Landmark Infrastructure Partners LP Sells a Tasty Preferred
By: Tim McPartland,
While we continue to be leery of buying most master limited partnership units (master limited partnership shares are called “units”) we are not averse to buying preferred units if the reward is adequate. Landmark Infrastructure Partners LP (NASDAQ:LMRK) has sold new preferred units with a coupon of 7.90% and in these days of low coupon issues this one looks pretty good to us and we plan to purchase some of these units for ourselves, as well as for the Blended Income Portfolio. While the units are perpetual and we prefer to hold shorter duration securities since long term securities will take a severe hit when interest rates rise there is no predicting what year we will see any significant interest rate increases.
LMRK is a partnership that owns interests in real estate assets upon which cell phone towers, billboards and solar farms are built. Honestly this is a straightforward partnership since the leases provide for contractual rent increases making the forecasting of revenue relatively uncomplicated.
At this time the majority of partnership revenue is generated by the assets underlying wireless infrastructure, with 18% being attributed to outdoor advertising (billboards) and 2% to solar assets. In total LMRK has 1119 locations underlying 1,450 assets (a location can have more than 1 piece of infrastructure on top of it).
During the quarter ending 6/30/2016 the partnership generated near $5 million in distributable cash which is mainly used for distributions to common unit holders. This provides a margin of safety for preferred unit holders as distributions to common holders could be reduced or even eliminated to support payments to preferred holders.
These new preferred units are cumulative, a desirable feature, and they have the normal optional redemption date approximately 5 years after issuance. The distributions will not be qualified for tax purposes (they will be taxed at ordinary tax rates). Additionally, being a master limited partnership (MLP), the distributions will generate a K-1 at tax time.
We note that LMRK has one other preferred issue outstanding which has a 8% coupon and is trading around $25.80/share and we believe the new issue will trade into the same price range over the course of the next month.
The new issue is slated to trade on the OTC Grey Market starting on Friday. For those interested in trying to buy shares “wholesale” our primer on this market is here.