• Seeking Alpha Bearish on Landmark

    Landmark Infrastructure Stock January 1, 2018 to April 24, 2018

    Landmark Infrastructure Partners stock is down 22% since the first of the year.  Alacran Investments explains why in a bearish article published at Seeking Alpha.  Alacran has a  short position in Landmark (LMRK) so take the analysis with a grain of salt.  The thesis is that Landmark, a purchaser of tower, out of home and renewal energy leases and easements, is over-leveraged with a conflicted business model, an inability to afford the current dividend and that the stock is overvalued by 25-50%.

    Conflict of Interest

    Alacaran points out that the number of properties that LMRK owns has grown from 701 sites at the end of the 4th quarter of 2014  to 2,239 sites at the end of 4thquarter 2017.  Over 80% of the acquisitions come from private equity funds that are managed by the general partner of LMRK. Alacran sees this as a red flag and supports it with an observation that LMRK pay their own funds purchases at higher multiples than they pay third parties.

    Expensive Acquisitions   

    Alacran states that Landmark has been acquiring properties at a 5%-6% cap rate.  Insider is skeptical of this claim because it is based on 2015-2016 transactions and the data isn’t broken out by sector.  A 5-6% cap rate equates to a  an 16-20 EBITDA multiple for lease and easement purchases.     Recent articles by Insider and Paul Wright of SignValue suggest those prices are high compared to historical market values.   Acquiring at a 5-6% cap rate doesn’t makes sense when your weighted average cost of capital is 6.38%.

    Leverage

    LMRK’s leverage has gone from 5.9x debt/EBITDA as of 12/31/14 to an annualized 8.7x debt/EBITDA as of 12/31/17. Actual annualized leverage is even higher if you include preferred stock into the mix, taking leverage to 10.43 times EBITDA.  Insider is skeptical of whether Debt/Cashflow above 6:1 is sustainable for any company.  It’s a good think that Landmark is hedging interest rate exposure.    Looks to Insider like 93% of Landmark’s leases and easements have escalators while only 20% of the company’s debt is floating once you give effect to interest rate swaps.

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