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The preferred shares of Landmark Infrastructure Partners present a solid income opportunity in the face of Covid-19 uncertainties. In the hunt for yield, we have embraced the durability of Landmark’s diversified revenue stream business model. We view the market generally through the prism of a sustainable cash flow picking market. In constructing our income and special opportunities portfolio, Southern Waters Capital is constantly searching and analyzing securities for consistent dividends. We have chosen to avoid bonds and stocks of retail malls, commercial office space, and other assets that appear to be cyclically related to the pandemic. We are bullish on LMRKP and LMRKO, both of which offer a favorable position in the capital stack with a non-correlated pandemic high-yield in a yield-starved environment.
LMRK Common Shares
Landmark Infrastructure Partners LP (NASDAQ:LMRK) focuses its business on developing and managing a portfolio of infrastructure assets and real property interests based in the United States. The company leases its assets to companies within the sectors of renewable power, wireless communication, and outdoor advertising. The real property interests underlie assets such as billboards, cell towers, wind turbines, and rooftop wireless sites. Below represents Landmark’s portfolio summary:
Source: 10/15/2020 LMRK investor presentation
There are many reasons why investors are bullish on LMRK’s stock and its long-term potential. LMRK provides a stable cash flow for investors through its portfolio of long-lived assets that carry effective triple net leases. The turnover rate is also historically low, with an average occupancy rate of 95% and a 99% historical lease renewal rate. As shown in the graphic above, there is significant diversification in Landmark’s portfolio with 2,058 tenant sites diversified across 48 states along with other various international locations. Landmark also has strategic locations leased to Tier 1 (large, publicly traded companies that have a national presence) tenants that contain difficult-to-duplicate locations in large populous centers. Around 79% of revenues are derived from Tier 1 tenants, and no single tenant accounts for more than 14% of the total revenue. Along with stable cash flow drivers, there are growth factors for Landmark such as 83% of the leases having contractual rent escalators and rent increases that occur through lease-up, revenue sharing, renewals, and lease modifications. Landmark also has an aligned sponsor committed to growth, with the sponsor owning a 13% common unit interest as of May 29th, 2020.
Key financial metrics have also been strong for Landmark. As of Q2 2020, FFO was about $4.8M and AFFO at about $8.4M. EBITDA for the three months (Q2) ended was $27.9M and adjusted EBITDA was $16.5M. Below shows a snapshot of other financial metrics over the past few years for LMRK:
Source: Yahoo Finance
Overall, Landmark is a fundamentally sound corporation with steadily growing financial strength. The business model shows high barriers to entry with stable, diversified cash flows and growth opportunities.
LMRK Preferred Shares
While the LMRK common stock seems attractive, the preferred stock shares a similar growth opportunity. Specifically, SWC Phoenix Fund is bullish on LMRKO and LMRKP. Below shows a summary of both securities:
While there is another series of preferred shares (NASDAQ:LMRKN), SWC is not particularly attracted to its dividend of $1.75 (7% yield) along with the shares having a “Floating-to-Fixed rate” feature that adds additional risk if the LIBOR continues to stay at historically low levels. LMRKO and LMRKP are fixed rates and can be redeemed, and the probability of redemption is something to monitor based on the strong cash flows. The quarterly AFFO before the preferred stock distributions is about $8 million and the quarterly preferred distributions are about $3 million which puts the dividend coverage of LMRK well above 100%. With the current price slightly below its implied value, this provides a safe source of income for investors being sold at a discounted share prices.
This high yield from Landmark’s preferred series is no desert mirage. SWC is bullish on LMRK preferred shares series O and P. The sound business model along with stable cash flows and growth opportunities make LMRK preferred shares an attractive investment. The preferred shares are backed by a strong dividend coverage with a high-income source and appreciation potential. At the current prices, we believe these preferred shares are being sold at attractive discounted prices and provide a solid income stream in the desert of yields.
We would also like to thank our Managing Director, Dean Myerow, who contributed to the article.
Disclosure: I am/we are long LMRKO, LMRKP. 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.