Q1 2021 Landmark Infrastructure Partners LP Earnings Call
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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 speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please.
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I would now like to hand, the conference over to your Speaker day, Marcelo Choi Vice President Investor Relations. Please go ahead.
Thank you and good morning.
To welcome you to landmark infrastructure partners first quarter earnings call today, we will share and operating and financial overview of the business and we'll also take your questions. Following our presentation.
Presenting on the call today are Jim <unk>, Chief Executive Officer, and George Doyle, Chief Financial Officer.
And like to remind all participants that our comments today will include forward looking statements, which are subject to certain risks and certainties and.
And number of factors and uncertainties could cause actual results and future periods to differ materially from our current expectations.
So a complete discussion of these risks we encourage you to read the partnership's earnings release and documents on file with the SEC <unk>.
Additionally, we may refer to non non-GAAP measures such as <unk> <unk>.
So EBITDA and adjusted EBITDA during the call. Please refer to the earnings release, and our 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 and thank you and thank you all for joining us today and.
And 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 taken 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.
And clearly pointing to the strength and stability of our portfolio.
Rental revenues were significantly higher year over year, driven by the data center acquisitions made in the second half of 2020.
Those assets were acquired as we redeployed the capital from the sale of our interest and our European outdoor advertising joint venture.
<unk> per unit was very strong again this quarter and 37 cents per unit. We reported this quarter was a leading indicators showcasing our continued progress.
And so you can see from this quarter's results.
Portfolio remains extremely stable and continues to deliver year over year growth.
Our wireless communications and digital infrastructure and renewable power generation assets continued 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 a central roles and the world today and these industries have generally performed very well and 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 and our outdoor advertising segment revenues beginning in the second quarter of 2020.
We've seen higher revenue and each of the last two quarters as the impact of the pandemic continues to ease.
The outdoor advertising industry has been and recovery phase since it reached the lowest level of outdoor advertising activity at the end of last year's second quarter.
And the 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.
Spending on outdoor advertising is expected to increase significantly going forward as.
And as rising vaccination rates across the country are anticipated to lead to further increases in business openings and greater capacity, especially in those key markets for the outdoor advertising industry, including movies and entertainment as well as travel retail and fitness among others.
And as outdoor advertising industry revenues rebound.
Landmark stands to benefit from higher rental revenues through contractual escalators and percentage rent provisions.
We are increasingly optimistic that the worst is behind us for the outdoor advertising segment and believe that the industry is well positioned to take advantage of the recovery.
As far as our overall business strategy is concerned our focus remains on our higher return development projects and some select acquisitions with an emphasis on data center assets.
We did not make any significant acquisitions and the first quarter.
With regard to our development projects, while the pandemic has slowed the overall pace of our deployments and we made further progress this quarter with landmark vertex, our stealth wireless infrastructure offering and dark our existing program with the Dallas area Rapid transit system.
We continue to move forward with various deployments of vertex.
And with regard to our dark project, we placed 89 digital kiosks into service and the first quarter.
Which brings the total number of installed kiosks and service to 201 as of March 31.
While dark Red Bull revenues are not yet meaningful we expect to see a ramp up and the following quarters as advertising spending on installed kiosks increases and more kiosks are placed into service.
Despite the first quarter typically being impacted by lower revenue on <unk>.
And assets at.
Hello, Mark Kaye posted another very strong quarter with distribution coverage, well above one times and the first quarter.
While the decision to reduce the distribution level about a year ago was not an easy decision to make.
In hindsight, we believe it was the prudent thing to do and the correct decision to make given the circumstances.
The excess cash flow generated by our portfolio beyond the current distribution level has allowed the partnership to execute on accretive acquisition opportunities that have led to year over year growth and <unk> per unit and excess of 10%.
We're encouraged by the improving business trends that we've seen and the stability of our portfolio.
Even through the most challenging periods of the pandemic.
We will continue to reassess the distribution level, but today, we are increasingly confident that the risks to our business associated with the pandemic are declining and our portfolio can support a higher distribution level.
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, our portfolio generated another strong quarter of operating results. Despite the impacts on the pandemic.
We continue to see strong performance from our wireless digital infrastructure and renewable power generation segment and.
And after a couple of quarters of declining rental revenue and our outdoor advertising segment during 2020.
We've seen an uptick and segment revenue and 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 and 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 generate across the portfolio.
Moving on to <unk> and asset sales.
<unk> per diluted unit was <unk> 36, this quarter compared to <unk> in the first quarter of last year.
As we have discussed on prior calls.
<unk> can fluctuate quarter to quarter, depending on the change and the fair value of our interest rate hedges.
As well as various other items, including foreign currency transaction gains and losses.
<unk>, which excludes these gains and losses on our interest rate hedges.
And other items.
37 per diluted unit this quarter.
Compared to <unk> 33.
And the first quarter of last year.
Representing 12% growth year over year.
The slight decline and <unk> per unit this quarter.
From the fourth quarter of last year.
And was primarily due to the typical seasonal decline.
And renewable power generation rental revenue and 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 our asset class.
And we have no scheduled maturities until November 2022.
In terms of liquidity.
We ended the quarter with approximately $9 million and 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 increase and administration of vaccine and the slow reopening of the economy.
The board decided to maintain the 20 <unk>.
And our unit distribution this quarter.
To preserve capital and financial flexibility.
Based on this level of distribution.
Our distribution coverage ratio for the first quarter.
It was 184 times.
As Jim stated, we believe that our portfolio will support a higher distribution level after the pandemic subsides.
But for the first quarter, we believe that it is prudent and maintain the distribution at the current level.
We will continue to monitor the impact of the pandemic on our portfolio and we'll continue to reassess the distribution level over the course of the year.
Looking ahead for the remainder of 2021.
We will look to be opportunistic with our core ground lease business.
And May include select data center acquisitions.
But our focus remains on our existing high return development projects.
And which include our Dart program as well as select vertex deployments across North America.
In summary.
Despite the near term challenges from the pandemic, our portfolio continues to perform well and <unk>.
And this quarter's financial results.
Sure.
Our portfolio is diversified and well positioned to deliver growth and 2021.
We will now take your questions.
As a reminder to ask a question you will need to press star one of your telephone to withdraw your question press the pound key.
Please stand by while we compile the Q&A roster.
Our first question comes from Ric Prentiss with Raymond James Your line is open.
And this could.
Afternoon or morning, everyone.
Hey, good morning, Rick.
Yes.
I want to start the questions, obviously pretty clear not a lot of acquisitions on the ground space, but possibly some on the data center 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 youre.
You are looking to deploy this year and maybe even particularly with the dark per.
Tax projects.
Sure I think in total for 2021 will deploy about $20 million into.
Capex.
I will say debt will be.
Probably.
And two thirds related to Dol and about a third related to.
Deploying vertex infrastructure.
And then on the acquisition side I expect it to be somewhat limited near term as we want to focus on deploying the capital that we have today on the development activities, but if there are some select opportunities.
And we may pursue them on the.
And the data center side of things, we think that area provides the most attractive attractive risk adjusted.
Adjusted returns at this point and time.
And so a ballpark of about $14 million for development and 7 million per acquisitions kind of and as a rough.
Spread.
No I think it'll be.
$20 million and development.
And yeah, and then on the acquisition side of things. It really is going to depend upon what type of opportunities we see but.
And I believe at this point will be somewhat limited.
Got you got you. So the two thirds was really what would be pretax.
Yes, the two thirds is for Dart and then a third for sorry partners yes.
Yes, okay.
On a day already.
And also.
On the longer you Susan on the on the G&A side.
And I think it is it to November that <unk> got the capital and contribution.
On the sponsors and what's the thought about looking at renewing that or the possibility of where nine out of the timeframes can and do that.
Yes.
That discussion is still going on internally we havent.
<unk>.
And the sponsor Hasnt made.
Commitment to change that at this point and time.
We're considering a number of factors there.
Certainly the.
Company.
And has grown substantially since the date that the G&A reimbursement was put in place and that doesn't need it.
And the extended debt at inception, so those discussions are ongoing and when we have a little bit.
More clarity as to what.
Bowles Hall will be then we'll share that.
Okay and kind of a detailed modeling question it looked like the number of sites.
Sites locations and leases.
For wireless change 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 and T mobile merger.
Yes, so far where we're seeing very little decommission activity from.
T mobile as it relates to the historical sprint sites. They are trickling and we tend to see.
A couple.
Per quarter this quarter and Q1, we had only once per insight that decommission so.
Certainly there is.
Integration activity going on there, but it's not.
We are showing.
Showing up and churn or and decommissioning at this point in time as.
And as far as the number of sites that we have and the wireless segment some of those.
Our real estate interest.
Terminated.
We have been a lot of our arrangements.
Limited period of time to re leased the site and if there is no.
Re leasing activity than the <unk>.
I would revert back to the property owners and so that's what you're seeing and the decline and the number of sites that we have.
Got you and Patrick so and actually occupancy went up some because you got rid of the size of that didn't have any leases on and I guess it is kind of the way it plays out.
Yes, exactly yes. After so many years trying to really society and it's not being released and then.
The likelihood it's going to be released its pretty low so.
And most cases, they revert back.
Alright, thanks, everyone.
Stay well.
Thank you you too.
Thank you once a day. Thank you wish to ask a question at this time. Please press Star then one are you touched on the telephone. Our next question comes from Liam Burke with B Riley. Your line is open and thank you and good morning, Tim and good morning George.
Hey, good morning Liam.
You laid out pretty clearly what your capital allocation is and where youre going to direct it but does that completely shut out any thoughts on additional infrastructure build out projects or traditional investments or cellular.
No it doesn't.
We just don't see those as.
And our main focus at this point and time, there there may certainly be opportunities there and.
And there may be additional.
<unk> projects.
We identify or certain acquisition opportunities that we think that will be somewhat limited. The main the main focus right now is big and the developments that we have and and potentially some select data center acquisitions.
And on the data Center front.
Are you seeing sufficient opportunities at the right price or is it.
And does that become more competitive.
Yes, I would say with the with the decline in interest rates and the performance of that.
<unk>.
Asset class over the last couple of years.
We do see and increasing the amount of interest and data centers. So we have seen a little bit more competition, but we still think there is lots of opportunity as I mentioned earlier, we think the.
And the risk adjusted returns there are very attractive at the moment, especially when you think about the financing rates on on data centers data centers Securitizations. The most recent ones.
For five year debt had been around the 2% range, so it's pretty attractive.
Cost of debt financing on those assets.
Great. Thank you George.
You bet.
Thank you and our next question is a follow up and Ric Prentiss with Raymond James Your line is open.
Yes, thanks, guys I figured.
No other questions jump back in queue.
How should we think about target coverage ratio obviously.
And closer to two and one is <unk>.
Hi.
Some.
Some protection and comfort as Youre getting through COVID-19, but how should we think about where you wanted to stabilize more medium to long term.
Okay.
And so good question and that's part of.
The discussions we'll have with the board when we.
And when the board ultimately changes the distribution from the 2000 and per unit.
We do want cut.
Coverage, obviously and place.
Yes.
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.
And that will have still.
Decent coverage, but its something that debt.
Will.
And again, one of those items that will have to provide more color on it and the future.
Discussions regarding.
Regarding the raise raising the distribution with the board continue.
Thanks.
And.
<unk> growth so part of that strategy and 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.
Sure on the.
On the growth side of things certainly retaining capital gives us more.
Capital for acquisition opportunities and certainly can.
And drive more growth. So there's a there's a bit of a trade off there between accessing capital.
Relative to distributing it.
But again, that's something we'll have to evaluate as we.
You'll move closer to raising the distribution on the.
On the conversion to a REIT structure, and we're still a bit a ways away from a size perspective, before we could consider and internally managed REIT structure.
You have to get considerably bigger and.
At this size I would say, our G&A would still be too.
Too high or too large relative to revenue.
To support debt internally managed REIT structure, so it's still something.
And that.
We're keeping in mind, but at this point.
Not really.
And near term opportunity I would say.
Alright and.
Follow up follow up follow up.
Any indications you're seeing from people about edge computing being there and where the land spots, we're hearing more and more of and the carriers and more and more from the tower guys still feels we're not quite there yet.
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.
Sure on the Ed side of things, we've heard we've heard that topic come up a lot over the years, we still have not seen major rollout edge computing. There is the net number of small deployments.
The test cases.
Pilots.
And.
<unk>, along those lines, but we still have not seen.
Major investment and lease up relative to edge computing doesn't mean, it won't happen one day, certainly, but we're just not seeing it yet still seems to be more.
Discussion topic than anything else at this point and time.
As far as international markets.
I would say we.
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 and.
I don't think we will we will end up focusing and beyond those markets, but currently I would say given the.
And the attractive return profile of what we can identify and the U S. It's going to be our probably our primary focus for a while.
Makes sense. Thanks again.
Absolutely.
Thank you and I'm currently showing no further questions at this time I'll turn the call back over to Ken Bernstein for closing remark.
Thank you operator, and thank you all for joining us this morning.
As you heard we're encouraged by a lot of other positive developments that we see and 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 one.
You and your families well. Please please continue to be careful and stay safe and.
And we will talk to you again next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
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