Windstream Drives Market with Spinoff News, Plans REIT
Windstream Holdings, Inc. (WIN) is planning to spin off some of its network assets to form a publicly traded real estate investment trust (:REIT). The spin-off is expected to boost the company’s financial strength and support network development.
The news hit the market on a positive note and consequently, Windstream’s shares spiraled upward to close 12.4% higher on Tuesday.Other telecom stocks like CenturyLink, Inc. (CTL), Frontier Communications Corp. (FTR) and Verizon Communications Inc. (VZ) also traded in the green owing to a positive stir by Windstream.
The proposed spin-off, which would be a tax-free transaction, will enable Windstream to gain significant financial felicity by reducing its debt by approximately $3.2 billion and stimulate free cash flow. On the other hand, the new REIT will offer significant benefit to shareholders through an attractive dividend, and generate revenue synergies through investments, acquisitions and lease escalation.
Windstream expects annual dividend per share cumulatively for the two companies will stand at 70 cents per share. The company expects to pay an annual dividend of 10 cents, while the REIT will offer annual dividend of 60 cents.
As a part of the transaction, Windstream shareholders will be entitled to their existing shareholding and will receive additional shares in the REIT according to their equity holdings in Windstream.
In terms of infrastructural development, with the new spin-off, the company aims to offer faster broadband speeds and more robust performance to its consumers. The financial synergies arising from the divestiture will allow the company to expand the availability of 10 Mbps Internet service to more than 80% of its customers by 2018.
The divestment of assets will involve fiber and copper networks and other real estates of Windstream, owned by REIT, which in turn will lease use of the assets to Windstream under a triple-net exclusive lease arrangement for the long term with an initial estimated rent payment of $650 million per year. Hence, Windstream can use these assets and deliver advanced services. The spin-off is expected to have no impact on Windstream customers as no change in rates or terms and condition of services would take place.
Windstream expects the REIT could raise new debts of $3.5 billion, which will be used to retire $3.2 billion of debt, which is a part of the transaction.
Windstream currently has a Zacks Rank #2 (Buy).
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