With the MLP sector devastated by the energy slump, this week I want to highlight another unconventional partnership. It was a year ago in November that Landmark Infrastructure Partners (NASDAQ: LMRK) took its unique MLP public.

Landmark Infrastructure Partners was formed by Landmark Dividend to acquire, own and manage a portfolio of real estate leased to companies in the wireless communication, outdoor advertising and renewable power generation industries. Landmark provides land for cellular towers, rooftop wireless sites, billboards and wind turbines. These assets have a 98% occupancy rate and a 99% historical lease renewal rate; 94% of the leases contain rent escalators.

The partnership intends to grow with the aid of these automatic increases as well as lease modifications and renewals, drop-downs from the sponsor and acquisitions from third parties. Since its IPO, Landmark has acquired five drop-downs with a total of  512 tenant sites for approximately $170 million. Following these deals, it owns 1,207 tenant sites (an increase of 72% since the IPO) in 48 states and the District of Columbia.

Approximately 86% of Landmark’s leased sites are occupied by large, publicly traded companies (or their affiliates) with a national footprint. More than half of LMRK’s revenue in the most recent quarter came from wireless carriers. Tenants include AT&T Mobility, Sprint, T-Mobile and Verizon in the wireless carrier industry, American Tower, Crown Castle and SBA Communications in the cellular tower industry and Clear Channel Outdoor, Outfront Media and Lamar Advertising in the outdoor advertising industry.

Source: partnership presentation

In the most recent quarter, the partnership generated adjusted EBITDA of approximately $5 million and distributable cash flow of $3.8 million. For the nine months ended Sept. 30 Landmark posted a net loss of $2.1 million, EBITDA of $4.9 million, adjusted EBITDA of $12.4 million and distributable cash flow of $9.3 million.

Following Q3 the partnership declared a quarterly cash distribution of $0.3175 per limited partner unit, or $1.27 per unit on an annualized basis, for a current yield of 9.5%.  The distribution represented a 10.4% increase over the minimum quarterly distribution and was up 3.3% from the second quarter.

Further drop-downs are expected by year end, and Landmark expects  to exceed the minimum quarterly distribution by 12% to 15% in the fourth quarter. This implies an expected annualized yield of 9.6% to 9.9% based on the current price.

Last year’s IPO raised $50 million from 2.65 million common units priced at $19 apiece. They opened for trading at $18.75. In May, a secondary offering of 3 million units at $16.75 raised another $50 million. Total return since the IPO stands at -30%, partly in a reflection of the general souring on MLPs and other yield plays. But for investors looking for the tax advantages of a master limited partnership while avoiding the energy sector, Landmark Infrastructure Partners may very well fit the bill.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

Portfolio Update

Filling Up on Global  

Things have certainly rolled downhill fast for MLPs which have traded for the past six weeks especially as if the entire U.S. oil and gas gathering, processing and distribution system might vanish at any moment, leaving consumers to look after their energy needs Mad Max style.

Even in this tape, November and December have so far been particularly bleak for Global Partners (NYSE: GLP), which has lost 52% of its market value over that span.

Global is mostly a gasoline distributor to its network of 1,530 affiliated East Coast filling stations these days. This business is booming as cheap fuel encourages more driving and more snacks bought at convenience stores next to the pumps; it will continue to generate plump and predictable profits so long as gasoline stays reasonably inexpensive.     

But Global has also gotten into the Bakken crude-by-rail logistics business, which at current oil prices and differentials has lost much of its economic rationale. This sideline isn’t going to disappear next month: a key contract to bring Bakken crude to Albany, NY by train and then by barge to East Coast refineries has two more years to run, for starters. But right now the modest ongoing investments to ship more Bakken crude to the West Coast and the Gulf of Mexico look like a waste, and certainly a distraction to investors.

The gasoline distribution and station operations, which have expanded dramatically following recent acquisitions of two complementary station networks, accounted for 77% of Global’s margin in the most recent quarter. Wholesale crude and fuel sales to refineries and dealers made up another 20% of total segment margin and, and their profitability was down 58% year-over-year following the loss of a big gasoline account and as a result of a margin-sapping fuel glut.

In mid-November, with GLP units still fetching $26, these negatives and the resulting slowing distribution growth prompted us to downgrade GLP to Hold.

Now that they’re down to less than $16, it’s time to focus on the many positives. The distribution backed by steady filling station profits is secure, with coverage recently  declining to a more than respectable 1.25x, from a cumulative 1.5x or so over the last decade. Though the recent station acquisitions have significantly expanded both the debt and the equity float, leverage remains reasonable at a debt/EBITDA ratio of 3.9 (though that rises to nearly 5 if you factor in a working capital facility.)

Crucially, capital spending needs are modest and deferrable. That’s a good thing, because Global is effectively barred from raising more equity at the moment by its units’ current yield of 17.8%.

Cash flow from filling station operations would support a double-digit yield even if gasoline demand fades some and yet the wholesale margins don’t recover. And that makes Global an excellent portfolio stash at the current price, the more so since it doesn’t need higher crude prices to continue delivering reliable income.

The near-term results in the wholesale will be hurt by the recent warmth, but should be offset somewhat by higher gasoline sales. And weather quirks aside, the push to bulk up that side of the business now looks farsighted.  

Growth pick GLP is a Buy again below $21.        

— Igor Greenwald