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Windstream Holdings Inc. (NASDAQ: WIN) is in the midst of spinning off its fiber, copper and other assets into an independent, publicly traded real estate investment trust (REIT). As a result, Merrill Lynch has made a call ahead of the split to give investors a more clear perspective about what they might be getting into.

Merrill Lynch reiterated a Hold rating for Windstream with a price objective of $10, implying an upside of 25% ahead without even considering the dividends and payouts ahead. The firm said that the implied value for Communications Sales & Leasing (CSAL) means investors are getting the Windstream OpCo at or nearly free. In the words of Merrill Lynch, “Buy one REIT, get one local exchange carrier (LEC) free.”

At worst, the firm believes the CSAL equity could trade at a dividend yield no greater than where current Windstream bonds trade. This is roughly 8.0% on a $0.60 dividend, which implies a $0.40 equity value for the operating company and a 25% yield, after stripping out the value of the REIT that will be owned by the LEC.

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In the report Merrill Lynch explained:

CSAL equity is not wholly defined by the yield alone. If the REIT bonds tighten after initial pricing, the CSAL equity could appreciate. In our view, if the REIT can grow the business through M&A as it intends to, the REIT dividend will grow and the stock could rise even if the yield does not change. Can CSAL grow through acquisitions? The market seems to think so, in our view, based on RLEC stock performance last week. As a result, we argue that the $7.74 we calculate as an initial value is the minimum possible price the REIT could trade at because it assumes no diversification and no growth and bears no relationship to the yield of other triple net lease REITs which yield 4.5% to 6%.

The higher dividend offered by Windstream is seen as a premium by the brokerage firm, because it compensates investors for a higher than average risk profile stemming from potential execution risk following the recent CEO change. At the same time, the firm believes that the current stock price implies a steep discount to historical and peer valuations in anticipation of the break.

Windstream has also recently been among the most shorted Nasdaq stocks. Merrill Lynch also featured Windstream’s high dividend positively in January.

Shares of Windstream were up 1% at $8.00 Monday morning, in a 52-week trading range of $7.23 to $13.30. The stock has a consensus analyst price target of $8.61. Merrill Lynch’s target of $10.00 compares to the highest analyst target of $11.00, and the lowest target is $6.00.

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