Landmark Infrastructure Partners LP (NASDAQ:LMRK) Q2 2021 Results Conference Call August 4, 2021 12:00 PM ET
Marcelo Choi - VP, IR
Tim Brazy - CEO
George Doyle - CFO
Hello. Thank you for standing by, and welcome to the Second Quarter 2021 Landmark Infrastructure Partners LP Earnings Conference Call. [Operator Instructions] This call is limited to prepared remarks. Please be advised that today’s conference is being recorded. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Marcelo Choi, VP Investor Relations. Please go ahead.
Thank you, and good morning. We’d like to welcome you to Landmark Infrastructure Partners’ Second Quarter Earnings Call. Today, we’ll share an operating and financial overview of the business.
Presenting on the call today are Tim Brazy, Chief Executive Officer; and George Doyle, Chief Financial Officer. I would like to remind all participants that our comments today will include forward-looking statements, which are subject to certain risks and uncertainties. A 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 SEC.
Additionally, we may refer to non-GAAP measures such as FFO, AFFO, 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.
Thank you, Marcelo, and thank you all for joining us today. I hope that everyone is doing well and continuing to manage through what are still uncertain times. As you saw from our release this morning, we posted another quarter of solid operating and financial results as LMRK’s portfolio continues to generate stable and consistent cash flows.
Rental revenues were significantly higher year-over-year, driven by the redeployment of capital from the sale of our interest in our European outdoor advertising joint venture last year. Those proceeds were primarily used to acquire data center assets in the second half of 2020. AFFO per unit in the second quarter was higher year-over-year and slightly higher compared to the first quarter.
As expected, our wireless communication, digital infrastructure and renewable power generation assets, have generally not been impacted by the pandemic. Our outdoor advertising segment, which has been the segment most affected by the pandemic, saw a slight decline in rental revenues in the second quarter compared to the first quarter, which was the first sequential decline since the third quarter of 2020 after 2 straight quarters of improvement.
We continue to expect the outdoor advertising industry to rebound over the longer term, and we remain optimistic that the worst is behind us for the outdoor advertising segment, and believe that the industry is still well positioned to take advantage of the recovery. Near term, our focus still remains on our development projects and select acquisitions.
As expected, acquisition volume has been extremely light year-to-date, with a total of 4 acquisitions through June 30 for total consideration of approximately $1.6 million. These assets are expected to contribute about $145,000 in annual rents.
With regard to our development projects, while the pandemic has slowed the overall pace of our deployments, we made further progress this quarter with Landmark Vertex, our stealth wireless infrastructure offering; and DART, our existing program with the Dallas Area Rapid Transit system.
With regard to our DART project, we placed additional kiosks into service in the second quarter, which brought the total number of installed kiosks into service at 235 as of June 30. DART rental revenues have not been meaningful yet and may not ramp up as quickly as anticipated. Although we’ve seen outdoor traffic activity rebound to pre-pandemic levels in many parts of the country, mass transit ridership numbers continue to lag and we’ve seen a slower recovery path.
If the infection rate stays at a higher level or continues to increase due to the variance, ridership recovery may take longer than expected. The lower transit ridership has hindered our ability to drive advertising rental revenues on the digital kiosks placed within DART’s footprint.
While we fully believe these trends are temporary and that ridership will normalize once the pandemic subsides, this has contributed to lower-than-expected rental revenues for our DART kiosks in the interim.
Before I turn it over to George, I would like to briefly touch on the acquisition of the sponsor by DigitalBridge Group and its proposal to acquire the outstanding common units of LMRK. LMRK’s Conflicts Committee, which is made up entirely of the general partners 3 independent board members has been reviewing the acquisition proposal together with its own independent legal counsel and financial adviser.
We don’t know how long the process will take or if a transaction will be consummated, but of course, we’ll provide an update as things progress.
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 continues to perform as we had another quarter of solid operating results.
Rental revenue for the quarter was $17.6 million, which was 27% higher year-over-year and 2% higher versus the first 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 in the second half of 2020 as well as organic growth generated across the portfolio.
During the second quarter, 3 Sprint sites were decommissioned with annual rents of approximately $0.2 million. Looking ahead to the back half of 2021, 9 Sprint sites are scheduled to decommission, including 3 sites in the third quarter. We have recently seen a pickup in Sprint terminations. But as we have discussed in the past, in the longer term, we expect some offsetting revenue as wireless carriers continue to deploy 5G equipment and expiring leases are renewed at higher rates.
Moving on to FFO and AFFO. FFO per unit was $0.35 this quarter compared to $0.19 in the second 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 $0.38 per diluted unit this quarter compared to $0.33 in the second quarter of last year, representing 15% growth year-over-year. The slight increase in AFFO per unit this quarter from last quarter’s level was primarily due to higher revenue from renewable power generation leases that contain revenue-sharing provisions and organic growth from the overall portfolio.
As you may have seen in our press release this morning, our sponsor has informed us that it intends to let the cap on G&A reimbursement expire in November 2021. And it will seek reimbursement for expenses that it incurs for services provided to the partnership. The expiration of the G&A cap and reimbursement of expenses incurred for services provided to us is expected to negatively impact AFFO for the partnership beginning in the fourth quarter of 2021.
During the year ended December 31, 2020, in the 6 months ended June 30, 2021, the expense reimbursement from the sponsor totaled $3.3 million and $1.4 million, respectively.
Now turning to our balance sheet. We ended the second quarter with approximately $223 million of outstanding borrowings under our revolving credit facility. We continue to see very attractive financing rates for our asset classes and we have no scheduled maturities until November 2022.
In terms of liquidity, we ended the quarter with approximately $12 million in cash and $227 million of undrawn borrowing capacity under our revolving credit facility, subject to compliance with certain covenants. Including our interest rate hedges, approximately 85% of our outstanding debt is either fixed rate debt or borrowings that have been fixed through interest rate swaps.
Regarding our distribution, the Board declared a distribution of $0.20 per unit. Based on this level of distribution, our distribution coverage ratio for the second quarter was 1.88x. We previously discussed expiration of the G&A cap and reimbursement of expenses is expected to negatively impact AFFO and our distribution coverage ratio, along with the partnership’s borrowing capacity under its existing revolving line of credit.
In summary, our portfolio continues to perform well as seen in this quarter’s financial results. We see some headwinds in the second half of 2021 and with the expiration of the G&A cap and additional Sprint churn, but remain positive in the longer term that our assets will continue to generate stable cash flows.
And with that, I’ll turn it over to Tim for closing remarks.
End of Q&A
Thank you, George, and thank you all for joining us again this morning. As we said, our portfolio is performing well. And while some near-term challenges remain, we’re confident our assets will continue to perform well in the long term.
Thanks again, and have a good day.
Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.