock PM Eastern Time today.

Both the telephone replay and the webcast will be available on the company’s website at www.cslreit.com until December 4, 2016 at 11:59 PM Eastern Time.

[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.

Some of the comments today will refer to information posted on the CS&L website at www.cslreit.com. This includes information on the acquisition of the NMS Tower portfolio and you’re encouraged to reference that presentation.

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

I would now like to turn the call over to CS&L’s Executive Vice President, Chief Financial Officer and Treasurer, Mark Wallace. Please go ahead, Mr. Wallace..

Thank you and good morning, everyone. We've been active on multiple fronts since our last quarterly call with the earlier than expected closing of Tower Cloud, the acquisition of NMS we announced this morning, our successful term loan B re-pricing and pursuing multiple other acquisition opportunities.

We certainly intend to continue that momentum as we head into the last few weeks of 2016. We'd like to spend most of the call today discussing our acquisition of the NMS portfolio, but I’ll start with a review of our recent financial performance.

We're pleased to report that our operating results for the third quarter were again in line with our expectations with consolidated revenues of just over 200 million and consolidated adjusted EBITDA of 175.7 million. AFFO for the quarter was $0.65 per diluted common share.

Net loss attributable to common shares after transaction related costs, was 4.1 million or $0.03 per diluted share. Leasing segment revenues were 169.5 million with adjusted EBITDA of 165.2 million. Once again, our leasing segment benefited from over $41 million of improvements this quarter to our network made by Windstream with their capital.

On a cumulative basis, since our spin-off, we have benefited from nearly $181 million of tenant capital improvements completed by Windstream. Uniti Fiber reported revenues of 25.2 million and adjusted EBITDA of 9.3 million for the quarter.

Uniti Fiber’s results for the three months ended September 30 include a full quarter of operations of PEG Bandwidth as that acquisition closed on May 2 and one month of operations for Tower Cloud as that acquisition closed on August 31. Reported CapEx -- reported maintenance CapEx for the quarter was 1.4 million and success-based CapEx was 6 million.

We remain confident that we will achieve the PEG, Tower Cloud integration synergies previously outlined at $2 million run rate in year one and 6 million of cash run rate synergies in year three.

The integration of Uniti Fiber has gone smoothly at every level, particularly the organizational integration across sales, service delivery, network operations and engineering. While we still have additional work to do on corporate IT systems and other back office functions, I fully expect these initiatives will go equally well.

More importantly, we are also starting to see revenue synergies as we propose on opportunities across markets, focus on cross-sell opportunities and expand our carrier relationships.

Uniti Fiber continued to see a high level of opportunities for dark fiber and small cell deployments during the third quarter and successfully executed the renewal of three major services contracts with a leading wireless carrier, covering over 900 backhaul sites.

These renewals had contract terms between 5 to 7 years and represent over $100 million in aggregate revenue. In fact, revenue under contract at Uniti Fiber is up $125 million or 21% since our acquisition of Tower Cloud.

Today, Uniti Fiber’s business spans 19 states with over 5,400 connections, serving all four major wireless carriers and revenues under contract stand at nearly 725 million with an average term of almost 5.5 years.

Kenny will discuss Uniti Fiber’s recent sales efforts and awards more in just a minute, but let me say that we are very pleased with our progress, as it validates our initial investment thesis emphasizing long-term contractual revenues with high credit quality customers.

Turning now to capital markets, in late October, we completed the repricing of 2.1 billion in term loans outstanding under our senior secured credit agreement. The interest rate decreased by 50 basis points to LIBOR plus 3.5% and should reduce our annual interest expense by over $10 million.

As you may recall, our floating rate term loans are swapped to fix [ph] and the repricing lowered the effective fixed rate to 5.6%. We were also successful in amending certain provision of our credit agreements to allow the company to operate through an UpREIT structure in the future.

Our liquidity in capital markets access continues to be in great shape. At quarter end, we had $341 million of liquidity, consisting of $41 million of cash and $300 million of undrawn borrowing capacity under our revolving credit facility.

Our leverage ratio under our debt agreements at quarter end stands at 5.7 times based on net debt to its annualized adjusted EBITDA. Our regular quarterly cash dividend of $0.60 per share was declared last week, representing an annual dividend of $2.40 per share.

Regarding our outlook for the full year 2016, we expect AFFO to range between $2.60 and $2.62 per diluted common share. Our current outlook for 2016 includes the following items. Leasing segment revenues are expected to be $677 million, including $23 million of non-cash revenue.

As a reminder, our leasing segment now includes ground lease and tower rents. We continue to expect our consumer CLEC business revenues to be $21 million to $22 million with an average adjusted EBITDA margin of approximately 22%. We expect Uniti Fiber to contribute $71 million in revenues and $27 million of adjusted EBITDA during 2016.

We increased our Uniti Fiber guidance from our last call by $16 million in revenue and $6 million in adjusted EBITDA, which is predominantly due to the inclusion of Tower Cloud’s results for the last four months of this year. SG&A should range between 36 million to 37 million, including $5 million of stock-based compensation expense.

We expect maintenance CapEx related to Uniti Fiber to be about $3 million for the 2016 post acquisition periods. Success based CapEx at Uniti Fiber for the 2016 post acquisition periods should be approximately 27 million. We anticipate success-based CapEx in the fourth quarter to be approximately 20 million.

We continue to expect Uniti Towers to invest about 1.5 million related to our tower builds in Mexico under our current awards, excluding NMS. 10 sites have been completed to date and we expect a total of 22 towers to be completed by the end of this year. The balance should be completed by mid-2017.

We expect $22 million in ground lease investments this year at an average yield of 6%. Interest expense for the full year should range between 274 million to 275 million, including $16 million related to debt discount and financing cost amortization.

Our guidance assumes weighted average common shares outstanding for the full year of 152.5 million and 155.1 million for the fourth quarter of 2016. As a reminder, our guidance for 2016 is based on PEG and Tower Cloud’s preliminary purchase price allocation, which is subject to change.

It does not include the impact of the NMS acquisition or any other future acquisition capital market transactions or integration related cost. We expect to provide guidance for 2017 on our next quarterly call after completion of our annual planning cycle.

As we near the close of this year, I'm confident we are well positioned to continue our momentum during the balance of this year and into 2017.

We have a significant debt on our M&A pipeline, Uniti Towers is expanding its scope of operations and Uniti Fiber is positioned to capitalize on an increasing number of organic opportunities as well as synergies provided by the combined operations.

We've already seen significant interest from M&A transaction counterparties in our UpREIT structure and we should be positioned to issue operating partnership units in M&A transactions as early as the first quarter of next year. That concludes my prepared remarks and I’ll now turn the call over to Kenny..

Thanks, Mark. Good morning everyone and thank you for joining us. This morning, we're pleased to announce the acquisition of Network Management Holdings or NMS and the formal creation of Uniti Towers. I will turn to Uniti Towers shortly, but let me first comment on NMS. We're acquiring 359 wireless towers in Latin America for $65 million.

There are numerous reasons why this portfolio is very attractive to us and furthers our strategic objectives. First, the anchored customer relationships are highly attractive and synergistic with our strategy.

90% of the revenue is with three investment grade international wireless carriers and 60% of the revenue is with existing -- is with an existing CSAL customer in the US. Our agreements with these customers are long term and highly predictable with average remaining initial lease terms of 8 years.

All three of these customers have committed to growth and investment in substantial additional mission critical infrastructure. So we believe the opportunity to scale these relationships is material, not only in towers, but also fiber. Secondly, 75% of the tower cash flow is in high growth and stable Latin American markets.

As mentioned, in each market, there are multiple investment grade international wireless carriers and AT&T is a recent new entrant into Mexico and Colombia. Not only is that move a validation of the growth potential in these markets, we also expect this move to further fuel competition and infrastructure spending in general.

4G is very underpenetrated in these markets. Mexico's at 6%. Colombia is at 8% and Nicaragua at 0%, while the average global 4G penetration is 29%. We believe investment is required in towers, fiber and other mission critical infrastructure to enhance 4G penetration.

For example, the average towers per subscriber in these markets collectively is 50% to 80% below the world average. Thirdly, the NMS tower portfolio is very high quality with substantial lease-up potential. The average number of tenants per NMS Tower is 1.2 with three to five large tenant options across these markets.

Most of the towers are positioned in dense urban areas and are less than three years old, reinforcing their mission critical nature.

Next, this acquisition reinforces the attractive valuation and return profile available for mission critical communications infrastructure in Latin America, while getting customer, credit quality and stable geopolitical environments comparable to the US.

NMS investment alone should generate unlevered IRRs of over 20% before any scale and synergy benefits. Lastly, we will operate this portfolio by leveraging our existing Latin American platform, which we acquired with our acquisition of Summit Infrastructure earlier this year.

This platform not only gives us the expertise of operating in the region, but also gives us scale benefits and additional developmental capabilities. NMS for example has an additional 114 towers in development that we expect to acquire upon completion. Speaking of our existing platform, let me now turn to Uniti Towers.

Going forward, our combined US Latin American Tower and tower real estate assets will operate under the brand of Uniti Towers. The Uniti Tower strategy will be to acquire and construct tower and tower real estate in the US and Latin America.

We will focus on markets with strong macroeconomic fundamentals, politically stable environments and strong underlying communications growth trends.

Specifically, we will focus on competitive communications markets where numerous investment grade international wireless carriers operate and where there is strong communications infrastructure potential due to under penetrated 4G or even 3G technology.

A key part of the Uniti Tower strategy will also be to provide build to suit tower opportunities as a unique new entrant in the tower industry, both in the US and Latin America.

Particularly with the entrance of AT&T into Latin America, we believe that our strategy of focusing on fiber and towers in the US and Latin America is highly synergistic and will drive incremental attractive growth opportunities. Lawrence Gleason has been named President of Uniti Towers.

Lawrence joined CSAL when we acquired Summit Infrastructure earlier this year. Before being CEO and founder of Summit Infrastructure, Lawrence was with a large tower company for 13 years where he managed over 20,000 towers. We’re pleased to have Lawrence in this role and look forward to growing the business under his leadership.

In a short period of time, we have already made great progress on our Uniti Towers strategy. Pro forma for the NMS acquisition, we will be approaching nearly 600 macro towers and over 1000 plus ground lease or macro tower ready locations. As mentioned early on, providing CapEx for our customers was a core part of our strategy.

And as previously discussed, we're building towers for a major international customer already in Mexico. We also believe the build to suit opportunity in the US over the next five years could be well over 20,000 towers in aggregate and we expect to capture a percentage of that opportunity.

The return profile on these towers and bundling opportunity with backhaul present outstanding opportunities for CS&L. We expect to have more to say on this topic over the coming months. But as I mentioned having a multimarket and multi-asset strategy will benefit us greatly.

Our team is in place and our infrastructure is highly scalable for substantial organic and M&A growth. Let me now turn to Uniti Fiber. Despite our great progress and potential in towers and tower real estate, fiber will continue to be our principal focus and the majority of our capital will be deployed in fiber.

During the quarter, we closed our $250 million acquisition of Tower Cloud and pro forma for that transaction, we now own over 4 million strand miles and nearly 90,000 route miles of fiber, which we believe makes us one of the top five owners of fiber in the country.

The integration of Tower Cloud with our previous acquisitions is going very well and is on track with our expectations. The receptivity to our model by our customers however continues to exceed our expectations. We're seeing a steady increase of new wins, including dark fiber and our pipeline of awarded sites, pending contract is growing.

During the quarter, Uniti Fiber closed dark fiber transactions with a major wireless carrier for Davenport, Iowa; Peoria, Illinois and Rockford, Illinois that will support that carrier C-RAN architecture. Davenport and Rockford are new markets that tie nicely to our Midwest cluster.

And the Peoria transition allows us to convert the current lit backhaul service to a 20-year dark fiber infrastructure transaction.

We've also closed a significant lease up transaction related to the dark fiber build currently in progress in Jacksonville and other parts of north Florida for two to four strands of dark fiber across the entire 1100 mile backbone build.

This transaction with a regional carrier includes an upfront payment that will offset our CapEx on the project by about 9% as well as provide a 20-year recurring maintenance charge, an opportunity for future follow-on sales.

These transactions are examples of our objective of winning anchor metro market deals for dark fiber infrastructure and following them up with additional lease-up business to improve yields over time by taking advantage of continued long term fiber demand we're seeing across a spectrum of customers.

On the lit Ethernet backhaul side, Uniti Fiber has closed renewal and return transactions in three regions covering 923 sites that extend those contracts to a new five to seven year term with a total contract value of over $100 million, all of which was in line with our expectation upon acquiring PEG and Tower Cloud.

These transactions de-risk the portfolio and provide greater stability in future lit backhaul revenue while we expand our dark fiber and small cell infrastructure businesses that typically have 10 to 20 year contract terms.

Similar to Uniti Towers, our Uniti Fiber team and infrastructure are in place and are highly scalable for organic and M&A growth. We believe there are many commonalities between fiber and towers and for that reason have now achieved our earlier stated goal of establishing a fiber and tower operating platform.

Both assets are mission critical to next generation wireless broadband. Both are fifty plus year lived assets. Both have similar economics, including initial yields, average contract length and substantial lease up potential and the sales cycle with wireless carriers are very similar and therefore the bundling potential is substantial.

Today, we are currently providing fiber or tower infrastructure or both to all of the major wireless carriers in the US. Looking forward, we are in very active dialog for putting additional capital to work to acquire mission critical communications infrastructure.

Uniti Fiber and Uniti Towers collectively are excellent growth engines with 95% of existing CapEx being success based but importantly collectively these businesses have another 400 million of identified organic success based capital projects that they're pursuing.

While these two organic growth engines - with these two organic growth engines, we are ideally suited to own large portions of the impending 5G infrastructure is being deployed and will endure for the next several decades. Despite these very attractive organic growth engines, we still expect the majority of our capital will be put to work on M&A.

The recent pick up in M&A activity in the sector has actually driven more opportunities into our funnel especially sale leasebacks.

More and more companies are looking for ways to participate in M&A and as we mentioned early on, sale leasebacks transactions with us in conjunction with M&A are a tax efficient and valuing enhancing way for some companies to participate that otherwise could not.

Given the stage of our various discussions, we would expect both whole company acquisitions and M&A sale leaseback announcements in the coming quarters. Ultimately, whether it be acquisitions, sale leasebacks or organic CapEx through Uniti Fiber, our goal is to own fiver.

The number of opportunities for us to use our capital in value creative ways - accretive ways has never been better. With that, we will now open it up to your questions..

[Operator Instructions] Our first question comes from the line of Phil Cusick from J.P. Morgan. Your line is open..

Couple if of I can. First, can you give us any kind of multiple on the tower deal? You talked about a 20% IRR.

What does it take to get there and can you give us a day-one yield?.

This is Mark, so the multiple is 18 times on the local country tower cash flows. So it represents on a US dollar basis about a five and a half initial yield on the current operating portfolio..

And do you a hedge on the Mexican currency or you said there's some sort of collar on the currency?.

There is a collar in terms of how far exchange rates can fluctuate before the parties have an opportunity to renegotiate the prize. So it's a 15% fluctuation on the Mexican peso and a 20% fluctuation on the Colombia peso..

Have we already broken through the Mexican side?.

It’s a ten-day average and it's a ten-day average between signing and closing..

And can you talk about interest in doing more in the US, a tower overbill model maybe in partnership with the particular carrier..

Phil, first let me hit the last part of your first question, which was the 20% IRR. So couple of couple things, there's contractual attractive escalators built in across the markets on our customer relationships.

So that's a driver, but then beyond that we have very modest lease-up assumptions which again I think are conservative appropriately so but conservative. So we think those returns are very achievable..

I'm just curious how you get to 20% IRR with that structure when you paid 18 times locking in..

We can walk you through the math..

We can do it offline..

Offline Phil, so we are confident in the math.

But to your second question, I think the answer is yes, and I think one of the appealing things about this NMS transaction and what we've been doing in Mexico in general is growing closer to some very important customers International and US customers on the tower side and we do think that there's a very, very nice opportunity in the US.

And we expect to continue focusing on that and I think we’ll have more to say on that in the coming months..

And this sort of goes to the same question, but I struggle with the company's value add in towers. It seems like the tower market is, A, very transparent and B, structured with a bunch of people who also don't pay taxes. And so your unique advantage in other areas doesn't really come to bear here.

Aren’t there other places where you would have a more unique ability to deploy capital?.

Yeah I think there's a couple things, Phil. First of all, we've talked about this and I think it will become more apparent over time, but we do think that the tower business and tower real estate are complementary to our fiber strategy and they drive more business towards our fiber strategy.

So, although towers are important to us, they're not our focus, fibers our focus and we're looking for ways to scale that business, we're looking for ways to drive more opportunity into that business and towers are a way to do that. In addition to getting closer to our customers there are bundling centers both real and sort of intangible.

So that’s one point. These are important for driving business to the fiber side of our business.

But secondly - well - and secondly, look we're a new entrant into the tower industry and we're not you know and that gives us a lot of flexibility on structuring transactions and opportunities that are not only good transactions for us but are also good transactions for the carriers.

And so I do think there is a bit of the unique opportunity for us that others don't possess. And again I think there will be more to be said on that in the coming months..

Thank you. Our next question comes from the line of Barry McCarver from Stephen Incorporated. Your line is open..

First off, Mark, in your prepared remarks, I think you said that since the close of Tower Cloud, Uniti Fiber has seen revenue grow 21%.

Re-implying an organic growth rates for that business and what's a good outlook if that's not the case?.

Hey Barry, so what I said was revenues under contract. So if we look at - so what I said was the revenue under contract that we have so that would be revenues that exist under revenues contractual for the future that will be recognized over the next five and a half years.

So it's really a reflection of backlog that's growing and contracts as I mentioned that had been that were renewed and therefore the contract length and the contract value is now longer..

Okay that makes sense..

That was, that if you remember that was one of the - kind of the key metrics that we gave out in our original IR presentations of both the Tower Cloud and the PEG Bandwidth acquisition..

And then for the 114 towers under-development at NMS, what's the timeline for completion and will you expect kind of the run rate of new deals there to look like once you get that closed..

So those will all be completed within a year and I actually expect that they'll be completed inside of a year, so maybe within the next nine months or so. So should be relatively short term..

And any guess on the pipeline of new bookings there?.

New bookings in NMS you mean, Barry?.

Correct..

I think it's - we sort of look at it independent of NMS frankly. We do think there's more build opportunities in Mexico in particular. And we haven't said what we think those numbers are but I do think there's more to come, in Mexico in particular..

Thank you. Our next question comes from the line of David Barden from Bank of America Merrill Lynch. Your line is open..

Hey guys it's Josh in for David. Thanks for taking the questions. I just want to ask about the FiberNet deal that was announced about two weeks ago. And just wanted to see if you guys had looked at it and kind of how that valuation impacts new deals that you see in the pipeline. Thanks..

So, we obviously saw the deal, very interested in it, it was not a transaction that was in our funnel or pipeline for variety of reasons. So we didn't consider it a loss.

I think the valuation was very - it was a strong valuation which from our perspective we think validates our thesis on the mission critical nature of fiber but it also we think reinforces the underlying net asset value of the fiber that we own, 4 million plus strand miles, 90,000 plus route miles.

So, I think the other thing that I mentioned in my remarks that really important is the pickup in M&A activity around fiber in particular has been very good for us.

So on the one hand there is more competition for assets but on the other hand and certainly outweighing that is the activity itself is good in the sense that if we have more opportunities for partnering on sale leaseback and whole company acquisitions ourselves.

So, I think that deal was just one of the series of deals all of which have built up a lot of activity in the space which we’re excited about..

Thank you. Our next question comes from the line of Frank Louthan from Raymond James. Your line is open..

Talk to us a little bit more about the fiber opportunity in Latin America. Give us an idea of what you that opportunity can be. And then just on the revenue coming from the Latin American acquisition is that assumed none of that’s in US dollars, if could clarify that, that would be great..

So Frank, I think when you look at Mexico in particular we think there could be 75,000 new towers coming as the infrastructure investment there really kicks into high gear particularly with AT&T's entrance there and the competition that we think is coming.

So it’s a lot of towers and similar to kind of the land grab that happened in the US around backhaul a few years ago, we think that could happen in Mexico. Now to what extent we participate in that is still remains to be seen. We have a lot of very attractive fiber opportunities that we're prioritizing here in the US.

But we do like opening up the potential investment channel in Mexico particularly with AT&T there as it relates to backhaul. So more to come on that as we continuously prioritize on our investment opportunities but we do think there will be a big opportunity there in general..

And just another clarification, you described the M&A activity and looking at potentially bringing you lot of [indiscernible] for sale leaseback, can you just walk us through some of the discussions you're having, what does that exactly look like and how prevalent is this in the M&A activity out there, is it a couple folks on the front trying to make a deal work or is this - how significant of an opportunity is there for you to participate tangentially in some of this other M&A..

Well, I can't mention specific names obviously, but what I would say is over the past 18 months since we became public, we've had discussions with a spectrum of potential partners on M&A including new entrants into the industry such as private equity buyers and existing strategic players in the industry looking to make acquisitions.

And when you think about fiber acquisitions and whether it would be pure fiber companies or potentially companies that are a combination of fiber and ILEC businesses, there are a lot of opportunities for consolidation.

And so many parties that we've talked to look at our structure as a way to provide a tax efficient separation of the underlying telecom real estate from the operations, but at the same time locking exclusive use of the underlying real estate and potentially getting a value or multiple arbitrage based upon how we can value the real estate versus how they would value it on their own.

So, the more we have - the longer we've been public and the more people have become comfortable with our structure in addition to the improvement in our cost of capital and the recent wave of activity in the space have all kind of led to a lot more conversations and a lot more serious conversations around this alternative..

So my guess is sort of in the case for a while as your sense that the transaction you participate in is a lot more imminent now than say it was a year ago..

Yeah, I think more actionable for sure..

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

Can we just talk about the sale leaseback competition a little bit further, where do an EarthLink sale leaseback carve out be part of that conversation or are you looking to more diversified revenue streams from one tenant and how would you weigh that decision? My second question is just around that IRR of the LATAM assets.

What kind of SG&A can we expect either from a dollar amount or percentage of revenue and what can we expect in terms of AFFO accretion? Thanks..

Sure, I'll let Mark take the second question, but on your first question, I think obviously we are very focused on the EarthLink transaction thing, it's a really good transaction for Windstream, we think it's credit enhancing and I know when Tony was asked the question about a sale leaseback, he answered that it could be an option that they're interested in pursuing and what I would say is that's an option that Windstream wants to pursue, we're very happy to engage in discussions around that to see us if there's something that makes sense for both of us.

And I think that in general, if we can find ways to help our largest customer and to do things that are credit enhancing for our largest customer we're going to look very, very hard at that.

But as we've mentioned before, our goal is to diversify and will always look at potential sale leaseback options - additional sale leaseback options with Windstream in the context of other options that we have and we’ll prioritize - we’ll prioritize those appropriately at the team..

This is Mark, on your question about G&A because we're leveraging our existing team. My guess would be that the incremental SG&A for NMS will be somewhere around $0.5 million to $1 million per year..

Thank you. Our last question for the day will be coming from the line of Simon Flannery from Morgan Stanley. Your line is open..

Hi, it’s Spencer for Simon. Can you give us quick update on the pipeline mix in terms of fiber tower ground leases, et cetera. And then also on the deal size mix as well, I think earlier you guys mentioned there was the amount of bigger deals was increasing..

On the asset type more than 60% remains fiber focused, a little over 20% is towers and about 13% ground leases. This is a snapshot in time, this changes but that's the snapshot in time. In terms of the deal sizes, roughly 60% of the deals are less than 250 million and over 20%, almost 25% are deals of greater than 500 million.

So the trend of looking at bigger deals is continuing and I expect - I continue to expect that number to grow over time..

Thank you. Thank you ladies and gentlemen that now concludes our Q&A session. I'd like to turn the call back over to management for closing remarks..

Thank you all for joining us today and we look forward to talking to you on our next call..

Ladies and gentlemen thank you again for your participation in today's conference. This now concludes the program and you may all disconnect at this time. Everyone have a great day..