Q3 2019 Earnings Call
Ladies and gentlemen, thank you for sandy by and welcome to the third quarter 2019 Landmark infrastructure Partners LP earnings Conference call.
This time, all participants are no listen only mode. I finished speaker presentation. There will be a question answer session asked a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if your acquire any further systems piece for Starz, Ralph I would now like to have the conference over to your speaker today.
Marcello choice Vice President of the Investor Relations. Please go ahead Sir.
Thank you and good morning, we'd like to welcome you to landmark infrastructure partners third quarter earnings call today, we'll share an operating financial overview of the business and lots of take your questions. Following her presentation presenting on the call today are 10, Brazy, Chief Executive Officer, and George Doyle, Chief Financial Officer.
I'd like to remind all participants are comment today will include forward looking statements, which are subject to certain risks and uncertainties and number of factors and uncertainties could cause actual results in future periods to differ materially from our current expectations.
For a complete discussion of these risks we encourage you to read the partnership's earnings release and documents on file with the FCC.
Additionally, we may refer to non-GAAP measures, such as I thought though.
So EBITDA and adjusted EBITDA during the call. Please refer to the earnings release in a public filings for definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures.
With that I'll turn the call over to Tim.
More so thanks, very much and good morning, everybody.
They were going to discuss our financial and operating results for the quarter and give you an update on our activities and our recent developments and strategic initiatives.
In the third quarter, we delivered another strong quarter of operating and financial results.
Our portfolio continues to generate stable and consistent cash flows.
Occupancy rates remained high at 95% and contractual rent escalators and accretive acquisitions that we've made in the past 12 month continue to contribute to portfolio performance.
Regarding our acquisitions year to date through October 31st we've acquired 134 assets for total consideration of approximately $42 million.
Those assets are expected to contribute approximately $3.4 million and annual rents and were comprised primarily of European outdoor advertising assets and domestic wireless communication assets.
No as we've discussed on prior calls landmark has shifted its near term strategy from primarily acquisition driven growth to a focus on higher return higher growth development initiatives.
Although we continue to selectively acquire higher cap rate ground lease assets on a direct basis.
Emphasis has been on the development and enhancement wireless outdoor and smart cities infrastructure, increasing the value of our ground lease assets, while also providing a better asset for our tenants at the same time.
The growing and stable cash flow generated by our existing portfolio of more than 2000 ground lease assets.
Gives us the flexibility and the capability to target these higher returning development projects.
As we talked about these initiatives take longer to put together and deployed what their larger scalable investments that frequently provide us with potentially significant lease up and co location opportunities.
As a result, these deployments can be very accretive and overall, we believe these types of investments provide the most favorable risk adjusted returns on invested capital for the partnership.
As we said in the third quarter, we're continuing to make significant progress with our development initiatives. For example, with regard to Dart, where we're targeting over 300 kiosks across the entire Dallas area Rapid transit footprint. We're in the process of the point kiosks right now and expect to have so.
It's in the ground generating revenue no later than the first quarter of 2020.
We expect to provide more details in next quarter's earnings call as we make more progress with our development projects again as we said these projects are very large and much more complex than our ground lease business, requiring a lot of time effort and coordination across multiple parties.
That said, we're very encouraged by the progress we've made to date and we're extremely confident that as these projects reach scale, we'll see a meaningful impact on our operating results in.
In addition, we're also in discussions with a number of potential strategic real estate partners regarding additional development projects and we're working to build out a number of the deployments currently in our pipeline.
As we wrap up 29 team and look ahead to next year.
We're very happy with our position in the market.
The strong stable and consistent results from our core ground lease assets puts us in a position to benefit from the growth and returns that are developments will deliver.
29 pain was a necessary transition period for landmark, but we're confident that 2020 will show results from our strategic transition and focus on development.
This is an exciting time to be in Elemer K unit holder and we believe we're extremely well positioned to deliver value in growth going forward.
And with that I'll turn the call over to George who will provide us with a more detailed financial review of the quarter George.
Thank you Tim.
As Tim mentioned in his opening remarks, our assets continue to perform as the portfolio once again generated stable and predictable cash flows this quarter.
The third quarter rental revenue was 14.4 million, which was 18% lower year over year and a decrease of 4% from the second quarter.
As we have outlined on prior calls the JV established with Brookfield in the third quarter 2018 is accounted for as an equity method investment.
And the results of those properties are no longer consolidated into our revenue and operating expenses.
But rather we pick up our share of net income of the JV to equity income in the unconsolidated JV.
The assets that were contributed to the landmark Brookfield JV.
Generate rental revenue of approximately 3.6 million in the quarter.
In addition.
As we mentioned last quarter, we sold a portfolio of 38 assets that closed at the end of the second quarter for total consideration of 31.8 million.
In the annual rents associated with these assets totaled approximately 1.7 million.
Turning to FFO and AFFO.
FFO per diluted unit was 20 cents this quarter.
Compared to 29 cents in the third quarter of last year.
As we've discussed in past calls at the FFO can fluctuate quarter to quarter.
Depending on the change in at fair value of our interest rate hedges.
Hey, AFFO.
Which excludes these unrealized gains and losses on our interest rate hedges.
Along with other various items.
Was 32 cents per diluted unit this quarter.
Compared to 34 cents in the third quarter of last year.
The decline in an AFFO per unit is due primarily to the impact of the recent asset sales.
The appreciation of the U.S. dollar versus the British pound.
And several other smaller items.
Now turning to our balance sheet, we finished the third quarter with approximately 175 million of outstanding borrowings.
Under our revolving credit facility.
Unsecured notes were at approximately 220 million at the end of the quarter.
We ended the third quarter with 100% of our outstanding debt, you're being fixed rate debt.
Our borrowings that have been fixed through interest rate swaps.
Regarding our distribution coverage ratio.
In the third quarter of 2019, the distribution coverage was 88%.
As discussed in last quarter's call.
We expected the distribution coverage to improve in the third quarter, but also to that it would be dependent on the timing of certain acquisitions and developments.
From the acquisition standpoint.
The majority of our acquisitions in the pipeline did not close until the first half of October .
In regard to our development projects. They continue to progress with certain assets expected to be placed into service in November and December .
As we outlined on the prior call.
We expect it adds AFFO growth in the fourth quarter in full coverage of our distribution.
We currently expect AFFO per unit to increase.
And our distribution coverage to be at or around one times.
We expect to achieve AFFO per unit growth.
Primarily through.
Recent amendments.
Executed on existing leases across our portfolio.
Providing an additional 500000 next 12 months rental revenue.
Recent acquisitions totaling 20.9 million with annual rent of approximately 2.2 million.
Lastly, anticipated acquisitions and development expected to be placed into service in the fourth quarter.
The coverage of our distribution in the fourth quarter will depend on the timing of the acquisitions and developments.
As we look into the first quarter of 2020.
We expect AFFO per unit to continue to increase as additional assets are placed into service.
In summary.
The portfolio continues to generate stable and predictable income and we continue to progress with our development projects.
With asset is expected to be placed into service this quarter.
With the acquisitions completed through the end of October .
Recent leasing activity.
And the developments that are beginning to be placed into service.
We are well positioned as we complete the fourth quarter and head into 2020.
We will now take your questions.
Thank you.
A reminder.
A question at this time. Please press Star then one on your telephone which all your question. Please press the pound Keith please standby, while we compile the county roster.
Our first question comes from Rick Prentiss Raymond James Your line is open.
Great. Thanks, good morning, or good afternoon guys.
Morning, Martin Rick.
A couple of questions first on the acquisition front and Georgia that you mentioned that most of the acquisitions closed in the first half of October .
Can you help us understand since we do have to do quarterly models that did anything.
Slip into third quarter as far as acquisitions, it will kind of revenue rent they might about it.
Yes, the actual third quarter acquisitions were very limited there were some small ones, but for the most part.
Almost everything closed in October .
Okay, and what what's got it creates the gating factor on the timing you mentioned you were hoping to have had some in the third quarter to help the coverage ratio in the third quarter, what kind as dictating the timing of those acquisitions.
I would say, it's it's really nothing different than you would see in most real estate.
Type acquisitions unexpected things come up.
It could be seller delays.
Sometimes.
I would say acquisitions altogether, just don't happen by virtue of you find something in due diligence or.
Your.
You can't reach terms with your counterparty, but yet this quarter. They just happened to all slip there are few other acquisitions, we are targeting as well, but ultimately we didn't end up acquiring.
So thanks, just shifted out this quarter.
Alright, and then as we think about the.
The development opportunity you mentioned.
The Dart system no later than one to 20 some of these start getting in the ground and being revenue generating how should we think about it is EUR 300 sites that you will ultimately get the dart system and.
Do we think about the pacing of those becoming revenue generating sites.
Sure I mean, our goal is to.
We get to the 300 site level, it's going to depend on a number of factors, it's going to depend on.
Ultimately, how many we can get approved with.
Dark themselves, how many we can get permitted but would ever jurisdiction is going to have permitting authority. So it's remains to be seeing how many we can ultimately get in the ground. However, we do expect to get a substantial number and we are still targeting.
Getting up in that 300 kiosk range.
We have we've got initial shipment of kiosks already in the us they're getting cued up for deployment. So those are the ones that we expect that start to hit the ground in Q4 and start.
Generating revenue in Q1, but it'll take I would say and probably take upwards of a year.
Possibly even a little bit longer before we install the final kiosk so.
And we probably say, it's going to be spread out relatively consistently across.
2020, some will get in the ground here in Q4, and then the rest of.
Spread out over 2020.
And the the cost for kiosk.
Can you help us understand that now that it's pretty firm order and how much should we be assuming the development cost is to do these 300.
The.
Yes, the kiosks per kiosk run.
There are under 100000, so the roughly kind of.
Got 90000 ish for kiosk installed.
So.
Portion thats going to be hardware portions the.
Installation type services and construction.
Okay last one for me that as you think about these these opportunities I think Tim also mentioned smart cities.
How should we think about the.
Addressable market.
How would you guys brings to the table to win these orders and who you are major competition is.
Sure.
I believe the market is pretty large and with fiveg being rolled out in the densification efforts that are going on.
It's going to be ongoing for an extended period of time in as additional.
Areas are going to be built out I think we have an opportunity to participate in those you. We are competing with some of the traditional.
Infrastructure build companies such as like the public tower companies.
The private tower companies.
Groups with infrastructure capital.
Well, we have that I think makes us unique is we've developed.
Our technology for.
Densification of the networks in call it the dense urban type environments. It's it's meant to be rolled out in areas, where you're going to have a lot traffic, but don't necessarily.
Wind or real estate or wouldn't necessarily want.
Macro site, if it could even be permitted.
Something in 150 foot tall tower size or doesn't want equipment hanging off existing infrastructure, that's where I think we have a good solution, where we can bring in something that's going to sit in more to the surrounding environment and we had six we've seen successes there working with property owners munis.
How are these darts a good example.
We believe were.
We are positioned well for these type of deployments were not trying to compete in the 150 foot tall macro tower deployment sector. There's plenty of other groups that do that we're focused more on.
This densification.
Addition of.
The Fiveg rollouts.
Our infrastructure is designed for Fiveg. So we can hide some of the largest antennas that you'll see in the market in some of these antennas or in the 10 foot.
Hi, its range. So it's it's infrastructure that.
It was ready for Fiveg, even if we not deploying for fiveg deployment at the moment it could certainly be equipment could be upgraded so I think that all those things together give us a nice kind of niche in the market for.
Helping build out the dedication networks, yes, just the too.
At the George's comments, Rick I mean, this is really rapid deployment build to suit.
Projects. So these are these can be customized for the counter parties, but we're in a position too.
Scale rapidly depending on the opportunity and that gives us.
Additionally, while some additional competitive advantage in the market when we look at different projects.
And you guys are doing what up in Canada as well right.
Yes, right now we're focused on.
Canada in the us.
And did you give the quantity about how many like Darts 300, what Canada has in the current kind of project planning.
Yes, we havent.
Give any specific numbers.
It's.
It's something that.
I would say is a growing opportunity for us and there's been a lot of traction up there, but we're not quite ready to talk about how many.
Well, specifically be going into the ground.
Same thing with Dart there, there's definitely need for Densification.
Networks across that.
Our footprint or some other telecom infrastructure needs as well, but it'll be in for some of these it takes a little bit time to to get everything lined up.
The contracts.
The lease arrangements you get all the engineering done.
We actually get these things in the ground.
Okay, we're definitely looking forward to getting that coverage ratio back to one and hopefully that above one.
Yes, absolutely I mean, we see visibility as to how we get there with what what we've completed to date from acquisition standpoint, and then as the developments start to come along the should push it above one we just have to wait another quarter before we we have that reflected the result.
Okay. Thanks, guys.
Thank you.
Dave Rodgers with Baird. Your line is now open.
Hey, guys have the 300 and dark kiosk that you talked about how many do you have approval for today.
From a permitting and.
Site approval I don't call left on my head Dave to be honest.
This is this is a joint initiative between ourselves and Dart I mean darts very interested in having despite the infrastructure rolled out across their footprint. So I would expect that.
Majority of these get approved by Dart, but we still have to work through the process.
I guess as you look over the fourth quarter and on the first quarter next year. I mean, you guys seem pretty confident they're going to generate revenues, but.
From a revenue generation standpoint are we talking about 5% deployment of the 300 or are we talking 50%.
Can you give us a little better sense, it's kind of all vague at this point.
Sure.
It is a little bit vague and that's unfortunately part of the difficulty with development projects is there's a lot of moving pieces to these we think that you might be in 2025% range deployed somewhere around the ended the year. It just depends whether these go in.
Fourth whether we get them in the ground, the fourth quarter or whether it shifts into the the first quarter, but a decent portion of.
The ultimate number a kiosks are expected to be.
Deployed as we entered the first quarter.
The first 25% I'm guessing, but and then do you have to tenant commitments for the deployments you anticipate in the fourth on the first quarter.
Yes, we do.
Okay.
I guess, what's the what's been your total development spend when you take I know you'd want to get a lot of details about Canada, but if you rolled in Canada and the dark project together, what's your total development spend to date and are you generating Evan any revenue.
From Canada.
To add into that that mix with start.
Let's say you probably in the 30 million 30, maybe a little bit more maybe 40 million range in the deployments are starting to go in the ground now so no we're not generating revenue yet the.
Some of the stuff that I mentioned is hitting the ground in Q4, when do you expect that to generate revenue in Q4.
Right. Okay. That's helpful.
The acquisition pipeline I guess as you look forward and just kind of given the development spend and and putting these.
Deployments into the ground both in the U.S. in Canada.
Do you still anticipate putting more and more money ended two acquisitions. What are you comfortable with that in the fourth quarter and then moving into 2020 have you thought about that what does the pipeline look like.
Sure Theres actually a pretty healthy pipeline of acquisition opportunities, we do see some closing here in the fourth quarter not beyond what we've disclosed we've already acquired to date here in the fourth quarter, but there are some interesting opportunities is not.
I wouldn't say, it's huge number in the fourth quarter, we might be looking at.
10 to 15 million of acquisitions beyond what we've already disclosed we've completed as we head into 2020.
There, we think the acquisition opportunities in next year are going to be attractive as well, it's going to depend on cost of capital what do we want to try and recycle anymore of our.
Capital such as sell assets.
But we do see it still being a good market out there for acquisitions in 2020.
And then just to that last comment last question for me on the disposition side I mean, we will you guys pursue a disposition that would take you away from your coverage or once you get coverage of the distribution.
Will you do everything you can maintain that above the 100%.
Yes, once once we get the distribution coverage backup to 100% than I'd expected.
To be maintained.
Could move around a little bit depending on the specific quarter, we hit it but long term you look out 2020 and beyond I expect once we hit it that we're going to maintain it.
Prospectively as far as the asset sales.
We we have opportunities periodic lead to selectively dispose of something in.
They're attractive dispositions theyre the ones that we've done today have been yes mildly dilutive.
For the most part what we're selling them that is the cap rate is a little bit higher than our cost of debt, but it's not very dilutive. So I.
I don't anticipate we have a big dilutive asset sale for redeployment, we've been working on.
These development projects and we spent.
Fair amount of capital on it I think we're starting to finally get to the point where.
A lot of the money has been spent the assets are now starting to go in the ground. There now at the point, where they should be generating revenue and.
At some point Union start to see some of that spend what we've got it and construction in progress on the balance sheet start to decline.
Which again will give us more hopefully more coverage give us more revenue and then ultimately give us more borrowing capacity as well since the.
The.
The cost we haven't construction in progress.
I'll provide us any EBITDA for purposes borrowing.
Yes, great alright, thanks for the details can be.
Sure absolutely.
Thank you.
Comes from Liam Burke of B. Riley FBR. Your line is open. Thank you good morning, Tim Good morning, George.
Good morning Liam.
George you mentioned the complexity of these projects infrastructure projects, but as you move along.
And you become more experienced in the space do you see internally any better predictability.
As you roll these out and anticipation of.
EBITDA growth planning.
Yes, I think over time.
These deployments will become more predictable, but theres still ultimately developments and unusual or unexpected things come up and developments that drill off the timing, but I do think yes. After we get more of the pieces pulled together on.
The initial projects that will give us more insight is how we should.
The able to think about projects going forward.
Okay and on the JV.
A number on the rental income is that directionally up or down from a year ago or how that performed vis-a-vis a year ago.
Yes.
I would say it performed pretty much consistent with expectations I don't have the exact growth rate, but it is.
It is up from last year.
The and you generally see this across our entire portfolio is the the properties that we've owned for a period of time pretty consistently generate organic growth somewhere around the two 2.5% range and.
We generally have seen that in our other portfolios the the JV portfolio as well it's pretty consistent.
Growth there is a there is a pretty attractive average escalator on that portfolio.
It at approximately 3% so unless we're having.
A lot of unexpected churn the growth rate on that portfolio should be somewhere.
In that two and a half 3% range.
And then looking at the consolidated rental income you anniversary of the JV this quarter.
Fourth quarter, we should look for your traditional growth rates related to rental escalators.
Yes, I expect our portfolio as we're looking at it today in.
November here I would expect portfolio the assets that are there at the September to continue to.
Have organic growth in that revenue, yes, somewhere around the two two and half percent ranges, where those escalators average.
Sure.
Great. Thank you George Thanks.
Absolutely.
Thank you and our next question comes from Jennifer fruits of Wells Fargo. Your line is that open.
Great. Thank you.
I would ask a little bit about the activity from the wireless carriers expense.
I'll call. It a lot of talk about in the space that T mobile slowing down as it kind of prepared for.
Merger.
Are you seeing that affects your business at all or is this has there been any I guess noticeable change there and that trend. Thank you.
Sure, Yes, it seems from what we see in.
In the market overall that yes, with T mobile sprint going through merger and getting.
Further through that process that.
It is causing them to to think about.
What they want to deploy in wind so yes, I would say that the merger is probably creating a little bit of disruption in the.
The their deployments at the moment from what we see in the market.
Are the good thing about our deployments is they do cross a lot of different carriers, so that isn't necessarily going to.
Create much of disruption for what we're doing.
Thank you.
And at this time. This does conclude our question answer session I would now like to turn the call back over to Tim Brazy for any closing remarks.
Sure. Thanks, and thanks, everybody for joining us this morning.
George and I have said were we think we're in a great position.
And excited about the opportunities.
Front of us, especially as a lot of the.
Deployment start to get traction on some of these things can take longer to get done, but we are very confident the projects will have a meaningful impact on the financial results of the company and expect to share more details with you on the next earnings call. So thanks again, everybody have a great day.
Well, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.