Q4 2019 Earnings Call

Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the landmark infrastructure partners fourth quarter 2019 earnings Conference call.

At this time all participant lines are in listen only mode.

After the speakers presentation, there will be a question and answer session.

To ask a question during the session you'll need a press star then one on your telephone keypad.

Please be advised to today's conference is being recorded.

If you require any further assistance. Please press star then zero to reach an operator.

I'd now like to hand, the conference over to your Speaker today, Mr. Marcelo Choi Vice President Investor Relations. Please go ahead Sir.

Thank you and good morning, we'd like to welcome you to landmark infrastructure partners fourth quarter earnings call today, we'll share and operating and financial overview of the business.

Also take your questions following our presentation.

Presenting on the call today are 10, Brazy, Chief Executive Officer, and George Doyle, Chief Financial Officer.

I would like to mine all participants that are common today will include forward looking statements, which are subject to certain risks and uncertainties and number factors and uncertainties could cause actual results in future periods to differ materially from our current expectations.

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 F., though yes, that's though 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 their most comparable GAAP measures and with that I'll turn the call over to Tim.

Marcelo Thank you and good morning, everyone.

As we usually do today, we're going to discuss our financial and operating results and update you on our recent development activities and strategic initiatives.

Before we get into the details quarter and our recent results.

I'd like to take this opportunity to step back and provide every one brief overview on a recap of the last five years Atlanta.

During the fourth quarter.

We celebrated our five year anniversary as a public company and then those five years. The partnership has delivered impressive growth inside the bar portfolio.

Well revenues our cash flows.

The number of assets in our portfolio. For example has nearly tripled from approximately 700 up the IPO to over 2000 assets today.

And this amount excludes the more than 600 asses, what contributed to the landmark Brookfield joint venture or sold throughout this period.

During the same five year time period quarterly rental revenues increased by more than 350%.

From 3.4 million to 15.5 million this quarter.

This quarter's revenue excluding the rental revenues from previously mentioned.

Positions.

Alomar K has also generated significant income for its unit holders through its common distributions.

Since inception.

Landmark infrastructure has paid a cumulative common distributions of approximately $148 million representing $7 in 10 cents per unit for those units issued IPO.

The one constant throughout the history of landmark infrastructure has been the resiliency and strength of our portfolio.

Which continues to perform extremely well and has been characterized by high occupancy rates stable and growing cash flows high quality tenants an exceptionally diversified assets.

During the last five years, we've also seen substantial amount of institutional capital investing in our types of assets, including but not limited to the landmark Brookfield joint venture, which is further validation of our asset classes.

Looking forward, we expect our portfolio to continue to perform well as it has since the IPO, we anticipate institutional interest will remain high given the many positive attributes of our asset classes and very strong industry trends, including the macro trends driving accelerating investments.

Wireless and Fiveg deployments.

We're very proud of our accomplishments over the past five years and look forward to continuing to increase unitholder value for our partners as we grow the portfolio and execute on our two though does and strategic programs.

Now before we discuss your quarterly results I'd like to briefly touch on the T mobile spread merger.

Our view on the merger hasn't changed.

As we said before we believed that this transaction has limited downside risk to our business and it may actually be a net positive for us as we view dish as a viable for major carrier.

We expect lower decommission the first anticipated.

As dish expands its network footprint across the country.

It's still too early to fully analyzed specific indications of the transaction.

But we'd like to call attention to a couple of important points.

Our current portfolio exposure to T mobile and spread relatively modest.

At the end of last year T mobile in spreads accounted for approximately 8%, 6%, respectively. The partnership's quarterly rental revenue.

At a much lower percentage of those insights had direct overlap with T mobile leases.

We expect the full combination of two companies and their technologies would take several years to complete.

Given the size and complexity of T mobile and spread networks. We believe the rationalization of these networks will take much longer and be far more complicated.

As a result, given the time frames. Your we believe the effects from any specific safety conditions portfolio Reconfigurations would be significantly mitigated for a couple of reasons.

First of all the Omar case portfolio itself is expected to continue to grow and become more diversified during that time.

Lessening the impact of any site specific changes.

Second the rationalization of the two different networks and one common technology platform would create lease modification income and additional revenue opportunities as the network is reconfigured upgraded and expanded.

In addition, the organic growth from our contractual escalators and ongoing asset acquisitions would also help offset any effects from the merger.

Perhaps most importantly, the sale of certain spectrum licenses to dish with ongoing service arrangements would further position dish has an effective fourth carrier and that may have real positive effects, including the lower potential likelihood for de commissioned sites given that this will be offered access.

A significant number of cell sites from a newly reconstituted T mobile.

With dish expected to ramp up its network coverage across the country, including the build out of its own Fiveg network.

We also expect additional lease modifications at higher demand for our wireless infrastructure.

Overall, we don't expect sprint T mobile merger to have a material negative impact on our business and again that may result in fewer potential psyche commissions as well as provides additional revenue opportunities.

Now with regard to fourth quarter, we delivered strong operating in fan financial results.

Our portfolio continues to generate stable and consistent cash flows with occupancy rates remaining high 95%.

And the contractual rent escalators and accretive acquisitions that we've made in the last 12 months continuing to tribute portfolio growth.

Regarding acquisitions in the full year 2019.

We acquired 146 assets for total consideration of approximately $53 million.

Those assets are expected to contribute approximately $4.3 million routes and were comprised primarily of European outdoor advertising assets domestic wireless communication assets.

As we've outlined on prior calls landmarks current growth strategy centered on higher return higher growth development initiatives.

We'll continue to selectively acquire higher cap rate ground lease assets directly but our focus remains on these development assets, which we believe will provide attractive wireless communication outdoor advertising churns.

We'd also like to remind everyone that these development programs take much longer to deploy the larger more complex projects, but allows for better opportunities to efficiently scale and generate higher risk adjusted returns on Elemer Cage capital.

We continue to make progress with our various development initiatives, including landmark vertex formally known as flux grid, which is our self wireless infrastructure smart.

And for macro many macro small cell deployments.

Dart program with the Dallas area of rapid transit system continues to progress.

Digital kiosk installation has commenced in the first quarter.

25, digital kiosks installed as of today and forbid permitting anticipated as installations ramp up over the coming quarters.

With regard to development activities at outdoor advertising, we've upgraded 13 static billboards to digital billboards acid state, resulting in incremental rental revenues.

For each of these development initiatives vertex dart digital outdoor advertising.

We have a number of assets that are planned to be placed into service in the first half 2020.

We're excited about the opportunities these projects represent and expect to make further progress since your share for the details in the next quarter's earnings call.

And with that I'll turn the call over to George will provide us with a more detailed financial review the quarter.

George.

Thank you Tim.

As Tim mentioned in his remarks are asking to continue to perform as the portfolio. Once again generates stable predictable cash flows this quarter.

In the fourth quarter rental revenue was 15.5 million.

Which was 5% higher year over year, and an increase of 8% from the third quarter.

As I mentioned on the call last quarter, but a number of recent lease amendments that contributed to Q4 revenue.

We also completed a number of acquisitions that again quarter.

Partially offsetting the year over year growth in revenue, but the impact from asset sales completed in 2019.

Turning to it at that though is if it though.

Thats the FFO per diluted unit was 18 cents this quarter compared to one said in the fourth quarter last year.

As we have discussed in past calls.

FFO can fluctuate quarter to quarter, depending on the change in the fair value for interest rate hedges.

As well as various other items.

Yes, it though.

Which excludes these unrealized gains and losses on our interest rate hedges and other items.

34 cents per diluted unit this quarter.

Compared to 35 cents in the fourth quarter of last year.

Now turning to our balance sheet.

We finished the fourth quarter with approximately 233 million.

Outstanding borrowings under our revolving credit facility.

Secured notes.

We're at approximately 217 million at the end of quarter.

In January 2020.

We completed securitized refinancing transaction.

Issuing a $170 million unsecured notes at a rate of 3.9%.

Which is approximately 35 basis points below the rate the previously issued secured notes.

We used the proceeds after deducting transaction costs.

Repay that securitized notes that were issued in 2016.

And pay down approximately 59 million other partnerships revolving credit facility.

After the completion of this refinancing transaction.

Our outstanding borrowings under our revolving credit facility.

Lets approximately 173 million.

And 100% of our outstanding debt, either fixed rate debt or borrowings have been fixed through interest rate swaps.

Regarding our distribution coverage ratio.

In the fourth quarter of 2019.

The distribution coverage ratio 0.92 times.

The distribution coverage ratio improvement in the fourth quarter was primarily due to the contractual rent escalators lease amendments and accretive acquisitions in the third and fourth quarters.

As we discussed on last quarter's call.

Distribution coverage was expected to improve in the fourth quarter.

Recall that we also said that coverage improvement would be to pay on the timing of certain acquisitions developments.

Distribution coverage prudently lower relative to our expectations.

Did you certain acquisitions being pushed out to the first quarter.

Rental payments on a few of the acquired assets not contributing significantly to revenue until the first quarter.

And some development project assets being placed into service later than expected.

In the first quarter.

Looking ahead.

Expect further distribution coverage approve it as an AFFO per unit gross due to a full quarter benefit of accretive acquisitions made in the fourth quarter.

Regaining growth through contractual rent escalators and lease modifications.

Interest savings from the reason, we completed securitization refinancing transaction.

Anticipated acquisitions and development assets expected to be placed into service in the first quarter and throughout 2020.

In summary, we had a solid fourth quarter as our portfolio pretty strong organic growth.

We are able to benefit from accretive acquisitions made in the last couple of quarters.

In addition, we continue to make progress with our development projects.

As assets were placed into service in the fourth quarter.

Further development is expected to be placed into service in the first quarter.

And all of 2020.

We're also well position for our balance sheet perspective.

Has that recent securitized refinancing transaction has freed up capacity on our revolving credit facility for additional acquisitions as well as funding our development projects.

We will now take your questions.

As a reminder to ask a question you will need to press Star then one on your Touchtone telephone to withdraw your question press the pound key.

Please standby we've compiled acuity roster.

Your first question comes from the line of Ric Prentiss with Raymond James Your line is now open.

Hey, guys.

Hi, Rick Rick Hey, a couple of questions.

First.

You're talking about the coverage ratio in Fourq you coming in at 0.92 and that there were some acquisitions that kind of slipped into one Q what is the pipeline of acquisitions or once you look like and for 2020.

I would say at this point its a.

From what we have visibility on today, it's a moderate volume.

Sure.

Looking somewhere in Q1, and maybe the five to 10 million range and then as you look over the course of the year I would think were.

Maybe looking in the range of.

$30 million to $50 million it just.

It depends on what type opportunities, we see that come to market.

Alright, and cap rates that you're looking at in one Q in 2020, what's going to ZIP code or they have.

And a traditional range there generally in a seven or eight cap rate range.

Okay, and then for calendar 2019, how much somebody did you spend capex wise on the the flex spread project sorry to take awhile to get the new name in there, but on your development projects.

Sure on.

The flex grid project, that's probably I would say on a lighter side. What we spent for 2019 a lot of what we spent was on the Dart project and then we also spent a fair amount on.

The conversion of the.

Some of the static billboards sites in the.

The UK so.

So I would say on the.

The vertex project probably in the.

Five to 10 million range at most it it wasn't that significant probably around five.

Most of it again was the is the other two projects.

And what how about some.

Ballpark on the Dart project, and then the static billboards or at least what the total looks like.

Sure for the in most of it still remains and.

Construction in progress, but we've spent roughly.

About.

20 million on the Dart project and I would say about a 20 million on the.

The conversion.

Construction of digital Billboards.

Right as we take out the 2020 and then beyond how much capex are we thinking about are spending are we thinking about construction in progress and moving into.

In service, but how much cash spending are we looking out for the the three different buckets.

Sure Yes, we've.

Kind of way these different projects that we've been working on have lined up is.

To date, we've incurred let's say a fair amount of the actual components for the projects and I.

I would say less in a way of services.

So we've spent in a lot of cases, the majority of what we're going to spend from a component standpoint now it's it's finishing up the services piece by piece, which is much smaller.

So I would expect over the course of 2020 that the construction in progress balance starts to decline.

Relatively significantly over the year from a from a total spend perspective.

We're probably looking around 10 million in construction in progress.

But it will depend a little bit is that.

The pace of the.

The different initiatives in whether additional leasing demand pops up but a lot of a lot of what we have left to spend is just the actual services for the physical construction.

So you mean like.

It's probably not so much sony and permitting but literally like taking the holes drop in the equipment in putting has down that sort of nine.

Exactly yes, its construction crews that type activity.

All right one quick one on the on the T Mobile sprint deal I know, Tim you touched on it a little bit I'm not sure. If you have this detail available but of your sprint locations that you have.

Are you aware of how many of the sites have 700 or excuse me. The 800 megahertz. The low band spectrum of that is going to be the spectrum that is.

Sold to dish.

No. We don't typically captured that information on the the sites when we when we do our acquisition. So we we do not know.

Yeah, because that is the one piece of spectrum, that's going to be sold over a three year at the other three years as an option to sell to dish. So that's the one piece of of spectrum that would go to do so if there is some way to ascertain that over time I think they can do.

And then the fun when I got for you is.

You've got now like a a sister company out there used to be called.

Landscape now, it's a digital landscape.

Trading on the London exchange, although not trading it so all that.

What are your thoughts about what that company looks like and whether it might mean to the marketplace and Soc market.

Yes, it's interesting that after five years, we finally have another public company that I'd say has a pretty close footprint to what we do although different.

In a number respects, we certainly are much more diversified between asset classes. We also have a bit of different geographic overlap. So it'll be a it'll be interesting to see how it.

Ultimately performs in and what their strategy is going to be.

Isn't that different legal format.

So we'll.

We'll we'll just have to wait and see but as far as competition for individual assets I don't really see that changing.

Dynamic in the marketplace.

So.

No the opportunity for us I would say is still probably the same today as it was before.

That firm.

Listed.

Yep.

So.

Any update on your structure, you mentioned, how they'll have digital.

Landscape will have a different structure you guys have the MLP, but also a re subsidiary in there what are your thoughts any updated thoughts on your structure or the timeline.

Hi, I wouldn't say really a change to our previous.

Plan is that ultimately trying to get to an internally managed REIT structure, we think that does make the most sense. It's the most.

They tax efficient structure for the U.S.

Almost all of our assets qualify.

For a restructure.

It's just it's a matter of getting the the company large enough, where we could contemplate that structured our viewpoint on the size, we would need to be before you get internalize hasn't really changed I think you still need to be in.

200 million roughly EBITDA range before you could contemplated in were.

Still looking at a that as an opportunity for us down the road.

Okay. Thanks, guys.

You bet.

Your next question comes from Liam Burke with B. Riley FBR. Your line is now open. Thank you good morning, George Good morning, Tim.

Hey, good morning.

George or Tim.

You've got a capital budget plan, both with our acquisitions and for the build out say infrastructure build out how much flexibility you have to pick on new projects or or how does that project pipeline look and how do you manage the the allocation of capital.

Sure. The three projects, we have are relatively sizeable so I don't anticipate that we're going to.

Take on any new large scale projects, whether the existing projects grow in scale because of the.

The lease up opportunity is greater or tenant demand would be greater than we would certainly expand those projects, but most of our capital I would say right now is dedicated to completing these projects and then upon completion I think we'll we'll look at new opportunities.

Wouldn't I wouldn't expect in 2020 that we.

Endeavor to take on another large scale projects.

Okay and then.

Are you moving into the next phase of build out what are you being purchased see equipment and now you've got to.

Do you anticipate a significantly steep learning curve here or how is the so if you understand the infrastructure space through your portfolio, but the actual implementation of the build out is that coming along as expected.

Yeah, I, you know with any development project I would say, there's there's a learning curve.

Theres been a.

Yeah, some uh huh.

Few surprises along the way, but I would say most of the learning curve is in the past we are at the point, where we've gone through permitting leasing.

Some of the initial site construction. So we're feeling pretty good now about getting the the projects completed I'm sure there will be more things that pop over the course of the.

Completion of the project.

But I think most of learning curves behind us.

Great. Thank you George.

Welcome.

As a reminder, ladies and gentlemen that is star then one if you'd like to ask a question at this time.

Your next question comes from the line up Dave Rodgers with Baird. Your line is now open.

Hey, good morning out there Jordan I think maybe one of the first would you guys haven't really given guidance for the full year. If you did I didn't really see it what do you kind of look at at the Big hurdle. This year in terms of kind of the variability is in the year moves on and you have any thoughts around guidance for the year.

Yeah, we we moved away from providing guidance specific guidance a couple of years ago.

The.

The focus of the company. This year is going to be on completing the three different develop but development initiatives that we have at this point developments are particularly tricky.

To forecast and provide guidance, but we do I mean, just had a real high level we have.

You know sites that we expect to go active.

In.

In 2020, beginning in the first quarter for each of the different initiatives, we expect that to be ramping up over the course of the year.

Well certainly provide.

Some information about the different initiatives on our calls, but we're not a we're not providing detailed guidance for a 2020 at this point.

I think you guys talked in your prepared comment maybe 10 did about 25 of the dark site at deployed and then you mentioned permitting.

On the rest as the your progress I guess, how much permitting.

And how many do you expect to get deployed has that changed and then with the 25 installed I realize it's a small number but how do you kind of that during the one return now that you're kind of in the ground and you have the tenant.

Wind up for that.

Sure Yeah, we have.

A fair amount of the sites the initial sites for the Dart projects already permitted where we're getting very good traction there we've had a lot of success.

I would say that permitting has gone about as good as it could or probably even better than expected, we're still thinking that you're in a.

Probably the 300 kiosk.

Range for total deployment and Thats going a likely extend through the fourth quarter and probably a little bit into.

20 or 21.

The the returns on that project.

Specifically on Dart lag a little bit we have to get the kiosks up.

Up and running we have to get.

Sizable enough third sizable number of them in place to drive the advertising revenue as a platform.

But yet we're targeting.

I would say and typically in that seven to eight cap rate range for initial returns on investments and we would expect that to to start in the.

Middle to latter part of the year.

Thank you for that color and then on board the conversion.

Back to digital.

$20 million last June.

Turning to look like on that I get incremental and then total returns.

On that.

Yes, they're a very attractive they're in line with what we would target for our traditional.

Ground lease investments or you're looking at.

Call It high single digit type returns.

We've been doing.

A limited amount of digital conversions.

And acquiring sites that were being converted over to the last couple of years in.

Western Europe, and we just see a sizable opportunity there.

Since the.

Yes, digital screens are attractive in that market.

So.

Yes, we think it's a great opportunity to pursue.

No maybe just last for me on asset sales that maybe with some of the uncertainty around T mobile spread.

To.

Future growth.

In the development pipeline of the spend and the return.

As on teeing up any additional assets for sale to add to kind of provide capacity for that.

No not at this point we.

As I as I mentioned earlier in the queue in a we have already spent a lot of what we expect to spend on the projects and now it's more the.

A lot of the construction and final services component. So we're not anticipating needing to liquidate any assets and the portfolio.

But.

Yeah, Theres an opportunity to dispose is something we would consider it.

We're always very.

Opportunistic and so we'll we'll see if something pops up over the course of the year, but at this point.

There is nothing that we're currently planned on exiting.

All right great. Thank you.

Sure.

We have a follow up question from the line of Ric Prentiss with Raymond James Your line is now open.

Yes, Hey, guys couple of quick follow ups.

With the distribution coverage of 0.92, where do you think that heads in 2020, and specifically can you get it back above and stay a above one.

Yeah, that's a that's our expectation as the development projects are completed as some of the acquisitions that we've completed.

Contribute revenue.

We should start to see improvement in the coverage ratio. The first quarter, we always have a little bit of seasonality in that quarter. So I wouldn't expect.

Big improvement in Q1, but as we look out over the course of 2020, we are expecting that the coverage ratio will improve and exceed one times as we get to a lot of for the year.

Okay.

And I think Tim earlier on the call you said look for some more details on the one Q, calling that we keep looking for those details every call what should we be looking for on the ones you call that you're gonna be able to to help us understand with some of these new project. What specifically are you thinking it will provide us.

I think there might be.

Additional detailed Rick on the deployments in the three projects that we've talked about.

In the past, but as George said, yes. These are subject to a variety of different external factors a little bit outside of our control, we're very confident about where we're headed with the strategy but.

We will will share as much information as we cannot be appropriate time.

Okay, and then one of the things going on in the wireless World is a auctions.

Crs auction is being teed up for.

June of this year late June of this year.

Being seen as being maybe a spectrum used indoor for a menus and buildings have you had any discussions.

With different parties, whether it's real estate owners or carriers as far as participating in that given you might be on some of the rooftops.

Not specifically related Crs I mean, we've looked at different opportunities over the years about doing the in building.

Type deployments, but that has not been our our focus and we havent.

I haven't done any to date, we do think it's an interesting opportunity I think CBR us in general.

Presents an opportunity for the portfolio whether.

But it ends up being.

In building on some of the the projects that we have or.

For deployment on rooftops I think there is some.

Opportunity there and we are seeing a lot of chatter.

I would say in the industry about CBR as deployment. So we're optimistic that that we'll see some.

Incremental benefit flow to our portfolio from CBRN.

Okay. Thanks for the extra questions.

Sure.

I will conclude today's question and answer session I'd like to turn the call back to Mr. bracing for closing remarks.

Thank you and thank you all for joining us today as George and I've said, we think we're in a great position for 2020, we're excited about the opportunities we have in front of us, especially as we continue to ramp up the deployment throughout the remainder this year.

Confidence that our strategy in the projects.

Have a meaningful impact on our results overtime and we expect to share those details with you on the next earnings call and throughout the remainder of year. So thanks again, everybody have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Thanks.

[music].