REITs are a popular investment option. But most investors are only familiar with the obligatory O. But there are many other options that might be of interest to investors.

Uniti Group is a real estate investment trust that focuses primarily on the purchase and construction of fiber optic, copper and coaxial broadband networks and data centers.

The business was formed through a spin-off from Windstream Holdings in 2015. Over the past three years, the stock has traded in a range of a low of approximately $5 in mid-2020 at FFO of approximately $3 to a high of approximately $14 in early 2022 at FFO of $8.

Prior to 2022, UNIT's performance lagged that of its competitors - American Tower $AMT-1.5% and Crown Castle $CCI-1.5%- but then caught up significantly. But the company is generating high margins in a critical recession-proof sector . Their renegotiated master lease agreement with Windstream also provides greater stability and predictability of cash flow than in the past.

Uniti focuses on two segments - in the rental business and in fibre network construction. Of these two segments, leasing is the carrier segment, accounting for more than 70% of total revenue. However, optical infrastructure continues to drive the company's growth and is likely to account for a larger share of revenues in later years.

Currently, the company is a top ten fiber optic provider in the U.S. with a network of over 130 thousand miles. And capital intensity is expected to grow in the near medium term as the segment continues to expand and becomes a more significant part of overall revenue.

Although EBITDA margins are likely to decline in the coming periods as the company expands its fibre network, overall the business is still operating at high margins. Most recently, consolidated margins reached 80%.

In addition, REITs tend to be relatively well known for their stability and regular dividend payments. As it happens, there are exceptions everywhere. $UNIT-0.2% is an infrastructure REIT that has been the source of much controversy in recent years.

It recently announced that it planned to offer $300 million in convertible bonds , causing its share price to drop 16%. It seems that investors saw the word "convertible" and quickly concluded that it was going to be diluted. The size of the offering could dilute investors by as much as 20% if the bonds are converted into common stock at some point in the future.

As for stability - there's more good news. Albeit in a turbulent situation where Windstream wants to cut rents. The company's assets are in high and growing demand, cannot be replaced, and are therefore very valuable to the communities they serve. The cost of replacement would likely be a multiple of the current share price, and with high inflation, it only continues to increase.

But even if its largest tenant, Windstream, were able to get its way and rents were significantly reduced, we would still have 7 years of high cash flow before the lease expires in 2030. This cash flow has been contractually agreed and will continue to increase as contractual escalations occur. It also means that UNIT has 7 years to continue to diversify its business and grow other revenue streams. This cash flow is largely recession proof (fibre optic infrastructure required) and the company retains most of it to reinvest in growth and debt reduction (payout ratio is only 35%).

Despite this, is $UNIT-0.2% a risky company? It certainly is.

But given a price that is a small fraction of its net asset value, and the fact that it has already contracted so much cash flow through 2030, it seems attractive to a certain kind of investor.

Dividend

The company's current annual dividend payout is $0.60 per share. At current prices, this represents a yield of over 9%, up significantly from 4% at 52-week highs. At these yields, safety issues are likely to be at the top of any yield-focused investor's list.

For the full year ending December 31, 2021, the company generated operating cash flow of $499 million and paid dividends of $141 million. The payout therefore represents only 28% of operating cash flow. And even if you take into account the company's investing activities, which totaled $321 million, they still had about $36 million left after the dividend payment. Currently, for the full year 2022, the company generates operating cash flow of approximately $470 million and free cash flow of approximately $170 million, which would imply free cash flow coverage of approximately 1.2x.

While the current payout level appears safe for the foreseeable future, growth from current levels remains less certain given the increasing capital intensity in the near and medium term as the company continues to build out its fiber optic infrastructure segment. This may pressure its liquidity profile in a capital environment that is currently challenging, especially for smaller companies like Uniti's. Although the company currently has ample liquidity through accommodative debt,resources may be prioritized for capital expansion or for deleveraging versus dividend growth.

Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.