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For A Triple-Net Lessor, Landmark Isn't The Worst Inflation Hedge


  • The Fed announcement yesterday has made something very clear: easing is our mandate.
  • Inflation might be under control in consumer prices, where it's already impacted asset prices with retail money pouring in, but if it's not it could kill a portfolio.
  • Lessors aren't necessarily bad, but many would be if they have long duration leases with small built-in escalators.
  • Landmark has some CPI-indexed leases, but they benefit mainly from quite short leases on outdoor assets as well as revenue sharing schemes.
  • Overall, not bad for the yield prospects despite being a lessor.

Inflation is the flavour of the day for portfolio managers, where some of the sharper sell-offs occurred with the weaker inflation hedges in the market. The Fed has made clear their intention to continue easing, and thus their mandate is squarely economic growth, rather than inflation. We believe in the threat that inflation poses, despite not having seen it in decades, and are managing our portfolio accordingly towards commodities and other exposures that are more favourable in this sort of environment. One of the stocks that was often on our watch-list, Landmark Infrastructure Partners (NASDAQ:LMRK), has become an idea we expect to be disrupted since it relies on leases, with fixed payments or relatively modest and unchangeable escalators. However, relative to what we expected from a lessor, Landmark is actually a reasonable inflation hedge, although not great. It manages thanks to its outdoor assets in particular, as well as some explicit inflation hedging. With contract durations being relatively skewed to the short side, the picture does not warrant an excessively bearish view.

Landmark Portfolio

Its ability to withstand an inflationary environment ultimately comes down to its portfolio composition. The first and most obvious contributor to inflation resilience is the average duration of the leases for its assets.

(Source: SEC.gov, FY 2020 10-K LMRK)

Looking at the durations excluding the possibility of renewal gives us an idea for how long LMRK is going to be stuck on modest escalators, averaging at around 2.5%, not suited for a potentially inflationary environment. A good 20% of leases are ready to be renewed and can be at more fair market rates that will incorporate inflation risk if inflation continues to become a more prominent problem. 50% of income is very locked up for the foreseeable future. However, the average lease duration is 5 years excluding renewal periods, so much of that locked up

This article was written by

The Valkyrie Trading Society is a team of analysts sharing high conviction and obscure developed market ideas that are likely to generate non-correlated and outsized returns in the context of the current economic environment and forces. They are long-only investors.

They lead the investing group The Value Lab where they offer members a portfolio with real time updates, chat to answer questions 24/7, regular global market news reports, feedback on member stock ideas, new trades monthly, quarterly earnings write-ups, and daily macro opinions.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (22)

Dr. Tan profile picture
What does it mean that it declared a $0.80 dividend. This is much higher than prior dividends. This seems rather bullish.
Interesting article but I'd consider the risk of leases lagging inflation to be secondary to the near term opportunity for LMRK that to me looks like solid BUY here at $12 with 50% upside to its 2020 trading range and a well-covered dividend that management prudently trimmed last year in the wake of the pandemic. As a "reopening" trade, LMRK is sure to benefit from return to more normal road traffic levels and continues to be a play on 5G and renewables. Stock just jumped on exceeding prior quarter's earns estimates and they have a growth asset acquisition strategy going forward. What's not to like ?
looks like the market / other bidders have woken up to LMRK being worth more than $13/shr... :)
Disagree with the premise that inflation poses a significant threat in the US. This is due to the US population, which is aging and not expanding, similar to Japan over the last 30 years. Inflation in Japan has only rarely, and very briefly, exceeded 2% over the past 25 years. Same is likely to happen in the US.
You get what you pay for ; REITS are and so are MLP's. The difference between the two justify the risks and rewards .
Will104 profile picture
Have held the pref for ages, avoided the common as was over distributing

Bought into the ords post divi cut

There’s a bit of inflation protection, but the longer leased assets which aren’t so well inflation protected are given current sp and multiples valued at much less than they should be
estebanlang profile picture
I sold liquidity covered LMRK puts at a $12.50 strike for $1.92 a few weeks ago. If they work out it would leave me owning LMRK at about a $10.60 basis. Just a thought for those who like the asset but not the price...
@estebanlang good move ~ just did the same :)
Preferred Stock Trader profile picture
Seems the debt side should be of more concern than the asset side. The assets should increase in value with inflation. The question is, what will happen to their interest expense if a higher inflation environment takes hold.
Gridbird profile picture
@Preferred Stock Trader, I got the solution for that potential problem. Cut the common distribution to pay the increased interest and then continue paying my preferred. :)
@Gridbird seems like they prudently trimmed the common div. last year at the onset of the pandemic ~ seems well covered at this stage. going to be a while before their interest expense ticks up dramatically and new acquisitions should kick in by then. I can't see any reason for this to not rebound to $17-20 this year
Gundament profile picture
Landmark makes 5G towers. That alone should spark some more interest.
Valkyrie Trading Society profile picture
@Gundament yes the infrastructure is great, and they're moving away from outdoor which is the more risky area
As a owner of both the common and preferred units, I'm guessing those outdoor emplacements will soon be bristling with 5G mini transmission units, significantly increasing opportunities for future cash flow.
Valkyrie Trading Society profile picture
@DickMorton yes, for a lot of those billboards you'd think so. still have to build it out though!
WSLegend profile picture
Isn’t Landmark still a MLP? Has not converted to a REIT yet and therefore still issues a K1 ?
@WSLegend yes it still is.
Valkyrie Trading Society profile picture
@WSLegend my bad gents, as European investors we barely pay any attention to that sort of thing
Will104 profile picture
@Valkyrie Trading Society

Yep we get hit with our 15 percent WHT either ways

It’s a positive for me in that I’m getting a higher yield than would otherwise as price would have been higher if it was a REIT (though of course better still to convert now that I’ve bought)
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