Landmark Infrastructure Partners LP
Q1 2021 Earnings Call Transcript

Published: 5 May 2021

[Operator:]

Good day and thank you for standing-by. Welcome to the Landmark Infrastructure Partners First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker for today, Marcelo Choi, Vice President of Investor Relations. Please go ahead.

[Marcelo Choi:]

Thank you, and good morning. I'd like to welcome you to Landmark Infrastructure Partners' first quarter earnings call. Today, we'll share an operating and financial overview of the business, and we'll also take your questions following our presentation. Presenting on the call today are Tim Brazy, Chief Executive Officer; and George Doyle, Chief Financial Officer.

[Tim Brazy:]

Marcelo, thank you. And thank you all for joining us today. I know that we're still facing challenges, but I'd like to think that we're starting to see the light at the end of the tunnel. And I hope everyone is doing well and taking care. Now as you saw from our release this morning, we continue to meet the ongoing challenges from the pandemic. And we reported another extremely strong quarter of operating and financial results. I think clearly pointing to the strength and stability of our portfolio. Rental revenues were significantly higher year-over-year driven by the data centre acquisitions made in the second half of 2020.Those assets were acquired as we redeployed the capital from the sale of our interest in our European outdoor advertising joint venture. AFFO per unit was very strong again this quarter and the $0.37 per unit we reported this quarter was a leading indicator showcasing our continued progress. As you can see from this quarter's results, the portfolio remains extremely stable and continues to deliver year-over-year growth. Our wireless communication, digital infrastructure and renewable power generation assets continue to perform well and have generally not been impacted by the pandemic. Since the crisis began, we've all seen how these industries have come to play such essential roles in the world today and these industries have generally performed very well in past economic downturns as you would expect. Our outdoor advertising segment, which has been the segment most impacted by the pandemic continues to show improvement. After two quarters of sequential decline in our other advertising segment revenues beginning in the second quarter of 2020, we've seen higher revenue in each of the last two quarters as the impact of the pandemic continues to ease. The outdoor advertising industry has been in a recovery phase since it reached the lowest level of outdoor advertising activity at the end of last year's second quarter. As outdoor traffic has rebounded and now exceeds pre-pandemic levels in most regions across the country and most businesses have reopened with some substantial capacity, outdoor advertising activity has been increasing commensurately.

[George Doyle:]

Thank you, Tim. As Tim mentioned, our portfolio generated another strong quarter of operating results despite the impacts from the pandemic. We continue to see strong performance more wireless, digital infrastructure and renewable power generation segments. And after a couple quarters of declining rental revenue in our outdoor advertising segment during 2020, we’ve seen an uptick in segment revenue in the last two quarters. Rental revenue for the quarter was $17.3 million, which was 25% higher year-over-year and 2% higher versus the fourth quarter. The year-over-year growth in rental revenue was primarily driven by the redeployment of capital from the disposition of the European outdoor advertising joint venture, as well as organic growth generated across the portfolio. Moving onto FFO and AFFO. FFO per diluted unit was $0.36 this quarter compared to $0.01 in the first quarter of last year. As we have discussed on prior calls. FFO can fluctuate quarter-to-quarter depending on the change in the fair value of our interest rate hedges, as well as various other items including foreign currency transaction gains and losses. AFFO which excludes these gains and losses on our interest rate hedges and other items was $0.37 per diluted unit this quarter compared to $0.33 in the first quarter of last year representing 12% growth year-over-year. The slight decline in AFFO per unit this quarter from the fourth quarter of last year was primarily due to the typical seasonal decline in renewable power generation rental revenue in the first quarter of every year. Year-over-year, our renewable power portfolio performed well and delivered year-over-year revenue growth. Now turning to our balance sheet, we ended the first quarter with $218 million of outstanding borrowings under our revolving credit facility. We continue to see very attractive financing rates for asset classes and we have no scheduled maturities until November 2022. In terms of liquidity, we ended the quarter with approximately $9 million in cash and $232 million of undrawn borrowing capacity under our revolving credit facility subject to compliance with certain covenants. Including our interest rate hedges approximately 86% of our outstanding debt is either fixed rate debt or borrowings that have been fixed through interest rate swaps. Regarding our distribution policy, as we have commented on prior calls, we lowered our distribution a year ago due to the unprecedented and challenging environment brought on by the pandemic. While we are very encouraged by the increasing administration of the vaccine and the slow reopening of the economy, the Board decided to maintain the $0.20 per unit distribution this quarter to preserve capital and financial flexibility. Based on this level of distribution, our distribution coverage ratios for the first quarter was 1.84 times.

[Operator:]

Please stand-by while we compile the Q&A roster. Our first question comes from Rick Prentiss with Raymond James. Your line is open.

[Rick Prentiss:]

Hi, good afternoon or morning to everyone.

[Tim Brazy:]

Good morning, Rick.

[Rick Prentiss:]

I want to start the questions, obviously pretty clear not a lot of acquisitions on the ground space, but possibly some on data centre side? How should we think about the magnitude of what you might be able to put to work on acquisitions, but more importantly, the magnitude of what kind of development CapEx you’re looking to deploy this year or maybe even next particularly with the DART and Vertex projects?

[Tim Brazy:]

[-:]

[Rick Prentiss:]

Also to ballpark about $14 million for development and $7 million for acquisitions kind of as a rough spread?

[Tim Brazy:]

Oh, no, I think it'll be $20 million in development. And then on the acquisition side of things, it really is going to depend upon what type of opportunities we see, but I believe at this point will be somewhat limited.

[Rick Prentiss:]

Got you. So the two-thirds was really what would be Vertex?

[Tim Brazy:]

Yes, the two-thirds is for DART and then a third for Vertex.

[Rick Prentiss:]

DART size, yes.

[Tim Brazy:]

Yes.

[Rick Prentiss:]

On the G&A side, I think it's through November that you've got the capital contribution from the sponsors. And what's the thought about looking at renewing that or the possibility of removing out or the timestamp to renew that?

[Tim Brazy:]

Yes that discussion is still going on internally, the sponsor hasn't made a commitment to change it at this point in time. We're considering a number of factors there certainly the company has grown substantially since the date that G&A reimbursement was put in place and it doesn't need it quite to the extent it did at inception. So those discussions are ongoing and when we have a little bit more clarity as to what the proposal will be, then we'll share that.

[Rick Prentiss:]

Okay. And kind of a detailed modeling question. It looks like the number of sites, site location and leases for wireless changed some -- leases didn't go down much, but the number of locations and the number of sites dropped? Was there some kind of clean up there? And are you seeing any potential impact from Sprint T-Mobile merger?

[Tim Brazy:]

Yes, so far, we're seeing very little decommissioned activity from T-Mobile as it relates to historical Sprint sites. They are trickling in we tend to see a couple per quarter this quarter in Q1; we had only one Sprint site that decommission. So certainly there's innovation activity going on there. But it's not showing up in churn or in decommissions at this point in time. As far as the number of sites that we have in the wireless segment some of those are real estate interests have terminated, we have lot of our arrangements limited period of time to release the site. And if there's no releasing activity then the site would revert back to the property owner. So that's what you're seeing in the decline in the number of sites that we have.

[Rick Prentiss:]

Got you. So it actually occupancy went up some because you got rid of sites that didn't have any leases on it. I guess it's kind of where it plays out.

[Tim Brazy:]

Yes, exactly. After so many years of trying to release society, it's not been released, and then the likelihood it's going to be released is pretty low. So most cases they revert back.

[Rick Prentiss:]

Okay. Thanks, everyone.

[Operator:]

Thank you. Our next question comes from Liam Burke with B. Riley. Your line is open.

[Liam Burke:]

Thank you. Good morning, Tim. Good morning, George.

[Tim Brazy:]

Good morning, Liam.

[George Doyle:]

Hi.

[Liam Burke:]

You laid-out pretty clearly what your capital allocation is and where you're going to direct it. But does that completely shut out any thoughts of additional infrastructure build our projects or traditional investments?

[Tim Brazy:]

No, it doesn't. We just don't see those as main focus at this point in time, there may certainly be opportunities there. There may be additional development projects. We identify certain acquisition opportunities though we think that'll be somewhat limited. The main focus right now is completing the developments that we have in and potentially some Select Data Centre acquisitions.

[Liam Burke:]

And on the data centre front, are you seeing sufficient opportunities at the right price or has that become more competitive?

[George Doyle:]

Yes, I would say with the decline in interest rates and the performance of that asset class over the last couple of years, we do see an increasing amount of interest in data centers. So we have seen a little bit more competition but we still think there's lots of opportunity. As I mentioned earlier, we think the risk adjusted returns there are very attractive at the moment, especially when you think about the financing rates on data centers; data centers securitizations the most recent ones. For five-year dividend around the 2% range so it's pretty attractive cost of debt financing on those assets.

[Liam Burke:]

Good. Thank you, George.

[George Doyle:]

You bet.

[Operator:]

Thank you. Our next question is the follow up from Rick Prentiss with Raymond James. Your line is open.

[Rick Prentiss:]

Yes thanks guys, I figured that there are no other questions just back in queue. How should we think about target coverage ratio? Obviously being up closer to two than one is high, but some protection and comfort as you're getting from COVID. But how should we think about where you want to stabilize more medium to long-term?

[Tim Brazy:]

That's a good question. Its part of the discussions we'll have with the board when the board ultimately changes the distribution from the $0.20 per unit. We do want coverage obviously in place; the coverage level historically before we trimmed the distribution was pretty tight. But we do expect when we move to reset the distribution level that will have still decent coverage, but it's something that will, again one of those items that we'll have to provide more color on in the future the discussions regarding the raising the distribution with the board continue.

[Rick Prentiss:]

And obviously growth is a part of that strategy not just the coverage ratio itself, what's the thought on kind of targeting growth and any updated thoughts on when you might be able to change out of an MLP structure to a more traditional structure?

[Tim Brazy:]

Sure. On the growth side of things, certainly retaining capital gives us more capital for acquisition opportunities and certainly can drive more growth. So there's a bit of a trade-off there between accessing capital relative to distributing it. But again that's we'll have to evaluate as we move closer to raising the distribution. On the conversion to a REIT structure, we're still a bit of ways away from a size perspective before we could consider an internally managed REIT structure, we have to get considerably bigger and at this size, I would say, our G&A would still be too high or too large relative to revenue to support that internally managed REIT structure. So it's still something that we're keeping in mind, but at this point, it's not really a near-term opportunity I would say.

[Rick Prentiss:]

All right. And follow-up, any indication you are seeing from people about edge computing, being there with the land spots, we're hearing more and more from the carriers more and more from the carrier guys? Still feels we're not quite there yet, but any thoughts on what you're seeing at the edge? And are there any other international markets that you might want to go into, as you think about opportunities with less competition?

[Tim Brazy:]

Sure. On the edge side of things, we've heard that topic come up a lot over the years; we still have not seen major rollout of edge computing. There's been a number of small deployments, a lot of test cases, pilots, initiatives along those lines, but we still have not seen major investment in lease up relative to edge computing, doesn't mean won't happen one day, certainly, but we're just not seeing it yet. Still it seems to be more of a discussion topic than anything else at this point in time. As far as international markets, I would say we see opportunities and certainly the markets we're in, which is U.S., Canada, Australia, we also see some select opportunities across Europe as well and I don't think we'll end up focusing beyond those markets. But currently, I would say given the attractive return profile of what we can identify in the U.S., it's going to be probably our primary focus for a while.

[Rick Prentiss:]

Make sense. Thanks again.

[Tim Brazy:]

Absolutely.

[Operator:]

Thank you. And I'm currently showing no further questions at this time. I’ll turn the call back over to Tim Brazy for closing remarks.

[Tim Brazy:]

Thank you, operator. And thank you all for joining us this morning. And as you heard, we're encouraged by a lot of the positive developments that we see in the market. And we've taken what we think are the necessary steps to position the company appropriately as we move forward benefiting from strong industry fundamentals, our portfolio continues to perform well. And we think we're well positioned to deliver continued growth this year. So with that, wish you and your families well. Please, please continue to be careful and stay safe. And we'll talk to you again next quarter.

[Operator:]

This concludes today's conference call. Thank you for participating, you may now disconnect.