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OFFON

UNITI GROUP INC.

(UNIT)
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UNITI GROUP INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/04/2021 | 03:14pm EST
The following management's discussion and analysis of financial condition and
results of operations describes the principal factors affecting the results of
our operations, financial condition, and changes in financial condition for the
three and nine months ended September 30, 2021. This discussion should be read
in conjunction with the accompanying Condensed Consolidated Financial
Statements, and the notes thereto set forth in Part I, Item 1 of this Quarterly
Report on Form 10-Q and our Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission ("SEC") on March 5, 2021, as amended by
Amendment No. 1 thereto filed on Form 10-K/A with the SEC on March 30, 2021 (the
"Annual Report").

Overview

Company Description

Uniti Group Inc. (the "Company", "Uniti", "we", "us" or "our") is an
independent, internally managed real estate investment trust ("REIT") engaged in
the acquisition, construction and leasing of mission critical infrastructure in
the communications industry. We are principally focused on acquiring and
constructing fiber optic, copper and coaxial broadband networks and data
centers.

On April 24, 2015, we were separated and spun-off (the "Spin-Off") from
Windstream Holdings, Inc. ("Windstream Holdings" and together with Windstream
Holdings II, LLC, its successor in interest, and its subsidiaries, "Windstream")
pursuant to which Windstream contributed certain telecommunications network
assets, including fiber and copper networks and other real estate (the
"Distribution Systems") and a small consumer competitive local exchange carrier
("CLEC") business (the "Consumer CLEC Business") to Uniti and Uniti issued
common stock and indebtedness and paid cash obtained from borrowings under
Uniti's senior credit facilities to Windstream. In connection with the Spin-Off,
we entered into a long-term exclusive triple-net lease (the "Master Lease") with
Windstream, pursuant to which a substantial portion of our real property is
leased to Windstream and from which a substantial portion of our leasing
revenues are currently derived. In connection with Windstream's emergence from
bankruptcy, Uniti and Windstream bifurcated the Master Lease and entered into
two structurally similar master leases (collectively, the "Windstream Leases"),
which amended and restated the Master Lease in its entirety. The Windstream
Leases consist of (a) a master lease (the



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"ILEC MLA") that governs Uniti owned assets used for Windstream's incumbent local exchange carrier ("ILEC") operations and (b) a master lease (the "CLEC MLA") that governs Uniti owned assets used for Windstream's CLEC operations.


Uniti operates as a REIT for U.S. federal income tax purposes. As a REIT, the
Company is generally not subject to U.S. federal income taxes on income
generated by its REIT operations, which includes income derived from the
Windstream Leases. We have elected to treat the subsidiaries through which we
operate our fiber business, Uniti Fiber, certain aspects of our former towers
business, and Talk America Services, LLC, which operated the Consumer CLEC
Business ("Talk America"), as taxable REIT subsidiaries ("TRSs"). TRSs enable us
to engage in activities that result in income that does not constitute
qualifying income for a REIT. Our TRSs are subject to U.S. federal, state and
local corporate income taxes.

The Company operates through a customary up-REIT structure, pursuant to which we
hold substantially all of our assets through a partnership, Uniti Group LP, a
Delaware limited partnership (the "Operating Partnership"), that we control as
general partner. This structure is intended to facilitate future acquisition
opportunities by providing the Company with the ability to use common units of
the Operating Partnership as a tax-efficient acquisition currency. As of
September 30, 2021, we are the sole general partner of the Operating Partnership
and own approximately 99.6% of the partnership interests in the Operating
Partnership.

We aim to grow and diversify our portfolio and tenant base by pursuing a range
of transaction structures with communication service providers, including (i)
sale-leaseback transactions, whereby we acquire existing infrastructure assets
from third parties, including communication service providers, and lease them
back on a long-term triple-net basis; (ii) leasing of dark fiber and selling of
lit services on our existing fiber network assets that we either constructed or
acquired; (iii) whole company acquisitions, which may include the use of one or
more TRSs that are permitted under the tax laws to acquire and operate non-REIT
businesses and assets subject to certain limitations; (iv) capital investment
financing, whereby we offer communication service providers a cost efficient
method of raising funds for discrete capital investments to upgrade or expand
their network; and (v) mergers and acquisitions financing, whereby we facilitate
mergers and acquisition transactions as a capital partner, including through
operating company-property company ("OpCo-PropCo") structures. Consistent with
this strategy, we regularly evaluate and consider potential opportunities.

Segments


We have historically managed our operations as the four reportable business
segments listed below (in addition to our corporate operations), but due to the
sale of our towers business and wind down of the Consumer CLEC Business,
effective January 1, 2021, we manage our operations focused on our two primary
businesses, Leasing and Fiber Infrastructure:

Leasing Segment: Represents the results from our leasing business, Uniti Leasing, which is engaged in the acquisition of mission-critical communications assets and leasing them to anchor customers on either an exclusive or shared-tenant basis. Uniti Leasing is a component of our REIT operations.


Fiber Infrastructure Segment: Represents the operations of our fiber business,
Uniti Fiber, which is a leading provider of infrastructure solutions, including
cell site backhaul and dark fiber, to the telecommunications industry.

Towers Segment: Represents the operations of our former towers business, Uniti
Towers, through which we acquired and constructed tower and tower-related real
estate and leased space on communications towers to wireless service providers
and other tenants in the United States. Starting in 2019, the Company completed
a series of transactions to largely divest of its towers business and on April
2, 2019, May 23, 2019 and June 1, 2020, the Company completed the sales of its
Latin American business, substantially all of its U.S. ground lease business,
and its U.S. tower business, respectively. Portions of our former towers
business were a component of our REIT operations, while the remainder were owned
and operated by our TRSs.

Consumer CLEC Segment: Represents the operations of Talk America through which
we operated the Consumer CLEC Business that, prior to the Spin-Off, was reported
as an integrated operation within Windstream. Talk America provided local
telephone, high-speed internet and long-distance services to customers in the
eastern and central United States. As of the end of the second quarter of 2020,
we substantially completed a wind down of our Consumer CLEC Business.

Corporate Operations: Represents our corporate office and shared service functions. Certain costs and expenses, primarily related to headcount, information technology systems, insurance, professional fees and similar charges, that are directly attributable to operations of our business segments are allocated to the respective segments.

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We evaluate the performance of each segment based on Adjusted EBITDA, which is a
segment performance measure we define as net income determined in accordance
with GAAP, before interest expense, provision for income taxes, depreciation and
amortization, stock-based compensation expense and the impact, which may be
recurring in nature, of transaction and integration related costs, costs
associated with Windstream's bankruptcy, costs associated with litigation claims
made against us, costs associated with the implementation of our enterprise
resource planning system, executive severance costs, costs related to the
settlement with Windstream, amortization of non-cash rights-of-use, the write
off of unamortized deferred financing costs, costs incurred as a result of the
early repayment of debt, including early tender and redemption premiums and
costs associated with the termination of related hedging activities, gains or
losses on dispositions, changes in the fair value of contingent consideration
and financial instruments, and other similar or infrequent items (although we
may not have had such charges in the periods presented). Adjusted EBITDA
includes adjustments to reflect the Company's share of Adjusted EBITDA from
unconsolidated entities. For more information on Adjusted EBITDA, see "Non-GAAP
Financial Measures." Detailed information about our segments can be found in
Note 13 to our accompanying Condensed Consolidated Financial Statements
contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Significant Business Developments


Unsecured Notes Offering and Redemption. On October 13, 2021, the Operating
Partnership, Uniti Fiber Holdings Inc., Uniti Group Finance 2019 Inc. and CSL
Capital, LLC (the "Issuers") issued $700 million aggregate principal amount of
6.00% Senior Unsecured Notes due 2030 (the "2030 Notes") and used the proceeds
to fund the redemption in full of their outstanding 7.125% Senior Notes due 2024
(the "2024 Notes") on December 15, 2021. On October 13, 2021, the Issuers
deposited amounts sufficient to fund the redemption of the 2024 Notes with the
trustee of the 2024 Notes, and to pay any related premiums, fees and expenses in
connection with the foregoing, and satisfied and discharged their respective
obligations under the indenture governing the 2024 Notes. The Company used the
remaining proceeds of $78.0 million to prepay a portion of the settlement
obligations under the settlement agreement with Windstream.   See Notes 14  

and

17 to our accompanying Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.





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Results of Operations

Comparison of the three months ended September 30, 2021 and 2020

The following table sets forth, for the periods indicated, our results of operations expressed as dollars and as a percentage of total revenues:




                                                            Three Months Ended September 30,
                                                         2021                                 2020
(Thousands)                                 Amount            % of Revenues        Amount        % of Revenues
Revenues:
Leasing                                  $    199,485             74.8%           $ 182,370          70.5%
Fiber Infrastructure                           67,262             25.2%              76,395          29.5%
Tower                                               -             0.0%                    -          0.0%
Consumer CLEC                                       -             0.0%                    -          0.0%
Total revenues                                266,747            100.0%             258,765         100.0%
Costs and Expenses:
Interest expense                               94,793             35.6%             102,791          39.8%
Depreciation and amortization                  70,530             26.4%              79,880          30.9%
General and administrative expense             25,077             9.4%               26,659          10.3%
Operating expense (exclusive of
depreciation and amortization)                 34,167             12.8%              37,831          14.6%
Transaction related and other costs             1,063             0.4%               20,816          8.0%
Gain on sale of real estate                         -             0.0%              (22,908 )       (8.9%)
Other expense, net                                283             0.1%                3,098          1.2%
Total costs and expenses                      225,913             84.7%             248,167          95.9%
Income before income taxes and equity
in earnings from unconsolidated
entities                                       40,834             15.3%              10,598          4.1%
Income tax (benefit) expense                   (2,244 )          (0.9%)               2,801          1.1%
Equity in (earnings) loss from
unconsolidated entities                          (604 )          (0.2%)                 342          0.1%
Net income                                     43,682             16.4%               7,455          2.9%
Net income attributable to
noncontrolling interests                          316             0.1%                  190          0.1%
Net income attributable to
shareholders                                   43,366             16.3%               7,265          2.8%
Participating securities' share in
earnings                                         (283 )          (0.1%)                (229 )       (0.1%)
Dividends declared on convertible
preferred stock                                    (3 )          (0.0%)                  (2 )       (0.0%)
Net income attributable to common
shareholders                             $     43,080             16.2%           $   7,034          2.7%




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The following tables set forth, for the three months ended September 30, 2021
and 2020, revenues, Adjusted EBITDA and net (loss) income of our reportable
segments:



                                                    Three Months Ended September 30, 2021
                                                                                                             Subtotal of
                                        Fiber                                                                 Reportable

(Thousands) Leasing Infrastructure Towers Consumer CLEC Corporate Segments Revenues

           $   199,485     $         67,262     $         -     $   

- $ - $ 266,747

Adjusted EBITDA $ 194,303 $ 27,556 $ - $

           -     $    (4,632 )   $      217,227
Less:
Interest expense                                                                                                    94,793
Depreciation and        41,432               29,036               -                   -              62             70,530
amortization
Other expense,                                                                                                       4,472
net
Transaction
related and                                                                                                          1,063
other costs
Stock-based                                                                                                          4,166
compensation
Income tax                                                                                                          (2,244 )
benefit
Adjustments for
equity in
earnings from                                                                                                          765
unconsolidated
entities
Net income                                                                                                  $       43,682




                                                   Three Months Ended September 30, 2020
                                                                                                            Subtotal of
                                      Fiber                                                                  Reportable
(Thousands)         Leasing       Infrastructure         Towers         Consumer CLEC       Corporate         Segments
Revenues           $ 182,370     $         76,395     $          -                   -     $         -     $      258,765

Adjusted EBITDA    $ 181,103     $         25,419     $          -     $          (186 )   $    (7,775 )   $      198,561
Less:
Interest expense                                                                                                  102,791
Depreciation and      48,189               31,617                -                   -              74             79,880
amortization
Other expense,                                                                                                      3,098
net
Transaction
related and                                                                                                        20,816
other costs
Gain on sale of                                                                                                   (22,908 )
real estate
Stock-based                                                                                                         3,341
compensation
Income tax                                                                                                          2,801
expense
Adjustments for
equity in
earnings from                                                                                                       1,287
unconsolidated
entities
Net income                                                                                                 $        7,455




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Summary of Operating Metrics



                                            Operating Metrics
                                           As of September 30,
                           2021            2020          % Increase / (Decrease)
Operating metrics:
Leasing:
Fiber strand miles        4,890,000       4,500,000               8.7%
Copper strand miles         230,000         230,000               0.0%
Fiber Infrastructure:
Fiber strand miles        2,590,000       2,200,000               17.7%
Customer connections         25,897          25,885               0.0%


Revenues



                                                              Three Months Ended September 30,
                                                            2021                                2020
                                                                      % of                             % of
                                                                  Consolidated                     Consolidated
(Thousands)                                     Amount              Revenues          Amount         Revenues
Revenues:
Leasing                                      $    199,485            74.8%           $ 182,370         70.5%
Fiber Infrastructure                               67,262            25.2%              76,395         29.5%
Towers                                                  -             0.0%                   -         0.0%
Consumer CLEC                                           -             0.0%                   -         0.0%
Total revenues                               $    266,747            100.0%          $ 258,765        100.0%


Leasing - Leasing revenues are primarily attributable to rental revenue from
leasing our Distribution Systems to Windstream pursuant to the Windstream Leases
(and historically, the Master Lease). Under the Windstream Leases, Windstream is
responsible for the costs related to operating the Distribution Systems,
including property taxes, insurance, and maintenance and repair costs. As a
result, we do not record an obligation related to the payment of property taxes,
as Windstream makes direct payments to the taxing authorities. The initial term
of the Windstream Leases expires on April 30, 2030. The aggregate initial annual
rent under the Windstream Leases is $663 million, equal to the annual rent under
the Master Lease previously in effect, and is subject to annual escalation at a
rate of 0.5%.

The rent for the first year of each renewal term will be an amount agreed to by
us and Windstream. While the agreement requires that the renewal rent be "Fair
Market Rent," if we are unable to agree, the renewal Fair Market Rent will be
determined by an independent appraisal process. Commencing with the second year
of each renewal term, the renewal rent will increase at an escalation rate of
0.5%.

Pursuant to the Windstream Leases, Windstream (or any successor tenant under a
Windstream Lease) has the right to cause Uniti to reimburse up to an aggregate
$1.75 billion for certain growth capital improvements in long-term fiber and
related assets made by Windstream (or the applicable tenant under the Windstream
Lease) to certain ILEC and CLEC properties (the "Growth Capital Improvements").
Uniti's reimbursement commitment for Growth Capital Improvements does not
require Uniti to reimburse Windstream for maintenance or repair expenditures
(except for costs incurred for fiber replacements to the CLEC MLA leased
property, up to $70 million during the term), and each such reimbursement is
subject to underwriting standards. Uniti's total annual reimbursement
commitments for the Growth Capital Improvements under both Windstream Leases
(and under separate equipment loan facilities) are limited to $225 million per
year in 2021 through 2024; $175 million per year in 2025 and 2026; and $125
million per year in 2027 through 2029. If the cost incurred by Windstream (or
the successor tenant under a Windstream Lease) for Growth Capital Improvements
in any calendar year exceeds the annual limit for such calendar year, Windstream
(or such tenant, as the case may be) may submit such excess costs for
reimbursement in any subsequent year and such excess costs shall be funded from
the annual commitment amounts in such subsequent period. In addition, to the
extent that reimbursements for Growth Capital Improvements funded in any
calendar year during the term is less than the annual limit for such calendar
year, the unfunded amount in any calendar year will carry-over and may be added
to the annual limits for subsequent calendar years, subject to an annual limit
of $250 million in any calendar year, except that, during calendar year 2021,
Uniti's combined total obligation to fund Growth Capital Improvements may exceed
$250 million to the extent of any unfunded excess amounts from calendar year
2020. Accordingly,



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because we funded $84.7 million of the $125 million limit in 2020, we are committed to fund up to $265.3 million of Growth Capital Improvements in 2021.


Starting on the first anniversary of each installment of reimbursement for a
Growth Capital Improvement, the rent payable by Windstream under the applicable
Windstream Lease will increase by an amount equal to 8.0% (the "Rent Rate") of
such installment of reimbursement. The Rent Rate will thereafter increase to
100.5% of the prior Rent Rate on each anniversary of each reimbursement. In the
event that the tenant's interest in either Windstream Lease is transferred by
Windstream under the terms thereof (unless transferred to the same transferee),
or if Uniti transfers its interests as landlord under either Windstream Lease
(unless to the same transferee), the reimbursement rights and obligations will
be allocated between the ILEC MLA and the CLEC MLA by Windstream, provided that
the maximum that may be allocated to the CLEC MLA following such transfer is $20
million per year. If Uniti fails to reimburse any Growth Capital Improvement
reimbursement payment or equipment loan funding request as and when it is
required to do so under the terms of the Windstream Leases, and such failure
continues for thirty (30) days, then such unreimbursed amounts may be applied as
an offset against the rent owed by Windstream under the Windstream Leases (and
such amounts will thereafter be treated as if Uniti had reimbursed them).

Uniti and Windstream have entered into separate ILEC and CLEC Equipment Loan and
Security Agreements (collectively "Equipment Loan Agreement") in which Uniti
will provide up to $125 million (limited to $25 million in any calendar year) of
the $1.75 billion of Growth Capital Improvements commitments discussed above in
the form of loans for Windstream to purchase equipment related to network
upgrades or to be used in connection with the Windstream Leases. Interest on
these loans will accrue at 8% from the date of the borrowing. All equipment
financed through the Equipment Loan Agreement is the sole property of
Windstream; however, Uniti will receive a first-lien security interest in the
equipment purchased with the loans. No such loans were made to Windstream during
quarter ended September 30, 2021.

The Windstream Leases provide that tenant funded capital improvements ("TCIs"),
defined as maintenance, repair, overbuild, upgrade or replacement to the
Distribution Systems, including without limitation, the replacement of copper
distribution systems with fiber distribution systems, automatically become
property of Uniti upon their construction by Windstream. We receive non-monetary
consideration related to TCIs as they automatically become our property, and we
recognize the cost basis of TCIs that are capital in nature as real estate
investments and deferred revenue. We depreciate the real estate investments over
their estimated useful lives and amortize the deferred revenue as additional
leasing revenues over the same depreciable life of the TCI assets. TCIs exclude
Growth Capital Improvements as and when reimbursed by Uniti.

During the three months ended September 30, 2021, Uniti reimbursed $60.2 million
of Growth Capital Improvements. Subsequent to September 30, 2021, Windstream
requested, and we reimbursed $16.5 million of qualifying Growth Capital
Improvements. As of the date of this Quarterly Report on Form 10-Q, we have
reimbursed a total of $253.5 million of Growth Capital Improvements.

                                                                 Three Months Ended September 30,
                                                             2021                        2020
                                                                  % of Segment                        % of Segment
(Thousands)                                     Amount              Revenues            Amount          Revenues
Leasing revenues:
Windstream Leases:
Cash rent                                     $     166.7            83.5%             $  165.8          90.9%
Non-cash revenue
TCI revenue                                          10.0             5.0%                  9.2           5.0%
Straight-line revenue                                 6.5             3.3%                  0.5           0.3%
Total non-cash revenue                               16.5             8.3%                  9.7           5.3%
Total Windstream revenue                            183.2            91.8%                175.5          96.2%
Other triple-net leasing and dark fiber IRU          16.3             8.2%                  6.9           3.8%
Total Leasing revenues                        $     199.5            100.0%            $  182.4          100.0%


The increase in TCI revenue is attributable to continued investment by
Windstream, which invested $34.2 million in TCIs during the three months ended
September 30, 2021. The total amount invested in TCIs by Windstream since the
inception of the Windstream Leases and Master Lease was $986.7 million as of
September 30, 2021. For the three months ended September 30, 2021, we recognized
$16.3 million of leasing revenues from non-Windstream triple-net leasing and
dark fiber indefeasible rights of use ("IRU")



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arrangements. For the three months ended September 30, 2020, we recognized $6.9 million from non-Windstream triple-net leasing and dark fiber IRU arrangements.


Because a substantial portion of our revenue and cash flows are derived from
lease payments by Windstream pursuant to the Windstream Leases, there could be a
material adverse impact on our consolidated results of operations, liquidity,
financial condition and/or ability to maintain our status as a REIT and service
debt if Windstream were to become unable to generate sufficient cash to make
payments to us.

Prior to its emergence from bankruptcy on September 21, 2020, Windstream was a
publicly traded company and was subject to the periodic filing requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Windstream's historic filings through their quarter ended September 30, 2020 can
be found at www.sec.gov. Additionally, the Windstream audited financial
statements as of December 31, 2020 and for the period from September 22, 2020 to
December 31, 2020 and as of December 31, 2019 and for the period from January 1,
2020 to September 21, 2020 and for each of the two years in the period ended
December 31, 2019 are included as an exhibit to our Annual Report. On September
22, 2020, Windstream filed a Form 15 to terminate all filing obligations under
Section 12(g) and 15(d) under the Exchange Act. Windstream filings are not
incorporated by reference in this Quarterly Report on Form 10-Q.

We monitor the credit quality of Windstream through numerous methods, including
by (i) reviewing credit ratings of Windstream by nationally recognized credit
agencies, (ii) reviewing the financial statements of Windstream that are
required to be delivered to us pursuant to the Windstream Leases, (iii)
monitoring news reports regarding Windstream and its business, (iv) conducting
research to ascertain industry trends potentially affecting Windstream, (v)
monitoring Windstream's compliance with the terms of the Windstream Leases and
(vi) monitoring the timeliness of its payments under the Windstream Leases.

As of the date of this Quarterly Report on Form 10-Q, Windstream is current on
all lease payments. We note that in August 2020, Moody's Investor Service
assigned a B3 corporate family rating with a stable outlook to Windstream in
connection with its post-emergence exit financing. At the same time, S&P Global
Ratings assigned Windstream a B- issuer rating with a stable outlook. In order
to assist us in our continuing assessment of Windstream's creditworthiness, we
receive certain confidential financial information and metrics from Windstream.

Fiber Infrastructure - Fiber Infrastructure revenues for the three months ended September 30, 2021 and 2020 consisted of the following:




                                                            Three Months Ended September 30,
                                                        2021                                  2020
                                                             % of Segment                        % of Segment
(Thousands)                                Amount              Revenues           Amount           Revenues
Fiber Infrastructure revenues:
Lit backhaul services                    $    19,381            28.8%            $  25,160          33.0%
Enterprise and wholesale                      20,863            31.1%               19,875          26.0%
E-Rate and government                         13,505            20.1%               17,375          22.7%
Dark fiber and small cells                    12,674            18.8%               11,640          15.2%
Other services                                   839             1.2%                2,345           3.1%
Total Fiber Infrastructure revenues      $    67,262            100.0%      

$ 76,395 100.0%



For the three months ended September 30, 2021, Fiber Infrastructure revenues
totaled $67.3 million as compared to $76.4 million for the three months ended
September 30, 2020. As of September 30, 2021, we had approximately 25,897
customer connections, up from 25,885 customer connections as of September 30,
2020. The $9.1 million decrease in Fiber Infrastructure revenues is primarily
attributable to a $4.7 million decrease in lit backhaul service revenues related
to the Uniti Fiber Northeast operations sold on May 28, 2021, a $1.9 million
decrease related to the wind down of our construction activities, shown above
within E-rate and government, and a $3.1 million decrease in equipment sales and
installation revenue.

Towers - For the three months ended September 30, 2021, we recognized no revenue
from the Towers business, as we completed the sale of our U.S. tower business on
June 1, 2020.



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Consumer CLEC - For the three months ended September 30, 2021, we recognized no
revenue from the Consumer CLEC Business, as we substantially completed the wind
down of the business as of the end of the second quarter of 2020.

Interest Expense, net



                                                       Three Months Ended September 30,
                                                                                    Increase /
(Thousands)                                        2021               2020          (Decrease)
Interest expense, net:
Cash:
Senior secured notes - 4.75%, 6.00% and
7.875%                                               49,691             52,547            (2,856 )
Senior unsecured notes - 4.00%, 6.50%.
7.125% and 8.25%                                     32,176             37,031            (4,855 )
Senior secured revolving credit facility -
variable rate                                         2,210                710             1,500
Interest rate swap termination                        2,829              2,829                 -
Other                                                   366              1,082              (716 )
Total cash interest                                  87,272             94,199            (6,927 )
Non-cash:
Amortization of deferred financing costs and
debt discount                                         4,352              9,037            (4,685 )
Accretion of settlement payable                       4,117                  -             4,117
Capitalized Interest                                   (948 )             (445 )            (503 )
Total non-cash interest                               7,521              8,592            (1,071 )
Total interest expense, net                    $     94,793       $    102,791     $      (7,998 )
(1) Swapped to fixed rate.   See Note 9


Interest expense for the three months ended September 30, 2021 decreased $8.0
million compared to the three months ended September 30, 2020. The decrease is
primarily due to lower cash interest expense of $6.9 million resulting from the
extinguishment of the 6.00% Senior Secured Notes due 2023 (the "2023 Secured
Notes") and 8.25% Senior Unsecured Notes due 2023 (the "2023 Notes").

Depreciation and Amortization Expense



                                                            Three Months Ended September 30,
                                                                                         Increase /
(Thousands)                                             2021               2020          (Decrease)
Depreciation and amortization expense by segment:
Depreciation expense
Leasing                                             $     42,376       $     48,189     $      (5,813 )
Fiber Infrastructure                                      23,318             25,105            (1,787 )
Corporate                                                     62                 74               (12 )
Towers                                                         -                  -                 -
Consumer CLEC                                                  -                  -                 -
Total depreciation expense                                65,756             73,368            (7,612 )
Amortization expense
Leasing                                                     (944 )                -              (944 )
Fiber Infrastructure                                       5,718              6,512              (794 )
Corporate                                                      -                  -                 -
Towers                                                         -                  -                 -
Consumer CLEC                                                  -                  -                 -
Total amortization expense                                 4,774              6,512            (1,738 )

Total depreciation and amortization expense $ 70,530 $

 79,880     $      (9,350 )




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Leasing - Leasing depreciation expense decreased $5.8 million for the quarter
ended September 30, 2021 as compared to the quarter ended September 30,
2020. The decrease is attributable to a $7.6 million decrease related to the
natural decrease in remaining useful life of the Windstream Distribution System
assets which utilize the group composite depreciation method, partially offset
by a $1.4 million increase in depreciation expense related to the asset purchase
agreement the Company entered into with Windstream which was completed in the
third quarter of 2020 (the "Asset Purchase Agreement"), which is discussed in
greater detail in Note 5 to our accompanying Condensed Consolidated Financial
Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. The $0.9
million decrease in amortization expense relates to intangible liabilities
assumed from Windstream under the Asset Purchase Agreement.

Fiber Infrastructure - Fiber Infrastructure depreciation and amortization
expense decreased for the quarter ended September 30, 2021 as compared to the
quarter ended September 30, 2020. The $1.8 million decrease in depreciation
expense is primarily attributable to the Everstream transaction completed on May
28, 2021.   See Note 5  . The $0.8 million decrease in amortization expense
relates to a trademark intangible asset, associated with the wind down of the
construction business, that became fully amortized in 2020.

General and Administrative Expense




                                                                Three Months Ended September 30,
                                                              2021                      2020
                                                                       % of                            % of
                                                                   Consolidated                    Consolidated
(Thousands)                                        Amount            Revenues          Amount        Revenues
General and administrative expense by segment:
Fiber Infrastructure                             $    13,427           5.1%           $ 14,538         5.6%
Leasing                                                2,254           0.8%              1,735         0.7%
Corporate                                              9,396           3.5%             10,304         4.0%
Towers                                                     -           0.0%                  -         0.0%
Consumer CLEC                                              -           0.0%                 82         0.0%
Total general and administrative expenses        $    25,077           9.4% 

$ 26,659 10.3%



General and administrative expenses include compensation costs, including
stock-based compensation awards, professional and legal services, corporate
office costs and other costs associated with administrative activities. For the
three months ended September 30, 2021, general and administrative costs totaled
$25.1 million. For the three months ended September 30, 2020, general and
administrative costs totaled $26.7 million. The decrease in general and
administrative expenses is primarily attributable to a decrease of approximately
$1.0 million in insurance expenses for the period.

Operating Expense


Operating expense for the three months ended September 30, 2021 decreased by
$3.7 million from the three months ended September 30, 2020, which was primarily
attributable to decreases in Fiber Infrastructure, Towers and Consumer CLEC
Business operating expenses offset by an increase in Leasing operating expenses
discussed below.  Operating expense for our reportable segments for the three
months ended September 30, 2021 and 2020 consisted of the following:



                                                            Three Months Ended September 30,
                                                      2021                                   2020
                                                               % of
                                                           Consolidated                      % of Consolidated
(Thousands)                               Amount             Revenues          Amount             Revenues
Operating expenses by segment:
Fiber Infrastructure                    $    28,983           10.9%           $  37,122            14.4%
Leasing                                       5,184            1.9%                 605             0.2%
Towers                                            -            0.0%                   -             0.0%
CLEC                                              -            0.0%                 104             0.0%
Total operating expenses                $    34,167           12.8%           $  37,831            14.6%




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Fiber Infrastructure - For the three months ended September 30, 2021, Fiber
Infrastructure operating expenses totaled $29.0 million as compared to $37.1
million for the three months ended September 30, 2020.  Operating expense
consists of network related costs, such as dark fiber and tower rents, and lit
service and maintenance expense.  In addition, costs associated with our
construction activities are presented within operating expenses. The $8.1
million decrease in operating expenses is primarily attributable to decreases in
construction related expenses of $2.8 million, $2.8 million in equipment sales
and installation expense and $2.0 million in expenses related to the Uniti Fiber
Northeast operations sold on May 28, 2021.

Leasing - Leasing operating expense was $5.2 million and $0.6 million for the
three months ended September 30, 2021 and 2020, respectively. The increase is
primarily driven by a $4.1 million increase in network expenses due to the Asset
Purchase Agreement the Company entered into with Windstream which was completed
in the third quarter of 2020.

Towers - For the three months ended September 30, 2021, Towers operating expenses were not incurred as the U.S. tower business sale was completed on June 1, 2020.


Consumer CLEC - For the three months ended September 30, 2021, Consumer CLEC
Business operating expenses were not incurred, as we substantially completed the
wind down of the business as of the end of the second quarter of 2020.

Transaction Related and Other Costs


Transaction related and other costs included incremental acquisition, pursuit,
transaction and integration costs (including unsuccessful acquisition pursuit
costs), costs incurred as a result of Windstream's bankruptcy filing, costs
associated with Windstream's claims against us and costs associated with the
implementation of our new enterprise resource planning system. For the three
months ended September 30, 2021, we incurred $1.1 million of transaction related
and other costs, compared to $20.8 million of such costs during the three months
ended September 30, 2020. The decrease is primarily related to incurring $16.4
million of total costs related to the Windstream bankruptcy for the three months
ended September 30, 2020.

Income Tax (Benefit) Expense

The income tax (benefit) expense recorded for the three months ended September
30, 2021 and 2020, respectively, is related to the tax impact of the following:



                                              Three Months Ended September 30,
(Thousands)                                     2021                     2020
Income tax (benefit) expense
Pre-tax loss (Fiber Infrastructure)       $          (3,476 )       $       

3,606

Gain on sale of operations                                -                 

-

Other undistributed REIT taxable income                 778                       -
REIT state and local taxes                              352                       -
Other                                                   102                    (805 )
Total income tax (benefit) expense        $          (2,244 )       $         2,801




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Comparison of the nine months ended September 30, 2021 and 2020

The following table sets forth, for the periods indicated, our results of operations expressed as dollars and as a percentage of total revenues:


                                                           Nine Months Ended September 30,
                                                       2021                                2020
(Thousands)                                Amount          % of Revenues        Amount         % of Revenues
Revenues:
Leasing                                  $   590,478           73.1%          $   552,042          69.7%
Fiber Infrastructure                         217,035           26.9%              232,942          29.4%
Tower                                              -           0.0%                 6,112          0.8%
Consumer CLEC                                      -           0.0%                   651          0.1%
Total revenues                               807,513          100.0%              791,747         100.0%
Costs and Expenses:
Interest expense                             341,762           42.3%              388,427          49.2%
Depreciation and amortization                211,165           26.2%              250,970          31.7%
General and administrative expense            75,800           9.4%                81,686          10.3%
Operating expense (exclusive of
depreciation and amortization)               105,436           13.1%              118,308          14.9%
Settlement expense                                 -           0.0%               650,000          82.1%
Transaction related and other costs            5,624           0.7%                55,344          7.0%
Gain on sale of real estate                     (442 )        (0.1%)              (86,726 )       (11.0%)
Gain on sale of operations                   (28,143 )        (3.5%)                    -          0.0%
Other expense                                  8,758           1.1%                12,186          1.5%
Total costs and expenses                     719,960           89.2%            1,470,195         185.7%
Income (loss) before income taxes and
equity in earnings (loss) from
unconsolidated entities                       87,553           10.8%             (678,448 )       (85.7%)
Income tax expense (benefit)                     283           0.0%                (7,650 )       (0.9%)
Equity in (earnings) loss from
unconsolidated entities                       (1,549 )        (0.2%)                  342          0.0%
Net income (loss)                             88,819           11.0%             (671,140 )       (84.8%)
Net income (loss) attributable to
noncontrolling interests                         984           0.1%               (11,808 )       (1.5%)
Net income (loss) attributable to
shareholders                                  87,835           10.9%             (659,332 )       (83.3%)
Participating securities' share in
earnings                                        (864 )        (0.1%)                 (853 )       (0.1%)
Dividends declared on convertible
preferred stock                                   (8 )        (0.0%)                   (6 )       (0.0%)
Net income (loss) attributable to
common shareholders                      $    86,963           10.8%          $  (660,191 )       (83.4%)




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The following tables set forth, for the nine months ended September 30, 2021 and
2020, revenues, Adjusted EBITDA and net (loss) income of our reportable
segments:

                                                       Nine Months Ended September 30, 2021
                                                                                                                  Subtotal of
                                                                                                                   Reportable
(Thousands)          Leasing        Fiber Infrastructure        Towers         Consumer CLEC      Corporate         Segments
Revenues           $   590,478     $              217,035     $         -     $             -     $        -     $      807,513


Adjusted EBITDA    $   577,937     $               86,716     $         -     $             -     $  (17,444 )   $      647,209

Less:

Interest expense                                                                                                        341,762
Depreciation and       124,132                     86,838               -                   -            195            211,165
amortization
Other expense,                                                                                                           14,569
net
Transaction
related and                                                                                                               5,624
other costs
Gain on sale of                                                                                                            (442 )
real estate
Gain on sale of                                                                                                         (28,143 )
operations
Stock-based                                                                                                              10,963
compensation
Income tax                                                                                                                  283
expense
Adjustments for
equity in
earnings from                                                                                                             2,609
unconsolidated
entities
Net income                                                                                                       $       88,819




                                                    Nine Months Ended September 30, 2020
                                                                                                              Subtotal of
                                                                                                              Reportable
(Thousands)         Leasing       Fiber Infrastructure       Towers        Consumer CLEC      Corporate        Segments
Revenues           $ 552,042     $              232,942     $   6,112     $           651     $        -     $     791,747


Adjusted EBITDA    $ 545,792     $               81,453     $      77     $          (461 )   $  (23,717 )   $     603,144
Less:
Interest expense                                                                                                   388,427
Depreciation and     155,216                     93,957           783                 791            223           250,970
amortization
Other expense,                                                                                                      12,186
net
Settlement                                                                                                         650,000
expense
Transaction
related and                                                                                                         55,344
other costs
Gain on sale of                                                                                                    (86,726 )
real estate
Stock-based                                                                                                         10,446
compensation
Income tax                                                                                                          (7,650 )
benefit
Adjustments for
equity in
earnings from                                                                                                        1,287
unconsolidated
entities
Net loss                                                                                                     $    (671,140 )




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Revenues

                                                              Nine Months Ended September 30,
                                                           2021                                   2020
                                                                                                         % of
                                                              % of Consolidated                      Consolidated
(Thousands)                                  Amount                Revenues            Amount          Revenues
Revenues:
Leasing                                   $    590,478              73.1%             $ 552,042         69.7%
Fiber Infrastructure                           217,035              26.9%               232,942         29.4%
Towers                                               -               0.0%                 6,112          0.8%
Consumer CLEC                                        -               0.0%                   651          0.1%
Total revenues                            $    807,513              100.0%            $ 791,747         100.0%


Leasing - During the nine months ended September 30, 2021, Uniti reimbursed
$152.3 million of Growth Capital Improvements, of which $28.5 million, as
allowed for under the Settlement, represented the reimbursement of capital
improvements completed in 2020 that were previously classified as TCIs. Upon
reimbursement, the Company reduced the unamortized portion of deferred revenue
related to these capital improvements and capitalized the difference between the
cash provided to Windstream and the unamortized deferred revenue as a lease
incentive. This lease incentive, which is $0.9 million and reported within other
assets on our Condensed Consolidated Balance Sheet as of September 30, 2021,
will be amortized against revenue over the initial term of the Windstream
Leases. Subsequent to September 30, 2021, Windstream requested, and we
reimbursed $16.5 million of qualifying Growth Capital Improvements. As of the
date of this Quarterly Report on Form 10-Q, we have reimbursed a total of $253.5
million of Growth Capital Improvements.

                                                                 Nine Months Ended September 30,
                                                             2021                                 2020
                                                                  % of Segment                       % of Segment
(Thousands)                                     Amount              Revenues           Amount          Revenues
Leasing revenues:
Windstream leases:
Cash rent                                     $     498.9            84.5%            $  496.4          89.9%
Non-cash revenue
TCI revenue                                          28.8             4.8%                26.2           4.7%
Straight-line revenue                                18.1             3.1%                 0.4           0.1%
Total non-cash revenue                               46.9             7.9%                26.6           4.8%
Total Windstream revenue                            545.8            92.4%               523.0          94.7%
Other triple-net leasing and dark fiber IRU          44.7             7.6%                29.0           5.3%
Total Leasing revenues                        $     590.5            100.0%           $  552.0          100.0%


The increase in TCI revenue is attributable to continued investment by
Windstream, which invested $141.0 million in TCIs during the nine months ended
September 30, 2021. The total amount invested in TCIs by Windstream since the
inception of the Windstream Leases and Master Lease was $986.7 million as of
September 30, 2021. For the nine months ended September 30, 2021, we recognized
$44.7 million of leasing revenues from non-Windstream triple-net leasing and
dark fiber IRU arrangements. For the nine months ended September 30, 2020, we
recognized $29.0 million from non-Windstream triple-net leasing and dark fiber
IRU arrangements.

Fiber Infrastructure - Fiber Infrastructure revenues for the nine months ended September 30, 2021 and 2020 consisted of the following:

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                                                           Nine Months Ended September 30,
                                                       2021                                  2020
                                                             % of Segment                       % of Segment
(Thousands)                                Amount              Revenues          Amount           Revenues
Fiber Infrastructure revenues:
Lit backhaul services                   $     67,404            31.1%           $  80,568          34.6%
Enterprise and wholesale                      63,190            29.1%              58,761          25.2%
E-Rate and government                         48,795            22.5%              60,133          25.8%
Dark fiber and small cells                    35,167            16.2%              29,832          12.8%
Other services                                 2,479             1.1%               3,648           1.6%
Total Fiber Infrastructure revenues     $    217,035            100.0%      

$ 232,942 100.0%



For the nine months ended September 30, 2021, Fiber Infrastructure revenues
totaled $217.0 million as compared to $232.9 million for the nine months ended
September 30, 2020. The $15.9 million decrease in Fiber Infrastructure revenues
is primarily attributable to a $10.0 million decrease related to the wind down
of our construction activities, shown above within E-rate and government, and a
decrease of $6.3 million in lit service revenues related to the Uniti Fiber
Northeast operations sold on May 28, 20201.

Towers - For the nine months ended September 30, 2021, we recognized no revenue
from the Towers business, as we completed the sale of our U.S. tower business on
June 1, 2020.

Consumer CLEC - For the nine months ended September 30, 2021, we recognized no
revenue from the Consumer CLEC Business, as we substantially completed the wind
down of the business as of the end of the second quarter of 2020.

Interest Expense, net

                                                       Nine Months Ended September 30,
                                                                                  Increase /
(Thousands)                                        2021             2020          (Decrease)
Interest expense, net:
Cash:
Senior secured term loan B - variable rate
(1)                                             $         -      $    15,709     $     (15,709 )
Senior secured notes - 4.75%, 6.00% and
7.875%                                              156,550          138,344            18,206
Senior unsecured notes - 4.00%, 6.50%. 7.125%
and 8.25%                                            99,438          111,092           (11,654 )
Senior secured revolving credit facility -
variable rate                                         7,095           12,942            (5,847 )
Tender premium and early redemption payments         20,541                -            20,541
Interest rate swap termination                        8,488            7,325             1,163
Other                                                 2,070            3,157            (1,087 )
Total cash interest                                 294,182          288,569             5,613
Non-cash:
Amortization of deferred financing costs and
debt discount                                        13,723           27,703           (13,980 )
Write off of deferred financing costs and
debt discount                                        22,828           73,952           (51,124 )
Accretion of settlement payable                      13,006                -            13,006
Capitalized Interest                                 (1,977 )         (1,797 )            (180 )
Total non-cash interest                              47,580           99,858           (52,278 )
Total interest expense, net                     $   341,762      $   388,427     $     (46,665 )
(1) Swapped to fixed rate.   See Note 9


Interest expense for the nine months ended September 30, 2021 decreased $46.7
million compared to the nine months ended September 30, 2020. The decrease is
primarily due to the decrease in debt extinguishment loss of $30.6 million on
the 2023 Secured Notes and the 2023 Notes and lower cash interest expense of
$13.4 million resulting from extinguishment of 2023 Secured Notes and 2023 Notes
during the nine months ended September 30, 2021.

Depreciation and Amortization Expense

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                                                           Nine Months Ended September 30,
                                                                                      Increase /
(Thousands)                                            2021             2020          (Decrease)
Depreciation and amortization expense by segment:
Depreciation expense
Leasing                                             $   126,965      $   151,845     $     (24,880 )
Fiber Infrastructure                                     69,684           75,505            (5,821 )
Corporate                                                   195              223               (28 )
Towers                                                        -              783              (783 )
Consumer CLEC                                                 -                -                 -
Total depreciation expense                              196,844          228,356           (31,512 )
Amortization expense
Leasing                                                  (2,833 )          3,371            (6,204 )
Fiber Infrastructure                                     17,154           18,452            (1,298 )
Corporate                                                     -                -                 -
Towers                                                        -                -                 -
Consumer CLEC                                                 -              791              (791 )
Total amortization expense                               14,321           22,614            (8,293 )

Total depreciation and amortization expense $ 211,165 $ 250,970 $ (39,805 )



Leasing - Leasing depreciation expense decreased $24.9 million for the nine
months ended September 30, 2021 as compared to the nine months ended September
30, 2020. The decrease is attributable to a $26.8 million decrease related to
the natural decrease in remaining useful life of the Windstream Distribution
System assets which utilize the group composite depreciation method, partially
offset by $4.3 million increase in depreciation expense related to the assets
acquired from Windstream under the Asset Purchase Agreement. The $6.2 million
decrease in amortization expense relates to intangible liabilities assumed from
Windstream under the Asset Purchase Agreement.

Fiber Infrastructure - Fiber Infrastructure depreciation and amortization
expense decreased for the nine months ended September 30, 2021 as compared to
the nine months ended September 30, 2020. The $5.8 million decrease in
depreciation expense is primarily attributable to the Everstream transaction
completed on May 28, 2021.   See Note 5  . The $1.3 million decrease in
amortization expense relates to a trademark intangible asset, associated with
the wind down of the construction business, that became fully amortized in 2020.

General and Administrative Expense


                                                             Nine Months Ended September 30,
                                                           2021                                 2020
                                                                                                       % of
                                                             % of Consolidated                     Consolidated
(Thousands)                                 Amount                Revenues            Amount         Revenues
General and administrative expense by
segment:
Fiber Infrastructure                      $    41,190               5.1%             $ 42,124          5.3%
Leasing                                         7,436               0.9%                5,242          0.7%
Corporate                                      27,174               3.4%               31,492          4.0%
Towers                                              -               0.0%                2,607          0.3%
Consumer CLEC                                       -               0.0%                  221          0.0%
Total general and administrative
expenses                                  $    75,800               9.4%    

$ 81,686 10.3%



General and administrative expenses include compensation costs, including
stock-based compensation awards, professional and legal services, corporate
office costs and other costs associated with administrative activities. For the
nine months ended September 30, 2021, general and administrative costs totaled
$75.8 million. For the nine months ended September 30, 2020, general and
administrative costs totaled $81.7 million. The decrease in general and
administrative expenses is primarily attributable to a decrease of approximately
$3.8 million in professional and legal expenses for the period.

Operating Expense



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Operating expense for the nine months ended September 30, 2021 decreased from
the nine months ended September 30, 2020, which was primarily attributable to
decreases in Fiber Infrastructure, Towers and Consumer CLEC Business operating
expenses offset by an increase in Leasing operating expenses discussed below.
Operating expense for our reportable segments for the nine months ended
September 30, 2021 and 2020 consisted of the following:

                                                               Nine Months Ended September 30,
                                                         2021                                      2020
                                                            % of Consolidated                      % of Consolidated
(Thousands)                                Amount                Revenues            Amount             Revenues
Operating expenses by segment:
Fiber Infrastructure                    $     93,410              11.6%             $ 111,405            14.0%
Leasing                                       12,026               1.5%                 2,320             0.3%
Towers                                             -               0.0%                 3,692             0.5%
CLEC                                               -               0.0%                   891             0.1%
Total operating expenses                $    105,436              13.1%             $ 118,308            14.9%

Fiber Infrastructure - For the nine months ended September 30, 2021, Fiber Infrastructure operating expenses totaled $93.4 million as compared to $111.4 million for the nine months ended September 30, 2020. The $18.0 million decrease in operating expenses is primarily attributable to decreases in construction related expenses of $12.7 million and $4.2 million in expenses related to the Uniti Fiber Northeast operations sold on May 28, 2021.


Leasing - Leasing operating expense was $12.0 million and $2.3 million for the
nine months ended September 30, 2021 and 2020, respectively. The increase is
primarily driven by a $8.1 million increase in network expenses due to the Asset
Purchase Agreement the Company entered into with Windstream which was completed
in the third quarter of 2020.

Towers - For the nine months ended September 30, 2021, Towers operating expenses were not incurred as the U.S. tower business sale was completed on June 1, 2020. Towers operating expense was $3.7 million for the nine months ended September 30, 2020.

Consumer CLEC - For the nine months ended September 30, 2021, Consumer CLEC Business operating expenses were not incurred, as we substantially completed the wind down of the business as of the end of the second quarter of 2020.

Transaction Related and Other Costs


Transaction related and other costs included incremental acquisition, pursuit,
transaction and integration costs (including unsuccessful acquisition pursuit
costs), costs incurred as a result of Windstream's bankruptcy filing, costs
associated with Windstream's claims against us and costs associated with the
implementation of our new enterprise resource planning system. For the nine
months ended September 30, 2021, we incurred $5.6 million of transaction related
and other costs, compared to $55.3 million of such costs during the nine months
ended September 30, 2020. The decrease is primarily related to incurring $40.2
million of total costs related to the Windstream bankruptcy for the nine months
ended September 30, 2020, as compared to $1.3 million for the nine months ended
September 30, 2021, and we incurred $5.2 million in costs related to the sale of
our U.S. towers business during the nine months ended September 30, 2020.

Income Tax Expense (Benefit)


The income tax expense (benefit) recorded for the nine months ended September
30, 2021 and 2020, respectively, is related to the tax impact of the following:

                                             Nine Months Ended September 30,
(Thousands)                                    2021                  2020
Income tax expense (benefit)
Pre-tax loss (Fiber Infrastructure)       $        (9,484 )     $        (7,128 )
Gain on sale of operations                          7,041                   

-

Other undistributed REIT taxable income             1,310                     -
REIT state and local taxes                          1,291                     -
Other                                                 125                  (522 )
Total income tax expense (benefit)        $           283       $        (7,650 )




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Non-GAAP Financial Measures

We refer to EBITDA, Adjusted EBITDA, Funds From Operations ("FFO") (as defined
by the National Association of Real Estate Investment Trusts ("NAREIT")) and
Adjusted Funds From Operations ("AFFO") in our analysis of our results of
operations, which are not required by, or presented in accordance with,
accounting principles generally accepted in the United States ("GAAP"). While we
believe that net income, as defined by GAAP, is the most appropriate earnings
measure, we also believe that EBITDA, Adjusted EBITDA, FFO and AFFO are
important non-GAAP supplemental measures of operating performance for a REIT.

We define "EBITDA" as net income, as defined by GAAP, before interest expense,
provision for income taxes and depreciation and amortization. We define
"Adjusted EBITDA" as EBITDA before stock-based compensation expense and the
impact, which may be recurring in nature, of transaction and integration related
costs, costs associated with Windstream's bankruptcy, costs associated with
litigation claims made against us, and costs associated with the implementation
of our enterprise resource planning system, (collectively, "Transaction Related
and Other Costs"), costs related to the settlement with Windstream, goodwill
impairment charges, executive severance costs, amortization
of non-cash rights-of-use, the write off of unamortized deferred financing
costs, costs incurred as a result of the early repayment of
debt, including early tender and redemption premiums and costs associated with
the termination of related hedging activities, gains or losses on dispositions,
changes in the fair value of contingent consideration and financial instruments,
and other similar or infrequent items (although we may not have had such charges
in the periods presented). Adjusted EBITDA includes adjustments to reflect the
Company's share of Adjusted EBITDA from unconsolidated entities. We believe
EBITDA and Adjusted EBITDA are important supplemental measures to net income
because they provide additional information to evaluate our operating
performance on an unleveraged basis. In addition, Adjusted EBITDA is calculated
similar to defined terms in our material debt agreements used to determine
compliance with specific financial covenants. Since EBITDA and Adjusted EBITDA
are not measures calculated in accordance with GAAP, they should not be
considered as alternatives to net income determined in accordance with GAAP.

Because the historical cost accounting convention used for real estate assets
requires the recognition of depreciation expense except on land, such accounting
presentation implies that the value of real estate assets diminishes predictably
over time. However, since real estate values have historically risen or fallen
with market and other conditions, presentations of operating results for a REIT
that uses historical cost accounting for depreciation could be less informative.
Thus, NAREIT created FFO as a supplemental measure of operating performance for
REITs that excludes historical cost depreciation and amortization, among other
items, from net income, as defined by GAAP. FFO is defined by NAREIT as net
income attributable to common shareholders computed in accordance with GAAP,
excluding gains or losses from real estate dispositions, plus real estate
depreciation and amortization and impairment charges, and includes adjustments
to reflect the Company's share of FFO from unconsolidated entities. We compute
FFO in accordance with NAREIT's definition.

The Company defines AFFO, as FFO excluding (i) Transaction Related and Other
Costs; (ii) costs related to the litigation settlement with Windstream, and
accretion on our settlement obligation as these items are not reflective of
ongoing operating performance; (iii) goodwill impairment charges; (iv) certain
non-cash revenues and expenses such as stock-based compensation expense,
amortization of debt and equity discounts, amortization of deferred financing
costs, depreciation and amortization of non-real estate assets, amortization of
non-cash rights-of-use, straight line revenues, non-cash income taxes, and the
amortization of other non-cash revenues to the extent that cash has not been
received, such as revenue associated with the amortization of TCIs; and (v) the
impact, which may be recurring in nature, of the write-off of unamortized
deferred financing fees, additional costs incurred as a result of the early
repayment of debt, including early tender and redemption premiums and costs
associated with the termination of related hedging activities, executive
severance costs, taxes associated with tax basis cancellation of debt, gains or
losses on dispositions, changes in the fair value of contingent consideration
and financial instruments and similar or infrequent items less maintenance
capital expenditures. AFFO includes adjustments to reflect the Company's share
of AFFO from unconsolidated entities. We believe that the use of FFO and AFFO,
and their respective per share amounts, combined with the required GAAP
presentations, improves the understanding of operating results of REITs among
investors and analysts, and makes comparisons of operating results among such
companies more meaningful. We consider FFO and AFFO to be useful measures for
reviewing comparative operating performance. In particular, we believe AFFO, by
excluding certain revenue and expense items, can help investors compare our
operating performance between periods and to other REITs on a consistent basis
without having to account for differences caused by unanticipated items and
events, such as transaction and integration related costs. The Company uses FFO
and AFFO, and their respective per share amounts, only as performance measures,
and FFO and AFFO do not purport to be indicative of cash available to fund our
future cash requirements. While FFO and AFFO are relevant and widely used
measures of operating performance of REITs, they do not represent cash flows
from operations or net income as defined by GAAP and should not be considered an
alternative to those measures in evaluating our liquidity or operating
performance.



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Further, our computations of EBITDA, Adjusted EBITDA, FFO and AFFO may not be
comparable to that reported by other REITs or companies that do not define FFO
in accordance with the current NAREIT definition or that interpret the current
NAREIT definition or define EBITDA, Adjusted EBITDA and AFFO differently than we
do.



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The reconciliation of our net (loss) income to EBITDA and Adjusted EBITDA and of
our net (loss) income attributable to common shareholders to FFO and AFFO for
the three and nine months ended September 30, 2021 and 2020 is as follows:

                                      Three Months Ended September 30,             Nine Months Ended September 30,
(Thousands)                              2021                   2020                2021                   2020
Net income (loss)                  $         43,682       $          7,455     $        88,819       $        (671,140 )
Depreciation and amortization                70,530                 79,880             211,165                 250,970
Interest expense, net                        94,793                102,791             341,762                 388,427
Income tax (benefit) expense                 (2,244 )                2,801                 283                  (7,650 )
EBITDA                             $        206,761       $        192,927     $       642,029       $         (39,393 )
Stock based compensation                      4,166                  3,341              10,963                  10,446
Transaction related and other
costs                                         1,063                 20,816               5,624                  55,344
Settlement expense                                -                      -                   -                 650,000
Gain on sale of operations                        -                      -             (28,143 )                     -
Gain on sale of real estate                       -                (22,908 )              (442 )               (86,726 )
Other expense                                 4,472                  3,098              14,569                  12,186
Adjustments for equity in earnings
from unconsolidated entities                    765                  1,287               2,609                   1,287
Adjusted EBITDA                    $        217,227       $        198,561     $       647,209       $         603,144


                                      Three Months Ended September 30,             Nine Months Ended September 30,
(Thousands)                              2021                   2020                2021                   2020
Net income (loss) attributable to
common shareholders                $         43,080       $          7,034     $        86,963       $        (660,191 )
Real estate depreciation and
amortization                                 53,620                 59,318             159,175                 185,377
Gain on sale of real estate
assets, net of tax                                -                (22,501 )              (442 )               (86,319 )
Participating securities share in
earnings                                        283                    229                 864                     853
Participating securities share in
FFO                                            (635 )                 (331 )            (1,660 )                  (937 )
Real estate depreciation and
amortization from unconsolidated
entities                                        646                    366               1,876                     366
Adjustments for noncontrolling
interests                                      (412 )                 (598 )            (1,979 )                (1,700 )
FFO attributable to common
shareholders                       $         96,582       $         43,517     $       244,797       $        (562,551 )
Transaction related and other
costs                                         1,063                 20,816               5,624                  55,344
Change in fair value of contingent
consideration                                     -                  1,946                  21                   8,086
Amortization of deferred financing
costs and debt discount                       4,352                  9,037              13,723                  27,703
Write off of deferred financing
costs and debt discount                           -                      -              22,828                  73,952
Costs related to the early
repayment of debt                                 -                      -              28,485                       -
Stock based compensation                      4,166                  3,341              10,963                  10,446
Gain on sale of operations                        -                      -             (28,143 )                     -
Non-real estate depreciation and
amortization                                 16,910                 20,562              51,990                  65,593
Settlement expense                                -                      -                   -                 650,000
Straight-line revenues                       (8,240 )               (1,747 )           (22,455 )                (1,036 )
Maintenance capital expenditures             (1,938 )               (1,617 )            (6,322 )                (4,978 )
Other, net                                   (2,949 )               (3,461 )            (4,958 )               (25,271 )
Adjustments for equity in earnings
from unconsolidated entities                    119                    921                 733                     921
Adjustments for noncontrolling
interests                                      (120 )                 (775 )              (990 )               (15,114 )
AFFO attributable to common
shareholders                       $        109,945       $         92,540     $       316,296       $         283,095




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Liquidity and Capital Resources


Our principal liquidity needs are to fund operating expenses, meet debt service
obligations, fund investment activities, including capital expenditures, and
make dividend distributions. Furthermore, following consummation of our
settlement agreement with Windstream, including entry into the Windstream
Leases, we are obligated to make $490.1 million of cash payments to Windstream
in equal installments over 20 consecutive quarters beginning in October 2020 and
to reimburse Windstream for up to an aggregate of $1.75 billion for Growth
Capital Improvements in long-term fiber and related assets made by Windstream
through 2029. To date, we have paid $215.4 million of the $490.1 million due to
Windstream under the settlement agreement, including $92.9 million that we
pre-paid on October 14, 2021, $78.0 million of which was funded from a portion
of the proceeds of the 2030 Notes. Uniti's reimbursement commitment for Growth
Capital Improvements does not require Uniti to reimburse Windstream for
maintenance or repair expenditures (except for costs incurred for fiber
replacements to the CLEC MLA leased property, up to $70 million during the
term), and each such reimbursement is subject to underwriting standards. Uniti's
total annual reimbursement commitments for the Growth Capital Improvements under
both Windstream Leases (and under separate equipment loan facilities) are
limited to $225 million per year in 2021 through 2024; $175 million per year in
2025 and 2026; and $125 million per year in 2027 through 2029. If the cost
incurred by Windstream (or the successor tenant under a Windstream Lease) for
Growth Capital Improvements in any calendar year exceeds the annual limit for
such calendar year, Windstream (or such tenant, as the case may be) may submit
such excess costs for reimbursement in any subsequent year and such excess costs
shall be funded from the annual commitment amounts in such subsequent period. In
addition, to the extent that reimbursements for Growth Capital Improvements
funded in any calendar year during the term is less than the annual limit for
such calendar year, the unfunded amount in any calendar year will carry-over and
may be added to the annual limits for subsequent calendar years, subject to an
annual limit of $250 million in any calendar year, except that, during calendar
year 2021, our combined total obligation to fund Growth Capital Improvements may
exceed $250 million to the extent of any unfunded excess amounts from calendar
year 2020. Accordingly, because we funded $84.7 million of the $125 million
limit in 2020, we are committed to fund up to $265.3 million of Growth Capital
Improvements in 2021.

Our primary sources of liquidity and capital resources are cash on hand, cash
provided by operating activities (primarily from the Windstream Leases),
available borrowings under our credit agreement by and among the Operating
Partnership, CSL Capital, LLC and Uniti Group Finance 2019 Inc., the guarantors
and lenders party thereto and Bank of America, N.A., as administrative agent and
collateral agent (the "Credit Agreement"), and proceeds from the issuance of
debt and equity securities.

As of September 30, 2021, we had cash and cash equivalents of $69.8 million and
approximately $380.5 million of borrowing availability under our Revolving
Credit Facility. Subsequent to September 30, 2021, other than the redemption of
the 2024 Notes as described below, and $16.5 million of Growth Capital
Improvements (see "Result of Operations-Revenues" above), there have been no
material outlays of funds outside of our scheduled interest and dividend
payments. Availability under our Revolving Credit Facility is subject to various
conditions, including a maximum secured leverage ratio of 5.0:1. In addition, if
we incur debt under our Revolving Credit Facility or otherwise such that our
total leverage ratio exceeds 6.5:1, our Revolving Credit Facility would impose
significant restrictions on our ability to pay dividends. See "-Dividends."

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