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EX-31.2 - EX-31.2 - Landmark Infrastructure Partners LPlmrk-20160331ex312679f65.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2016

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to                 

Commission File Number: 001-36735

Landmark Infrastructure Partners LP

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

61-1742322

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

2141 Rosecrans Avenue, Suite 2100,

P.O. Box 3429

El Segundo, CA 90245

 

90245

(Address of principal executive offices)

 

(Zip Code)

 

(310) 598-3173

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes      No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

Large accelerated filer  

 

Accelerated filer  

 

Non-accelerated filer  

 

Smaller reporting company  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

The registrant had 11,875,804 common units and 3,135,109 subordinated units outstanding at April 29, 2016.

 

 


 

LANDMARK INFRASTRUCTURE PARTNERS LP

Table of Contents

 

 

 

 

 

 

 

    

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

Item 1. 

 

Financial Statements:

 

 

 

 

 

 

 

 

 

 

 

Consolidated and Combined Balance Sheets

 

3

 

 

 

 

 

 

 

 

 

Consolidated and Combined Statements of Operations

 

4

 

 

 

 

 

 

 

 

 

Consolidated and Combined Statements of Partners’ Capital

 

5

 

 

 

 

 

 

 

 

 

Consolidated and Combined Statements of Cash Flows

 

6

 

 

 

 

 

 

 

 

 

Notes to the Consolidated and Combined Financial Statements

 

7

 

 

 

 

 

 

 

Item 2. 

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

25

 

 

 

 

 

 

 

Item 3. 

 

Quantitative and Qualitative Disclosures About Market Risk

 

38

 

 

 

 

 

 

 

Item 4. 

 

Controls and Procedures

 

39

 

 

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

 

 

Item 1. 

 

Legal Proceedings

 

39

 

 

 

 

 

 

 

Item 1A. 

 

Risk Factors 

 

39

 

 

 

 

 

 

 

Item 6. 

 

Exhibits

 

40

 

 

 

 

 

 

 

Signatures 

 

 

 

41

 

 

 

2


 

PART I. FINANCIAL INFORMATION 

Item 1. Financial Statements

 

Landmark Infrastructure Partners LP

Consolidated and combined Balance Sheets

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

December 31, 2015

Assets

    

 

    

    

 

    

Land

 

$

10,812,784

 

$

10,812,784

Real property interests

 

 

356,622,999

 

 

358,074,190

Total land and real property interests

 

 

367,435,783

 

 

368,886,974

Accumulated amortization of real property interests

 

 

(15,773,223)

 

 

(14,114,307)

Land and net real property interests

 

 

351,662,560

 

 

354,772,667

Investments in receivables, net

 

 

7,969,458

 

 

8,136,867

Cash and cash equivalents

 

 

410,688

 

 

1,984,468

Rent receivables, net

 

 

894,115

 

 

952,427

Due from Landmark and affiliates

 

 

1,555,977

 

 

2,205,853

Deferred loan costs, net

 

 

3,030,585

 

 

3,089,894

Deferred rent receivable

 

 

702,938

 

 

676,134

Other intangible assets, net

 

 

10,260,466

 

 

10,731,221

Other assets

 

 

1,353,764

 

 

1,206,949

Total assets

 

$

377,840,551

 

$

383,756,480

Liabilities and equity

 

 

 

 

 

 

Revolving credit facility

 

$

228,500,000

 

$

233,000,000

Accounts payable and accrued liabilities

 

 

1,128,996

 

 

1,683,062

Other intangible liabilities, net

 

 

11,497,661

 

 

12,001,093

Prepaid rent

 

 

2,943,962

 

 

2,980,621

Derivative liabilities

 

 

3,784,347

 

 

736,231

Total liabilities

 

 

247,854,966

 

 

250,401,007

Commitments and contingencies (Note 14)

 

 

 

 

 

 

Equity

 

 

129,985,585

 

 

133,355,473

Total liabilities and equity

 

$

377,840,551

 

$

383,756,480

See accompanying notes to consolidated and combined financial statements.

3


 

Landmark Infrastructure Partners LP

Consolidated and Combined Statements of Operations

 

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

 

2016

 

2015*

Revenue

    

 

    

    

 

    

Rental revenue

 

$

7,572,969

 

$

6,024,127

Interest income on receivables

 

 

203,347

 

 

207,310

Total revenue

 

 

7,776,316

 

 

6,231,437

Expenses

 

 

 

 

 

 

Management fees to affiliate

 

 

 —

 

 

76,080

Property operating

 

 

5,028

 

 

1,684

General and administrative

 

 

1,102,722

 

 

983,985

Acquisition-related

 

 

72,080

 

 

1,223,317

Amortization

 

 

2,002,284

 

 

1,538,380

Impairments

 

 

 —

 

 

2,762,436

Total expenses

 

 

3,182,114

 

 

6,585,882

Other income and expenses

 

 

 

 

 

 

Interest expense

 

 

(2,347,491)

 

 

(1,886,720)

Unrealized loss on derivatives

 

 

(3,048,116)

 

 

(872,498)

Gain on sale of real property interests

 

 

373,779

 

 

72,502

Total other income and expenses

 

 

(5,021,828)

 

 

(2,686,716)

Net loss

 

$

(427,626)

 

$

(3,041,161)

Less: Net loss attributable to Predecessor

 

 

 —

 

 

(149,498)

Net loss attributable to limited partners

 

$

(427,626)

 

$

(2,891,663)

Net loss per limited partner unit

 

 

 

 

 

 

Common units – basic

 

$

(0.03)

 

$

(0.37)

Common units – diluted

 

$

(0.03)

 

$

(0.37)

Subordinated units – basic and diluted

 

$

(0.03)

 

$

(0.37)

Weighted average limited partner units outstanding

 

 

 

 

 

 

Common units – basic

 

 

11,829,660

 

 

4,703,675

Common units – diluted

 

 

14,964,769

 

 

4,703,675

Subordinated units – basic and diluted

 

 

3,135,109

 

 

3,135,109

Cash distribution declared per unit

 

$

0.3300

 

$

0.2975

*Prior-period financial information has been retroactively adjusted for Acquisitions made under common control. See Note 3 for additional information.

See accompanying notes to consolidated and combined financial statements.

 

 

4


 

Landmark Infrastructure Partners LP

Consolidated and Combined Statements of Partners’ Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Landmark Infrastructure Partners LP*

 

Landmark Infrastructure

 

 

 

 

Common

 

Subordinated

 

Common

 

Subordinated

 

General

 

Partners LP 

 

Total

 

Units

 

Units

 

Unitholders

 

Unitholder

 

Partner

 

Predecessor*

 

Equity*

Balance as of December 31, 2014

4,702,665

    

3,135,109

    

$

74,683,957

    

$

29,745,957

    

$

12,349

    

$

44,749,002

    

$

149,191,265

Net income (loss) from Acquired Assets attributable to Predecessor

 —

 

 —

 

 

 —

 

 

 —

 

 

(310,764)

 

 

161,266

 

 

(149,498)

Net investment of Acquired Assets

 —

 

 —

 

 

 —

 

 

 —

 

 

(4,268,765)

 

 

133,092

 

 

(4,135,673)

Distributions

 —

 

 —

 

 

(632,174)

 

 

(421,358)

 

 

 —

 

 

(710,246)

 

 

(1,763,778)

Capital contribution to fund general and administrative expense reimbursement

 —

 

 —

 

 

 —

 

 

 —

 

 

692,872

 

 

 —

 

 

692,872

Unit-based compensation

1,010

 

 —

 

 

78,750

 

 

 —

 

 

 —

 

 

 —

 

 

78,750

Net loss attributable to partners

 —

 

 —

 

 

(1,735,147)

 

 

(1,156,516)

 

 

 —

 

 

 —

 

 

(2,891,663)

Balance as of March 31, 2015

4,703,675

 

3,135,109

 

$

72,395,386

 

$

28,168,083

 

$

(3,874,308)

 

$

44,333,114

 

$

141,022,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2015

11,820,144

 

3,135,109

 

$

179,045,366

 

$

25,941,274

 

$

(71,631,167)

 

$

 —

 

$

133,355,473

Net investment of Acquired Assets

 —

 

 —

 

 

 —

 

 

 —

 

 

1,016,439

 

 

 —

 

 

1,016,439

Distributions

 —

 

 —

 

 

(3,844,745)

 

 

(1,018,910)

 

 

 —

 

 

 —

 

 

(4,863,655)

Capital contribution to fund general and administrative expense reimbursement

 —

 

 —

 

 

 —

 

 

 —

 

 

799,954

 

 

 —

 

 

799,954

Unit-based compensation

9,840

 

 —

 

 

105,000

 

 

 —

 

 

 —

 

 

 —

 

 

105,000

Net loss attributable to partners

 —

 

 —

 

 

(334,626)

 

 

(93,000)

 

 

 —

 

 

 —

 

 

(427,626)

Balance as of March 31, 2016

11,829,984

 

3,135,109

 

$

174,970,995

 

$

24,829,364

 

$

(69,814,774)

 

$

 —

 

$

129,985,585

*Prior-period financial information has been retroactively adjusted for Acquisitions made under common control. See Note 3 for additional information.

See accompanying notes to consolidated and combined financial statements

 

 

5


 

Landmark Infrastructure Partners LP

Consolidated and Combined Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

 

2016

 

2015*

Operating activities

    

 

    

    

 

    

Net loss

 

$

(427,626)

 

$

(3,041,161)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Unit-based compensation

 

 

105,000

 

 

78,750

Unrealized loss on derivatives

 

 

3,048,116

 

 

872,498

Amortization expense

 

 

2,002,284

 

 

1,538,380

Amortization of above- and below- market lease

 

 

(321,006)

 

 

(286,745)

Amortization of deferred loan costs

 

 

196,972

 

 

354,590

Receivables interest accretion

 

 

(18,772)

 

 

(15,381)

Impairments

 

 

 —

 

 

2,762,436

Gain on sale of real property interests

 

 

(373,779)

 

 

(72,502)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Rent receivables, net

 

 

58,312

 

 

(175,473)

Accounts payable and accrued liabilities

 

 

(554,066)

 

 

759,266

Deferred rent receivables

 

 

(26,804)

 

 

(61,400)

Prepaid rent

 

 

(36,659)

 

 

(109,894)

Due from Landmark and affiliates

 

 

805,318

 

 

699,639

Other assets

 

 

(146,815)

 

 

70,713

Net cash provided by operating activities

 

 

4,310,475

 

 

3,373,716

Investing activities

 

 

 

 

 

 

Acquisition of land

 

 

 —

 

 

(2,934,456)

Acquisition of real property interests

 

 

 —

 

 

(17,804,796)

Proceeds from sales of real property interests

 

 

1,789,448

 

 

127,514

Repayments of receivables

 

 

186,181

 

 

167,708

Net cash provided by (used in) investing activities

 

 

1,975,629

 

 

(20,444,030)

Financing activities

 

 

 

 

 

 

Proceeds from revolving credit facility

 

 

2,500,000

 

 

24,000,000

Proceeds from secured debt facilities

 

 

 —

 

 

29,707,558

Principal payments on revolving credit facility

 

 

(7,000,000)

 

 

(1,000,000)

Principal payments on secured debt facilities

 

 

 —

 

 

(30,001,073)

Deferred loan costs

 

 

(137,663)

 

 

(1,747)

Capital contribution to fund general and administrative expense reimbursement

 

 

644,512

 

 

 —

Distributions to limited partners

 

 

(4,863,655)

 

 

(1,053,532)

Consideration received from (paid to) General Partner associated with Acquired Assets

 

 

996,922

 

 

(4,617,330)

Net cash provided by (used in) financing activities

 

 

(7,859,884)

 

 

17,033,876

Net decrease in cash and cash equivalents

 

 

(1,573,780)

 

 

(36,438)

Cash and cash equivalents at beginning of year

 

 

1,984,468

 

 

311,108

Cash and cash equivalents at end of year

 

$

410,688

 

$

274,670

*Prior-period financial information has been retroactively adjusted for Acquisitions made under common control. See Note 3 for additional information.

See accompanying notes to consolidated and combined financial statements.

 

 

6


 

 

Landmark Infrastructure Partners LP

Notes to the Consolidated and Combined Financial Statements

1. Business

Landmark Infrastructure Partners LP (the “Partnership”) was formed on July 28, 2014 by Landmark Dividend LLC (“Landmark” or “Sponsor”) as a master limited partnership organized in the State of Delaware and has been publicly traded since its initial public offering on November 19, 2014 (the “IPO”). References in this report to “Landmark Infrastructure Partners LP,” the “partnership,” “we,” “our,” “us,” or like terms for time periods prior to our IPO, refer to our predecessor for accounting purposes (our “Predecessor”) and for time periods subsequent to the IPO, refer to Landmark Infrastructure Partners LP.

The Partnership was formed to own a portfolio of primarily real property interests that are leased to companies in the wireless communication, outdoor advertising and renewable power generation industries.

Our operations are managed by the board of directors and executive officers of Landmark Infrastructure Partners GP LLC, our general partner (the “General Partner”). As of March 31, 2016, Landmark owns (a) our general partner; (b) 283,686 common units representing limited partnership interest in the Partnership (“Common Units”) and 3,135,109 subordinated units in us and; (c) all of our incentive distribution rights.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidated and Combined Financial Statements

During 2015, the Partnership completed eight drop-down acquisitions from our Sponsor and affiliates (the “Acquisitions” or “Acquired Assets”). The Acquisitions were deemed to be transactions between entities under common control, which requires the assets and liabilities transferred at the historical cost of the parent of the entities, with prior periods retroactively adjusted to furnish comparative information. Accordingly, the accompanying financial statements and related notes have been retroactively adjusted to include the historical results and financial position of the Acquired Assets prior to the acquisition dates as part of the Predecessor. The differences between the cash consideration of each acquisition and the historical cost basis, were allocated to the General Partner. All intercompany transactions and account balances have been eliminated.

Our results of operations, cash flows, assets and liabilities consist of the consolidated Landmark Infrastructure Partners LP activities and balances with retroactive adjustments of the combined results of operations, cash flows, assets and liabilities of the Acquired Assets.  

All financial information presented represents the consolidated results of operations, financial position and cash flows of the Partnership with retroactive adjustments of the combined results of operations, financial position and cash flows of the Acquired Assets as if the Acquisitions occurred on the earliest date during which the Acquired Assets were under common control. See further discussion in Note 3, Acquisitions for additional information.

The unaudited interim consolidated and combined financial statements have been prepared in conformity with GAAP as established by the Financial Accounting Standards Board (the “FASB”) in the ASC including modifications issued under the Accounting Standards Updates (“ASUs”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The accompanying unaudited financial statements include, in our opinion, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the unaudited financial information set forth therein. Financial information for the three months ended March 31, 2016 and 2015 included in these Notes to the Consolidated and Combined Financial Statements is derived from our unaudited financial statements. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. All references to tenant sites are unaudited.

7


 

Use of Estimates

The preparation of the consolidated and combined financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated and combined financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recently Issued Accounting Standards

Changes to GAAP are established by the FASB in the form of ASUs to the FASB’s Accounting Standard Codification. The Partnership considers the applicability and impact of all ASUs. Newly issued ASUs not listed below are not expected to have any material impact on its combined financial position and results of operations because either the ASU is not applicable or the impact is expected to be immaterial.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU No. 2016-09”). The guidance simplifies various aspects related to how share-based payments are accounted for and presented in the consolidated financial statements. The amendments include income tax consequences, the accounting for forfeitures, classification of awards as either equity or liabilities and classification on the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is permitted. The Partnership does not expect the adoption of ASU No. 2016-09 to have an impact on its financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). In August 2015, the FASB issued Accounting Standards Update No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which delayed the effective date of ASU 2014-09 by one year. ASU 2014-09, as amended, is effective for public companies for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Partnership does not expect the adoption of ASU No. 2014-09, as amended, to have an impact on its financial statements.

 

 

8


 

3. Acquisitions

On March 4, 2015, Landmark Infrastructure Operating Company LLC (“OpCo”), a wholly-owned subsidiary of the Partnership, completed its acquisition of 81 tenant sites and related real property interests, consisting of 41 wireless communication, 39 outdoor advertising and one renewable power generation sites, from Landmark Infrastructure Holding Company LLC (“HoldCo”), a wholly-owned subsidiary of Landmark, in exchange for cash consideration of $25.2 million (the “First Quarter Acquisition”).  The purchase price was funded with $24.0 million of borrowings under the Partnership’s existing credit facility and available cash.

On April 8, 2015, OpCo completed an acquisition of 73 tenant sites and related real property interests, consisting of 45 wireless communication and 28 outdoor advertising sites, from HoldCo in exchange for cash consideration of $22.1 million (the “Second Quarter Acquisition”). The purchase price was funded with $21.5 million of borrowings under the Partnership’s existing credit facility and available cash.

On July 21, 2015, Opco completed an acquisition of 100 tenant sites and related real property interests, consisting of 81 wireless communication, 16 outdoor advertising and 3 renewable power generation sites, from HoldCo, in exchange for cash consideration of $35.7 million. The purchase price was funded with $35.5 million of borrowings under the Partnership’s existing credit facility and available cash.

On August 18, 2015, Opco completed an acquisition of an entity owning 193 tenant sites and related real property interests, consisting of 135 wireless communication, 57 outdoor advertising and one renewable power generation sites, from Landmark Dividend Growth Fund-E LLC (“Fund E”), an affiliate of Landmark, in exchange for (i) 1,998,852 Common Units, valued at approximately $31.0 million, which was subsequently distributed to Fund E’s respective members, including 171,737 Common Units to Landmark, as part of the fund’s liquidation, and (ii) cash consideration of approximately $34.9 million, of which $29.2 million was used to repay Fund E’s secured indebtedness and was funded with borrowings under the Partnership’s revolving credit facility.

On September 21, 2015, Opco completed an acquisition of 65 tenant sites and related real property interests, consisting of 50 wireless communication, 13 outdoor advertising and 2 renewable power generation sites, from HoldCo, in exchange for cash consideration of $20.3 million. The purchase price was funded with $20.0 million of borrowings under the Partnership’s existing credit facility and available cash. The July 21, 2015, August 18, 2015 and September 21, 2015 acquisitions are collectively referred to as the “Third Quarter Acquisitions.”

On November 19, 2015, the Partnership completed an acquisition of an entity owning 72 tenant sites and related real property interests, consisting of 67 wireless communication and 5 outdoor advertising sites, from Landmark Dividend Growth Fund-C LLC (“Fund C”), an affiliate of Landmark, in exchange for (i) 847,260 Common Units, valued at approximately $13.0 million, which was subsequently distributed to Fund C’s respective members, including 123,405 Common Units to Landmark, valued at approximately $1.9 million, as part of the fund’s liquidation, and (ii) cash consideration of approximately $17.3 million, of which $15.1 million was used to repay Fund C’s secured indebtedness and was funded with borrowings under the Partnership’s revolving credit facility.

On November 19, 2015, the Partnership completed an acquisition of 136 tenant sites and related real property interests, consisting of 99 wireless communication and 37 outdoor advertising sites, from Landmark Dividend Growth Fund-F LLC (“Fund F”), an affiliate of Landmark, in exchange for (i) 1,266,317 Common Units, valued at approximately $19.5 million, which was subsequently distributed to Fund F’s respective members, including 217,133 Common Units to Landmark, valued at approximately $3.3 million, as part of the fund’s liquidation and (ii) cash consideration of approximately $25.0 million, of which $24.5 million was used to repay Fund F’s secured indebtedness and was funded with borrowings under the Partnership’s revolving credit facility.

On December 18, 2015, the Partnership completed an acquisition of 41 tenant sites and related real property interests, consisting of 23 wireless communication, 16 outdoor advertising and 2 renewable power generation sites, from HoldCo, in exchange for cash consideration of $24.2 million. The purchase price was funded with $24.0 million of borrowings under the Partnership’s existing credit facility and available cash. The November 19, 2015 and December 18, 2015 acquisitions are collectively referred to as the “Fourth Quarter Acquisitions.”

9


 

The acquisitions described above in this Note 3 are collectively referred to as the “Acquisitions,” and the acquired assets in the Acquisitions are collectively referred to as the “Acquired Assets.” The August 18, 2015 and both November 19, 2015 acquisitions are collectively referred to as the “Acquired Funds.”

The assets and liabilities acquired are recorded at the historical cost of Landmark, as the Acquisitions from Landmark are deemed to be transactions between entities under common control with the statements of operations of the Partnership adjusted retroactively as if the Acquisitions occurred on the earliest date during which the Acquired Assets were under common control. Our historical financial statements have been retroactively adjusted to reflect the results of operations, financial position, and cash flows of the Acquired Assets as if we owned the Acquired Assets as of the date acquired by Landmark for all periods presented. The following tables present our results of operations and financial position reflecting the effect of the Acquisitions on pre-acquisition periods for the three months ended March 31, 2015.

Consolidated statement of operations for the three months ended March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Landmark

 

Pre-Acquisition

 

 

 

 

 

Pre-Acquisition

 

Infrastructure

 

results of the

 

Landmark

 

Landmark

 

results of the

 

Partners LP

 

Second, Third and

 

Infrastructure

 

Infrastructure

 

First Quarter

 

(As Previously Reported

 

Fourth Quarter

 

Partners LP

 

Partners LP

 

Acquisition

 

May 7, 2015)

 

Acquisitions

 

(As Currently Reported)

Revenue

 

    

    

 

    

    

 

    

    

 

    

    

 

    

Rental revenue

$

3,616,429

 

$

212,936

 

$

3,829,365

 

$

2,194,762

 

$

6,024,127

Interest income on receivables

 

207,310

 

 

 —

 

 

207,310

 

 

 —

 

 

207,310

Total revenue

 

3,823,739

 

 

212,936

 

 

4,036,675

 

 

2,194,762

 

 

6,231,437

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees to affiliate

 

 —

 

 

 —

 

 

 —

 

 

76,080

 

 

76,080

Property operating

 

 —

 

 

 —

 

 

 —

 

 

1,684

 

 

1,684

General and administrative

 

983,985

 

 

 —

 

 

983,985

 

 

 —

 

 

983,985

Acquisition-related

 

299,598

 

 

464,892

 

 

764,490

 

 

458,827

 

 

1,223,317

Amortization

 

956,343

 

 

58,808

 

 

1,015,151

 

 

523,229

 

 

1,538,380

Impairments

 

2,762,436

 

 

 —

 

 

2,762,436

 

 

 —

 

 

2,762,436

Total expenses

 

5,002,362

 

 

523,700

 

 

5,526,062

 

 

1,059,820

 

 

6,585,882

Other income and expenses

 

(1,713,040)

 

 

 —

 

 

(1,713,040)

 

 

(973,676)

 

 

(2,686,716)

Net income (loss)

$

(2,891,663)

 

$

(310,764)

 

$

(3,202,427)

 

$

161,266

 

$

(3,041,161)

Less: Net income (loss) attributable to Predecessor

 

 —

 

 

(310,764)

 

 

(310,764)

 

 

161,266

 

 

(149,498)

Net loss attributable to partners

$

(2,891,663)

 

$

 —

 

$

(2,891,663)

 

$

 —

 

$

(2,891,663)

 

10


 

Consolidated summarized cash flows for the three months ended March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Landmark

 

Pre-Acquisition

 

 

 

 

    

Pre-Acquisition

    

Infrastructure

    

results of the

    

Landmark

 

Landmark

 

results of the

 

Partners LP

 

Second, Third and

 

Infrastructure

 

Infrastructure

 

First Quarter

 

(As Previously Reported

 

Fourth Quarter

 

Partners LP

 

Partners LP

 

Acquisition

 

May 7, 2015)

 

Acquisitions

 

(As Currently Reported)

Net cash provided by (used in) operating activities

$

2,926,875

    

$

(265,151)

    

$

2,661,724

    

$

711,992

    

$

3,373,716

Net cash used in investing activities

 

(20,444,030)

 

 

 —

 

 

(20,444,030)

 

 

 —

 

 

(20,444,030)

Net cash provided by (used in) financing activities

 

17,480,717

 

 

265,151

 

 

17,745,868

 

 

(711,992)

 

 

17,033,876

 

The Pre-Acquisition results of the First Quarter Acquisition include the retroactive adjustments to reflect the results of operations and cash flows of the First Quarter Acquisition prior to the acquisition date for the periods under common control. The Landmark Infrastructure Partners LP (As Previously Reported May 7, 2015) column refers to periods previously filed within the Partnership’s Form 10-Q as filed on May 7, 2015. The Pre-Acquisition results of the Second Quarter Acquisition and the Third Quarter Acquisitions include the retroactive adjustments to reflect the results of operations and cash flows of the Second Quarter Acquisition and the Third Quarter Acquisitions prior to the acquisition dates for the periods under common control.

On April 20, 2016, the Partnership completed an acquisition of 3 tenant sites and related real property interests, consisting of one wireless communication and 2 renewable power generation sites, from HoldCo, in exchange for cash consideration of $6.3 million. The purchase price was funded with $6.3 million of borrowings under the Partnership’s existing credit facility.

 

4. Real Property Interests

The following table summarizes the Partnership’s real property interests:

 

 

 

 

 

 

 

 

 

March 31, 2016

 

December 31, 2015

Land

    

$

10,812,784

    

$

10,812,784

Real property interests – perpetual

 

 

88,496,491

 

 

88,496,491

Real property interests – finite life

 

 

268,126,508

 

 

269,577,699

Total land and real property interests

 

 

367,435,783

 

 

368,886,974

Accumulated amortization of real property interests

 

 

(15,773,223)

 

 

(14,114,307)

Land and net real property interests

 

$

351,662,560

 

$

354,772,667

 

 

On March 22, 2016, the Partnership completed a sale of one wireless communication site to a third party in exchange for cash consideration of $0.8 million. We recognized a gain on sale of real property interest of $0.4 million during the three months ended March 31, 2016.

On March 30, 2016, the Partnership completed a sale of 12 wireless communication sites to Landmark, in exchange for cash consideration of $2.0 million. The assets were originally acquired by Landmark and dropped-down to the Partnership during the July 21, 2015 and September 21, 2015 acquisitions. Landmark repurchased the pool of assets at the same purchase price sold to the Partnership. As the transaction is between entities under common control, the difference between the cash consideration and the net book value of the assets is allocated to the General Partner and no gain or loss is recognized.

11


 

During 2015, the Partnership completed the Acquisitions as described in Note 3, Acquisitions. The Partnership paid total consideration of $268.2 million. The Acquisitions are deemed to be transactions between entities under common control, which requires the assets and liabilities to be transferred at the historical cost of the parent of the entities, with prior periods retroactively adjusted to furnish comparative information. The differences totaling $69.4 million between the total consideration of $268.2 million and the historical cost basis of $198.8 million were allocated to the General Partner.

The Partnership applies the business combination method to all acquired investments of real property interests for transactions that meet the definition of a business combination. The fair value of the assets acquired and liabilities assumed is typically determined by using Level III valuation methods. The most sensitive assumption is the discount rate used to discount the estimated cash flows from the real estate rights. For purposes of the computation of fair value assigned to the various tangible and intangible assets, the Partnership assigned discount rates ranging between 6% and 20%.

The following table summarizes the final allocation for the Acquisitions of estimated fair values of the assets acquired and liabilities assumed at the date of acquisition by Landmark.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Investments in real

    

In-place lease

    

Above-market

    

Below-market

    

 

Year

 

Land

 

property interests

 

intangibles

 

lease intangibles

 

lease intangibles

 

Total

2015(1)

 

$

4,919,474

 

$

76,267,203

 

$

2,441,472

 

$

2,518,355

 

$

(4,030,559)

 

$

82,115,945

 

(1)

Prior-period financial information retroactively adjusted for Acquisitions made under common control. See Note 3 for additional information.

Future estimated aggregate amortization of real property interests for each of the five succeeding fiscal years and thereafter as of March 31, 2016, are as follows:

 

 

 

 

2016 (nine months)

    

$

5,073,036

2017

 

 

6,764,048

2018

 

 

6,580,186

2019

 

 

6,442,905

2020

 

 

6,349,541

Thereafter

 

 

221,143,569

Total

 

$

252,353,285

 

The weighted average remaining amortization period for non‑perpetual real property interests is 49 years at March 31, 2016.

During the three months ended March 31, 2015, eleven of the Partnership’s real property interests were impaired as a result of termination notices received and one property foreclosure. As a result of T‑Mobile’s acquisition of MetroPCS (completed in 2013), we have received termination notices related to 23 MetroPCS tenant sites, two of which have subsequently been rescinded. As of March 31, 2016, the majority of the MetroPCS tenant sites where we have received termination notices have been vacated. During the three months ended March 31, 2015, we recognized impairment charges totaling $2.8 million. The carrying value of each real property interest was determined to have a fair value of zero with the remaining lease intangibles amortized over the remaining lease life.

 

 

 

 

 

 

 

12


 

5. Other Intangible Assets and Liabilities

The following table summarizes our identifiable intangible assets, including above/below‑market lease intangibles:

 

 

 

 

 

 

 

 

 

March 31, 2016

 

December 31, 2015

Acquired in-place lease

    

 

    

    

 

    

Gross amount

 

$

9,985,315

 

$

10,029,339

Accumulated amortization

 

 

(2,831,545)

 

 

(2,552,596)

Net amount

 

$

7,153,770

 

$

7,476,743

Acquired above-market leases

 

 

 

 

 

 

Gross amount

 

$

4,363,790

 

$

4,363,790

Accumulated amortization

 

 

(1,257,094)

 

 

(1,109,312)

Net amount

 

$

3,106,696

 

$

3,254,478

Total other intangible assets, net

 

$

10,260,466

 

$

10,731,221

Acquired below-market leases

 

 

 

 

 

 

Gross amount

 

$

(15,762,296)

 

$

(15,799,840)

Accumulated amortization

 

 

4,264,635

 

 

3,798,747

Total other intangible liabilities, net

 

$

(11,497,661)

 

$

(12,001,093)

We recorded net amortization of above‑ and below‑market lease intangibles of $321,006 and $286,745 as an increase to rental revenue for the three months ended March 31, 2016 and 2015, respectively. We recorded amortization of in‑place lease intangibles of $284,684 and $296,148 as amortization expense for the three months ended March 31, 2016 and 2015, respectively.

Future aggregate amortization of intangibles for each of the five succeeding fiscal years and thereafter as of March 31, 2016 follows:

 

 

 

 

 

 

 

 

 

 

 

    

Acquired

    

Acquired

    

Acquired

 

 

in-place

 

above-market

 

below-market

 

 

leases

 

leases

 

leases

2016 (nine months)

 

$

763,257

 

$

408,388

 

$

(1,204,573)

2017

 

 

969,916

 

 

467,351

 

 

(1,564,702)

2018

 

 

932,910

 

 

352,821

 

 

(1,528,756)

2019

 

 

885,413

 

 

307,960

 

 

(1,483,693)

2020

 

 

837,516

 

 

246,896

 

 

(1,452,896)

Thereafter

 

 

2,764,758

 

 

1,323,280

 

 

(4,263,041)

Total

 

$

7,153,770

 

$

3,106,696

 

$

(11,497,661)

 

 

 

13


 

6. Investments in Receivables

As a result of the transfer of investments in receivables from the Predecessor to the Partnership, which met the conditions to be accounted for as a sale in accordance with ASC 860, Transfers and Servicing, the investments in receivables were recorded at their estimated fair value as of November 19, 2014, the date we closed our IPO, using an 8.75% discount rate. The receivables are unsecured with payments collected over periods ranging from 2 to 99 years. In connection with the July 21, 2015 acquisition, the Partnership acquired an additional investment in receivables that are recorded at the fair value at the acquisition date, using a discount rate of 8.65%. Interest income recognized on the receivables totaled $203,347 and $207,310 for the three months ended March 31, 2016 and 2015, respectively.

The following table reflects the activity in investments in receivables:

 

 

 

 

 

 

 

 

 

March 31, 2016

 

December 31, 2015

Investments in receivables – beginning

    

$

8,136,867

    

$

8,665,274

Acquisitions

 

 

 —

 

 

130,200

Fair value adjustment

 

 

 —

 

 

11,862

Repayments

 

 

(186,181)

 

 

(694,867)

Interest accretion

 

 

18,772

 

 

24,398

Investments in receivables – ending

 

$

7,969,458

 

$

8,136,867

 

 

Annual amounts due as of March 31, 2016, are as follows:

 

 

 

 

2016 (nine months)

    

$

1,105,186

2017

 

 

1,572,797

2018

 

 

1,389,465

2019

 

 

905,215

2020

 

 

884,230

Thereafter

 

 

8,950,807

Total

 

$

14,807,700

Interest

 

$

6,838,242

Principal

 

 

7,969,458

Total

 

$

14,807,700

 

 

14


 

7. Debt

At the closing of the IPO on November 19, 2014, we amended and restated the Predecessor’s secured debt facilities as a new $190.0 million senior secured revolving credit facility, which we refer to as our “revolving credit facility,” with SunTrust Bank, as administrative agent, and a syndicate of lenders. Our revolving credit facility will mature on November 19, 2019 and will be available for working capital, capital expenditures, permitted acquisitions and general partnership purposes, including distributions. On June 3, 2015, the Partnership exercised its option to increase the available commitments under its revolving credit facility for an additional $60.0 million, resulting in aggregate commitments of $250.0 million. Substantially all of our assets, excluding equity in and assets of certain joint ventures and unrestricted subsidiaries, after‑acquired real property (other than real property that is acquired from affiliate funds and is subject to a mortgage), and other customary exclusions, are pledged as collateral under our revolving credit facility. Our revolving credit facility contains various customary covenants and restrictive provisions.

In addition, our revolving credit facility contains customary events of default, including, but not limited to (i) event of default resulting from our failure or the failure of our restricted subsidiaries to comply with covenants and financial ratios, (ii) the occurrence of a change of control (as defined in the credit agreement), (iii) the institution of insolvency or similar proceedings against us or our restricted subsidiaries, (iv) the occurrence of a default under any other material indebtedness (as defined in the credit agreement) we or our restricted subsidiaries may have and (v) any one or more collateral documents ceasing to create a valid and perfected lien on collateral (as defined in the credit agreement). Upon the occurrence and during the continuation of an event of default, subject to the terms and conditions of the credit agreement, the lenders may declare any outstanding principal of our revolving credit facility debt, together with accrued and unpaid interest, to be immediately due and payable and may exercise the other remedies set forth or referred to in the credit agreement and the other loan documents.

Loans under the revolving credit facility bear interest at our option at a variable rate per annum equal to either:

·

a base rate, which will be the highest of (i) the administrative agent’s prime rate in effect on such day, (ii) the federal funds rate in effect on such day plus 0.50%, and (iii) an adjusted one month LIBOR plus 1.0%, in each case, plus an applicable margin of 1.50%; or

·

an adjusted one-month LIBOR plus an applicable margin of 2.50%.

As of March 31, 2016, $228.5 million was outstanding and there was $21.5 million of undrawn borrowing capacity, subject to compliance with certain covenants, under our revolving credit facility.

The revolving credit facility requires monthly interest payments and the outstanding debt balance is due upon maturity on November 19, 2019.  Our revolving credit facility requires compliance with certain financial covenants. As of March 31, 2016, the Partnership was in compliance with all financial covenants.

The Partnership incurred interest expense of $2,347,491 and $1,886,720 for the three months ended March 31, 2016 and 2015, respectively. At March 31, 2016 and December 31, 2015 we had interest payable of $234,420 and $294,132, respectively. The Partnership recorded $196,972 and $354,590 of deferred loan costs amortization, which is included in interest expense, for the three months ended March 31, 2016 and 2015, respectively.

Prior-period information has been retroactively adjusted to include interest expense related to the Acquired Funds’ secured debt facilities of $875,064 for the three months ended March 31, 2015. Additionally, deferred loan costs amortization, which is included in interest expense, has been retroactively adjusted to include $211,212 for the three months ended March 31, 2015.

15


 

8. Interest Rate Swap Agreements

On March 23, 2016, the Partnership entered into an interest rate swap agreement with a notional amount of $50.0 million to fix the floating rate for existing borrowings at an effective rate of 4.17% over a three-year period beginning on December 24, 2018. Additionally, on March 31, 2016, the Partnership entered into two interest rate swap agreements with notional amounts of $20.0 million and $25.0 million to fix the floating interest rate for existing borrowings at an effective rate of 4.06% and 4.13% over a three-year period beginning on December 24, 2018 and April 13, 2019, respectively. These interest rate swap agreements extend through and beyond the term of the Partnership’s existing credit facility.

The following table summarizes the terms and fair value of the Partnerships’ interest rate swap agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date

 

Notional

 

Fixed

 

Effective

 

Maturity

 

Fair Value Liability at

Entered

 

Value

 

Rate

 

Date

 

Date

 

March 31, 2016

 

December 31, 2015

December 24, 2014

 

$
70,000,000

 

4.02

%

12/24/2014

 

12/24/2018

 

$

(1,432,831)

 

$

(645,464)

February 5, 2015

 

25,000,000

 

3.79

 

4/13/2015

 

4/13/2019

 

 

(373,048)

 

 

(26,369)

August 24, 2015

 

50,000,000

 

4.24

 

10/1/2015

 

10/1/2022

 

 

(1,639,008)

 

 

(64,398)

March 23, 2016

 

50,000,000

 

4.17

 

12/24/2018

 

12/24/2021

 

 

(248,206)

 

 

 —

March 31, 2016

 

20,000,000

 

4.06

 

12/24/2018

 

12/24/2021

 

 

(42,173)

 

 

 —

March 31, 2016

 

25,000,000

 

4.13

 

4/13/2019

 

4/13/2022

 

 

(49,081)

 

 

 —

 

 

 

 

 

 

 

 

 

 

$

(3,784,347)

 

$

(736,231)

During the three months ended March 31, 2016 and 2015, the Partnership recorded a loss of $3,048,116 and $872,498, respectively, resulting from the change in fair value of the interest rate swap agreements, which is reflected as an unrealized loss on derivative financial instruments on the consolidated and combined statements of operations.

Prior-period information has been retroactively adjusted to include an unrealized loss on derivative financial instruments related to the Acquired Funds’ interest rate swap agreements of $98,612 for the three months ended March 31, 2015. The Acquired Funds’ interest rate swap agreements were terminated in connection with the repayment of the Acquired Funds’ secured indebtedness as a result of the Partnership’s August 18, 2015 and both November 19, 2015 acquisitions.

The fair value of the interest rate swap agreements are derived based on Level 2 inputs. To illustrate the effect of movements in the interest rate market, the Partnership performed a market sensitivity analysis on its outstanding interest rate swap agreements. The Partnership applied various basis point spreads to the underlying interest rate curve of the derivative in order to determine the instruments’ change in fair value at March 31, 2016. The following table summarizes the results of the analysis performed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effects of Change in Interest Rates

Date Entered

 

Maturity Date

 

+50 Basis Points

 

-50 Basis Points

 

+100 Basis Points

 

-100 Basis Points

December 24, 2014

 

12/24/2018

 

$

(556,949)

 

$

(2,412,190)

 

$

351,572

 

$

(2,961,624)

February 5, 2015

 

4/13/2019

 

 

(16,660)

 

 

(761,565)

 

 

347,356

 

 

(1,006,812)

August 24, 2015

 

10/1/2022

 

 

(202,991)

 

 

(3,362,478)

 

 

1,297,822

 

 

(4,833,065)

March 23, 2016

 

12/24/2021

 

 

410,500

 

 

(1,058,688)

 

 

1,097,168

 

 

(1,929,925)

March 31, 2016

 

12/24/2021

 

 

224,650

 

 

(360,389)

 

 

498,044

 

 

(707,543)

March 31, 2016

 

4/13/2022

 

 

280,587

 

 

(448,168)

 

 

619,610

 

 

(873,359)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16


 

9. Equity

The table below summarizes changes in the number of units outstanding from December 31, 2014 through March 31, 2016 (in units):

 

 

 

 

 

 

 

 

 

Common

 

Subordinated

 

Total

Balance at December 31, 2014

 

4,702,665

 

3,135,109

 

7,837,774

Unit-based compensation

 

1,010

 

 —

 

1,010

Balance at March 31, 2015

 

4,703,675

 

3,135,109

 

7,838,784

 

 

 

 

 

 

 

Balance at December 31, 2015

 

11,820,144

 

3,135,109

 

14,955,253

Unit-based compensation

 

9,840

 

 —

 

9,840

Balance at March 31, 2016

 

11,829,984

 

3,135,109

 

14,965,093

 

On May 20, 2015, the Partnership closed a public offering of an additional 3,000,000 Common Units at a price to the public of $16.75 per Common Unit, or $15.9125 per Common Unit net of the underwriter’s discount. We received net proceeds of $46.9 million after deducting the underwriter’s discount and offering expenses paid by us of $3.3 million. We used all proceeds to repay a portion of the borrowings under our revolving credit facility.

In connection with the August 18, 2015 and November 19, 2015 acquisitions, the Partnership issued 4,112,429 Common Units to the Acquired Funds as partial consideration for the transactions as described in Note 3, Acquisitions, which were then distributed to their respective members, including 512,275 Common Units to Landmark and affiliates, as part of the Acquired Fund’s respective liquidations. The Common Units were issued in private transactions exempt from registration under Section 4(a)(2) of the Securities Act.

On December 3, 2015, the Partnership filed a universal shelf registration statement on Form S-3 with the SEC. The shelf registration statement was declared effective by the SEC on December 30, 2015 and permits us to issue and sell common and preferred units, from time to time, representing limited partner interests in us and debt securities up to an aggregate amount of $250.0 million.

On February 16, 2016, the Partnership entered into an At-the-Market Issuance Sales Agreement (the “ATM Agreement”) pursuant to which we may sell, from time to time, Common Units having an aggregate offering price of up to $50.0 million.  There were no Common Units issued during the three months ended March 31, 2016 under our ATM Agreement.

On February 16, 2016, the Partnership filed a shelf registration statement on Form S-4 with the SEC. The shelf registration statement was declared effective on March 10, 2016 and permits us to offer and issue, from time to time, an aggregate of up to 5,000,000 Common Units in connection with the acquisition by us or our subsidiaries of other businesses, assets or securities. On April 15, 2016, the Partnership completed an acquisition of one wireless communication tenant site in exchange for 45,820 Common Units, valued at approximately $0.7 million, under the existing S-4 acquisition shelf.

On April 4, 2016, the Partnership completed a public offering of $20.0 million 8.00% Series A Cumulative Redeemable Perpetual Preferred Units (“Series A Preferred Units”), representing limited partner interests in the Partnership, at a price of $25.00 per unit. We received net proceeds of approximately $18.8 million after deducting underwriters’ discounts and offering expenses paid by us of $1.2 million. We used all proceeds to repay a portion of the borrowings under our revolving credit facility.

17


 

Distributions on the Series A Preferred Units are cumulative from the date of original issuance and will be payable quarterly in arrears on the 15th day of January, April, July and October of each year, when, as and if declared by the board of directors of our General Partner. The initial distribution on the Series A Preferred Units will be paid on July 15, 2016 in an amount equal to $0.5611 per unit. Distributions on the Series A Preferred Units will accumulate at a rate of 8.00% per annum per $25.00 stated liquidation preference per Series A Preferred Unit. In connection with the closing of the preferred equity offering, on April 4, 2016, the Partnership executed the Second Amended and Restated Agreement of Limited Partnership of Landmark Infrastructure Partners LP (the “Partnership Agreement”) for the purpose of updating the form of Partnership Agreement and defining the preferences, rights, powers and duties of holders of preferred units.

 

Our Partnership Agreement provides that, during the subordination period, the Common Units have the right to receive distributions of available cash from operating surplus each quarter in an amount equal to $0.2875 per Common Unit, which amount is defined in our Partnership Agreement as the minimum quarterly distribution, plus any arrearages in the payment of the minimum quarterly distribution on the Common Units from prior quarters, before any distributions of available cash from operating surplus may be made on the subordinated units. These units are deemed “subordinated” because for a period of time, referred to as the subordination period, the subordinated units are not entitled to receive any distributions until the Common Units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution on the Common Units from prior quarters. Furthermore, no arrearages will accrue or be payable on the subordinated units. The practical effect of the subordinated units is to increase the likelihood that, during the subordination period, there will be available cash to be distributed on the Common Units.

The table below summarizes the quarterly distributions related to our quarterly financial results:

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Declaration Date

 

Distribution Date

 

Distribution Per Unit

 

Total Distribution

March 31, 2015

 

April 23, 2015

 

May 14, 2015

 

$

0.2975

 

$

2,332,038

June 30, 2015

 

July 21, 2015

 

August 14, 2015

 

 

0.3075

 

 

3,334,168

September 30, 2015

 

October 22, 2015

 

November 13, 2015

 

 

0.3175

 

 

4,077,232

December 31, 2015

 

January 28, 2016

 

February 12, 2016

 

 

0.3250

 

 

4,863,655

March 31, 2016

 

April 20, 2016

 

May 13, 2016

 

 

0.3300

 

 

4,953,601

 

 

10. Net Loss Per Limited Partner Unit

Landmark’s subordinated units and the General Partner’s incentive distribution rights meet the definition of a participating security and therefore we are required to compute income per unit using the two-class method under which any excess of distributions declared over net income shall be allocated to the partners based on their respective sharing of income specified in the Partnership Agreement. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net loss allocations used in the calculation of net loss per unit.

Net loss per unit applicable to limited partners (including subordinated unitholders) is computed by dividing limited partners’ interest in net loss, after deducting any General Partner incentive distributions, by the weighted-average number of outstanding common and subordinated units. Diluted net loss per unit includes the effects of potentially dilutive units on our common and subordinated units. Net loss related to the Acquired Assets prior to the Partnership’s acquisition dates of each transaction is allocated to the General Partner.

As of March 31, 2016, the General Partner was not entitled to receive any incentive distributions based on current distributions. Therefore, net income available to the limited partner units has not been reduced.

18


 

The calculation of net loss per unit for the three months ended March 31, 2016 and 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

2016

 

2015

 

Common Units

 

Subordinated Units

 

Common Units

 

Subordinated Units

Net loss attributable to limited partners:

 

 

 

 

 

 

 

 

 

 

 

Distribution declared 

$

3,919,015

 

$

1,034,586

 

$

1,399,343

 

$

932,695

Undistributed net loss

 

(4,253,641)

 

 

(1,127,586)

 

 

(3,134,490)

 

 

(2,089,211)

Net loss attributable to limited partners - basic

 

(334,626)

 

 

(93,000)

 

 

(1,735,147)

 

 

(1,156,516)

Net loss attributable to subordinated units

 

(93,000)

 

 

 —

 

 

 —

 

 

 —

  Net loss attributable to limited partners - diluted

$

(427,626)

 

$

(93,000)

 

$

(1,735,147)

 

$

(1,156,516)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average units outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

11,829,660

 

 

3,135,109

 

 

4,703,675

 

 

3,135,109

Effect of diluted subordinated units

 

3,135,109

 

 

 —

 

 

 —

 

 

 —

Diluted

 

14,964,769

 

 

3,135,109

 

 

4,703,675

 

 

3,135,109

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per limited partner unit:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.03)

 

$

(0.03)

 

$

(0.37)

 

$

(0.37)

Diluted (1)

$

(0.03)

 

$

(0.03)

 

$

(0.37)

 

$

(0.37)

(1)

The Partnership Agreement provides that when the subordination period ends, each outstanding subordinated unit will convert into one Common Unit and will thereafter participate pro rata with the other Common Units in distributions of available cash. The dilutive effect of Landmark’s subordinated units is reflected using the “if-converted method” which assumes conversion of the subordinated units into Common Units and excludes the subordinated distributions from the calculation, as the “if-converted method” is more dilutive. Diluted net loss per unit for the three months ended March 31, 2016, includes the full effect of the conversion of Landmark’s subordinated units into 3,135,109 of Common Units at the beginning of the period.

 

 

11. Fair Value of Financial Instruments

The fair value for certain financial instruments is derived using a combination of market quotes, pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Partnership’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transaction will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non‑orderly trades. The Partnership evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of assets and liabilities for which it is practicable to estimate the fair value:

Cash and cash equivalents, rent receivables, net and accounts payable and accrued liabilities:  The carrying values of these balances approximate their fair values because of the short‑term nature of these instruments.

Revolving credit facility:  The fair value of the Partnership’s revolving credit facility is estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan‑to‑value ratio, type of collateral and other credit enhancements. Additionally, since a quoted price in an active market is generally not available for the instrument or an identical instrument, the Partnership measures fair value using a valuation technique that is consistent with the principles of fair value measurement which typically considers what management believes is a market participant rate for a similar instrument. The Partnership classifies these inputs as Level 3 inputs.

19


 

Investments in receivables:  The Partnership’s investments in receivables are presented in the accompanying consolidated and combined balance sheets at their amortized cost net of recorded reserves and not at fair value. The fair values of the receivables were estimated using an internal valuation model that considered the expected cash flow of the receivables and estimated yield requirements by market participants with similar characteristics, including remaining loan term, and credit enhancements. The Partnership classifies these inputs as Level 3 inputs.

Interest rate swap agreements:  The Partnership’s interest rate swap agreements are presented at fair value on the accompanying consolidated and combined balance sheets. The valuation of these instruments is determined using a proprietary model that utilizes observable and unobservable inputs. A majority of the inputs are observable with the only unobservable inputs relating to the lack of performance risk on the part of the Partnership or the counter party to the instrument. As such, the Partnership classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market‑based inputs, including the interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit risk to the contracts, are incorporated in the fair values to account for potential nonperformance risk.

The table below summarizes the carrying amounts and fair values of financial instruments which are not carried at fair value on the face of the financial statements:

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

December 31, 2015

 

Carrying amount

 

Fair Value

 

Carrying amount

 

Fair Value

Investment in receivables, net

$

7,969,458

    

$

8,048,721

    

$

8,136,867

    

$

8,217,630

Revolving credit facility

 

228,500,000

 

 

228,500,000

 

 

233,000,000

 

 

233,000,000

Disclosure of the fair values of financial instruments is based on pertinent information available to the Partnership as of the period end and requires a significant amount of judgment. Despite increased capital market and credit market activity, transaction volume for certain financial instruments remains relatively low. This has made the estimation of fair values difficult and, therefore, both the actual results and the Partnership’s estimate of value at a future date could be materially different.

As of March 31, 2016 and December 31, 2015, the Partnership measured the following assets and liabilities at fair value on a recurring basis:

 

 

 

 

 

 

 

 

 

March 31, 2016

 

December 31, 2015

Derivative Liabilities(1)

 

$

3,784,347

    

$

736,231

(1)

Fair value is calculated using level 2 inputs. Level 2 inputs are quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model‑derived valuations in which significant inputs and significant value drivers are observable in active markets.  

 

20


 

12. Related‑Party Transactions

General and Administrative Reimbursement

Under our omnibus agreement, we are required to reimburse Landmark for expenses related to certain general and administrative services Landmark provides to us in support of our business, subject to a quarterly cap equal to the greater of $162,500 and 3% of our revenue during the preceding calendar quarter. This cap on expenses will last until the earlier to occur of: (i) the date on which our revenue for the immediately preceding four consecutive fiscal quarters exceeded $80.0 million and (ii) November 19, 2019. The full amount of general and administrative expenses incurred will be reflected on our income statements, and to the extent such general and administrative expenses exceed the cap amount, the amount of such excess will be reflected on our financial statements as a capital contribution from Landmark rather than as a reduction of our general and administrative expenses, except for expenses that would otherwise be allocated to us, which are not included in the amount of general and administrative expenses. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our General Partner by its affiliates. For the three months ended March 31, 2016 and 2015, Landmark reimbursed us $799,954 and $692,872, respectively, for expenses related to certain general and administrative expenses that exceeded the cap.

Patent License Agreement

We entered into a Patent License Agreement (“License Agreement”) with American Infrastructure Funds, LLC (“AIF”), an affiliate of the controlling member of Landmark. Under the License Agreement, AIF granted us a nonexclusive, perpetual license to practice certain patented methods related to the apparatus and method for combining easements under a master limited partnership. We have agreed to pay AIF a license fee of $50,000 for the second year of the License Agreement, and thereafter, an amount equal to the greater of (i) one‑tenth of one percent (0.1%) of our gross revenue received during such contract year; and (ii) $100,000. During the three months ended March 31, 2016, we incurred $12,500 of license fees related to the AIF patent license agreement.

Right of First Offer

In connection with the IPO, certain other investment funds managed by Landmark have granted us a right of first offer (“ROFO”) on real property interests that they currently own or acquire in the future before selling or transferring those assets to any third party. On August 18, 2015 and November 19, 2015, the Partnership completed ROFO acquisitions of 193, 72 and 136 tenant sites from Fund E, Fund C and Fund F, respectively, for total consideration of $65.9 million, $30.3 million, and $44.5 million, respectively. See further discussion in Note 3, Acquisitions for additional information. 

Management Fee

In accordance with the limited liability company agreements for each of the Acquired Funds, Landmark or its affiliates were paid a management fee ranging from $45 to $75 per asset per month for providing various services to the funds. Upon execution of the omnibus agreement and completion of the closing of the IPO, Landmark’s right to receive this management fee has been terminated and we will instead reimburse Landmark for certain general and administrative expenses incurred by Landmark pursuant to the omnibus agreement, subject to a cap, as described above. For the three months ending March 31, 2015, financial information has been retroactively adjusted to include management fees of $76,080, incurred by the Acquired Funds during the period prior to the acquisition by the Partnership.

 

Acquisition of Real Property Interests

In connection with third party acquisitions, Landmark will be obligated to provide acquisition services to us, including asset identification, underwriting and due diligence, negotiation, documentation and closing, at the reasonable request of our General Partner, but we are under no obligation to utilize such services. We will pay Landmark reasonable fees, as mutually agreed to by Landmark and us, for providing these services. These fees will not be subject to the cap on general and administrative expenses described above. As of March 31, 2016, no such fees have been incurred.

21


 

Due from Affiliates

At March 31, 2016 and December 31, 2015, the General Partner and its affiliates owed $1,555,977 and $2,205,853, respectively, to the Partnership for general and administrative reimbursement and for rents received on our behalf.

13. Segment Information

The Partnership had three reportable segments, wireless communication, outdoor advertising and renewable power generation for all periods presented.

The Partnership’s wireless communication segment consists of leasing real property interests to companies in the wireless communication industry in the United States. The Partnership’s outdoor advertising segment consists of leasing real property interests to companies in the outdoor advertising industry in the United States. The Partnership’s renewable power generation segment consists of leasing real property interests to companies in the renewable power industry in the United States. Items that are not included in any of the reportable segments are included in the corporate category.

The reportable segments are strategic business units that offer different products and services. They are commonly managed as all three businesses require similar marketing and business strategies. Because our tenant lease arrangements are mostly effectively triple-net, we evaluate our segments based on revenue. We believe this measure provides investors relevant and useful information because it is presented on an unlevered basis.

The statements of operations for the reportable segments are as follows:

For the three months ended March 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

    

Renewable

    

 

 

    

 

 

 

 

Wireless

    

Outdoor

 

Power

 

 

 

 

 

 

 

 

Communication

 

Advertising

 

Generation

 

Corporate

 

Total

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

 

$

6,073,881

 

$

1,350,487

 

$

148,601

 

$

 —

 

$

7,572,969

Interest income on receivables

 

 

203,347

 

 

 —

 

 

 —

 

 

 —

 

 

203,347

Total revenue

 

 

6,277,228

 

 

1,350,487

 

 

148,601

 

 

 —

 

 

7,776,316

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating

 

 

5,028

 

 

 —

 

 

 —

 

 

 —

 

 

5,028

General and administrative

 

 

 —

 

 

 —

 

 

 —

 

 

1,102,722

 

 

1,102,722

Acquisition-related

 

 

 —

 

 

 —

 

 

 —

 

 

72,080

 

 

72,080

Amortization

 

 

1,794,971

 

 

189,111

 

 

18,202

 

 

 —

 

 

2,002,284

Total expenses

 

 

1,799,999

 

 

189,111

 

 

18,202

 

 

1,174,802

 

 

3,182,114

Total other income and expenses

 

 

373,779

 

 

 —

 

 

 —

 

 

(5,395,607)

 

 

(5,021,828)

Net income (loss)

 

$

4,851,008

 

$

1,161,376

 

$

130,399

 

$

(6,570,409)

 

$

(427,626)

22


 

For the three months ended March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Renewable

    

 

 

    

 

 

 

 

Wireless

 

Outdoor

 

Power

 

 

 

 

 

 

 

    

Communication

 

Advertising

 

Generation

 

Corporate

 

Total

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

 

$

4,972,995

 

$

1,041,192

 

$

9,940

 

$

 —

 

$

6,024,127

Interest income on receivables

 

 

207,310

 

 

 —

 

 

 —

 

 

 —

 

 

207,310

Total revenue

 

 

5,180,305

 

 

1,041,192

 

 

9,940

 

 

 —

 

 

6,231,437

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees to affiliate

 

 

57,645

 

 

18,435

 

 

 —

 

 

 —

 

 

76,080

Property operating

 

 

1,684

 

 

 —

 

 

 —

 

 

 —

 

 

1,684

General and administrative

 

 

 —

 

 

 —

 

 

 —

 

 

983,985

 

 

983,985

Acquisition-related

 

 

902,594

 

 

21,126

 

 

 —

 

 

299,597

 

 

1,223,317

Amortization

 

 

1,405,622

 

 

129,449

 

 

3,309

 

 

 —

 

 

1,538,380

Impairments

 

 

2,762,436

 

 

 —

 

 

 —

 

 

 —

 

 

2,762,436

Total expenses

 

 

5,129,981

 

 

169,010

 

 

3,309

 

 

1,283,582

 

 

6,585,882

Total other income and expenses

 

 

 —

 

 

72,502

 

 

 —

 

 

(2,759,218)

 

 

(2,686,716)

Net income (loss)

 

$

50,324

 

$

944,684

 

$

6,631

 

$

(4,042,800)

 

$

(3,041,161)

The Partnership’s total assets by segment were:

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

December 31, 2015

Segments

    

 

    

    

 

    

Wireless communication

 

$

305,958,376

 

$

308,997,560

Outdoor advertising

 

 

59,285,459

 

 

59,499,264

Renewable power generation

 

 

6,625,319

 

 

6,731,517

Corporate assets

 

 

5,971,397

 

 

8,528,139

Total assets

 

$

377,840,551

 

$

383,756,480

 

 

 

14. Commitments and Contingencies

The Partnership’s commitments and contingencies include customary claims and obligations incurred in the normal course of business. In the opinion of management, these matters will not have a material effect on the Partnership’s combined financial position.

There has been significant consolidation in the wireless communication industry over the last several years that has led to certain lease terminations. In 2013, T‑Mobile acquired MetroPCS and Sprint acquired the remaining interest in Clearwire, and in 2014 AT&T acquired Leap Wireless.  The past consolidation in the wireless industry has led to rationalization of wireless networks and reduced demand for tenant sites. We believe the impact of past consolidation is already reflected in our occupancy rates. The termination of additional leases in our portfolio would result in lower rental revenue and may lead to impairment of our real property interests or other adverse effects to our business.

As of March 31, 2016, the Partnership had approximately $42.8 million of real property interest subject to subordination to lenders of the property. To the extent a lender forecloses on a property the Partnership would take impairment charges for the book value of the asset and no longer be entitled to the revenue associated with the asset.

23


 

15. Tenant Concentration

For the three months ended March 31, 2016 and 2015, the Partnership had the following tenant revenue concentrations:

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

Tenant

 

2016

 

2015

T-Mobile

    

15.9

%

    

17.5

%

Verizon

 

11.4

%

 

11.4

%

Sprint

 

12.0

%

 

13.6

%

AT&T Mobility

 

12.5

%

 

12.5

%

Crown Castle

 

11.3

%

 

11.8

%

Most tenants are subsidiaries of these companies but have been aggregated for purposes of showing revenue concentration. Financial information for these companies can be found at www.sec.gov.

The loss of any one of our large customers as a result of consolidation, merger, bankruptcy, insolvency, network sharing, roaming, joint development, resale agreements by our customers or otherwise may result in (1) a material decrease in our revenue, (2) uncollectible account receivables, (3) an impairment of our deferred site rental receivables, wireless infrastructure assets, site rental contracts or customer relationships intangible assets, or (4) other adverse effects to our business.

16. Supplemental Cash Flow Information

Noncash activities for the three months ended March 31, 2016 and 2015 were as follows:

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

    

2016

    

2015

Capital contribution to fund general and administrative expense reimbursement

 

$

799,954

 

$

692,872

 

Cash flows related to interest paid was as follows:

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

    

2016

    

2015

Cash paid for interest

 

$

2,210,231

 

$

1,473,343

 

 

 

 

 

17. Subsequent Events

On April 20, 2016, the board of directors of our General Partner declared a quarterly cash distribution of $0.33 per unit, or $1.32 per unit on an annualized basis, for the quarter ended March 31, 2016. This distribution is payable on May 13, 2016 to unitholders of record as of May 3, 2016.

24


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, references in this report to “Landmark Infrastructure Partners LP,” “our partnership,” “we,” “our,” “us,” or like terms for time periods prior to our initial public offering (the “IPO”) refer to Landmark Infrastructure Partners LP Predecessor, our predecessor for accounting purposes (our “Predecessor”). Our Partnership succeeded our Predecessor, which includes substantially all the assets and liabilities that were contributed to us in connection with our IPO by Landmark Dividend Growth Fund-A LLC (“Fund A”) and Landmark Dividend Growth Fund-D LLC (“Fund D” and together with Fund A, the “Contributing Landmark Funds”), two investment funds formerly managed by Landmark Dividend LLC (“Landmark” or “Sponsor”).  Our Predecessor includes the results of such assets during any period they were previously owned by Landmark or any of its affiliates. The operations of the assets we acquired during 2015 prior to such acquisition dates, are also included in our operations and the operations of our Predecessor.  For time periods subsequent to the IPO, references in this report to “Landmark Infrastructure Partners LP,” “our partnership,” “we,” “our,” “us,” or like terms refer to Landmark Infrastructure Partners LP. 

 

The following is a discussion and analysis of our financial performance, financial condition and significant trends that may affect our future performance. You should read the following in conjunction with the historical consolidated and combined financial statements and related notes included elsewhere in this report. Among other things, those historical consolidated and combined financial statements include more detailed information regarding the basis of presentation for the following information. The following discussion and analysis contains forward‑looking statements that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied in forward‑looking statements for many reasons, including the risks described in “Risk Factors” disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015.

 

 Some of the information in this Quarterly Report on Form 10-Q may contain forward‑looking statements. Forward‑looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as “may,” “will,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward‑looking statements. They can be affected by and involve assumptions used or known or unknown risks or uncertainties. Consequently, no forward‑looking statements can be guaranteed. When considering these forward‑looking statements, you should keep in mind the risk factors and other cautionary statements as set forth in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015. Actual results may vary materially. You are cautioned not to place undue reliance on any forward‑looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. The risk factors and other factors noted throughout our Annual Report on Form 10-K for the year ended December 31, 2015 and other factors noted in this Quarterly Report on Form 10-Q could cause our actual results to differ materially from the results contemplated by such forward‑looking statements, including the following:

·

the number of real property interests that we are able to acquire, and whether we are able to complete such acquisitions on favorable terms, which could be adversely affected by, among other things, general economic conditions, operating difficulties, and competition;

·

the prices we pay for our acquisitions of real property;

·

our management’s and our general partner’s conflicts of interest;

·

the rent increases we are able to negotiate with our tenants, and the possibility of further consolidation among a relatively small number of significant tenants in the wireless communication and outdoor advertising industries;

·

our relative lack of experience with real property interest acquisition in the renewable power segment and abroad;

25


 

·

changes in the price and availability of real property interests;

·

changes in prevailing economic conditions;

·

unanticipated cancellations of tenant leases;

·

a decrease in our tenants’ demand for real property interest due to, among other things, technological advances or industry consolidation;

·

inclement or hazardous weather conditions, including flooding, and the physical impacts of climate change, unanticipated ground, grade or water conditions, and other environmental hazards;

·

inability to acquire or maintain necessary permits;

·

changes in laws and regulations (or the interpretation thereof), including zoning regulations;

·

difficulty collecting receivables and the potential for tenant bankruptcy;

·

additional difficulties and expenses associated with being a publicly traded partnership;

·

our ability to borrow funds and access capital markets, and the effects of the fluctuating interest rate on our existing and future borrowings; and

·

restrictions in our revolving credit facility on our ability to issue additional debt or equity or pay distributions.

All forward‑looking statements are expressly qualified in their entirety by the foregoing cautionary statements.

Overview

We are a growth‑oriented master limited partnership formed by Landmark to own and manage a portfolio of real property interests that we lease to companies in the wireless communication, outdoor advertising and renewable power generation industries. We generate revenue and cash flow from existing tenant leases of our real property interests to wireless carriers, cellular tower owners, outdoor advertisers and renewable power producers.

How We Generate Rental Revenue

We generate rental revenue and cash flow from existing leases of our tenant sites to wireless carriers, cellular tower owners, outdoor advertisers and renewable power producers. The amount of rental revenue generated by the assets in our portfolio depends principally on occupancy levels and the tenant lease rates and terms at our tenant sites.

We believe the terms of our tenant leases provide us with stable and predictable cash flow that will support consistent, growing distributions to our unitholders. Substantially all of our tenant lease arrangements are effectively triple net, meaning that our tenants or the underlying property owners are generally contractually responsible for property‑level operating expenses, including maintenance capital expenditures, property taxes and insurance. In addition, over 94% of our tenant leases have contractual fixed‑rate escalators or consumer price index (“CPI”)‑based rent escalators, and some of our tenant leases contain revenue‑sharing provisions in addition to the base monthly or annual rental payments. Occupancy rates under our tenant leases have historically been very high. We also believe we are well positioned to negotiate higher rents in advance of lease expirations as tenants request lease amendments to accommodate equipment upgrades or add tenants to increase co‑location.

26


 

Future economic or regional downturns affecting our submarkets that impair our ability to renew or re‑lease our real property interests and other adverse developments that affect the ability of our tenants to fulfill their lease obligations, such as tenant bankruptcies, could adversely affect our ability to maintain or increase rental rates at our sites. Adverse developments or trends in one or more of these factors could adversely affect our rental revenue and tenant recoveries in future periods.

How We Evaluate Our Operations

Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include: (1) occupancy (2) operating and maintenance expenses; (3) Adjusted EBITDA; and (4) distributable cash flow.

Occupancy

The amount of revenue we generate primarily depends on our occupancy rate. As of March 31, 2016, we had a 97% occupancy rate with 1,405 of our 1,443 available tenant sites leased. We believe the infrastructure assets at our tenant sites are essential to the ongoing operations and profitability of our tenants. Combined with the challenges and costs of relocating the infrastructure, we believe that we will continue to enjoy high tenant retention and occupancy rates.

There has been significant consolidation in the wireless communication industry over the last several years that has led to certain lease terminations. In 2013, T‑Mobile acquired MetroPCS and Sprint acquired the remaining interest in Clearwire, and in 2014 AT&T acquired Leap Wireless. As a result of T-Mobile’s acquisition of MetroPCS (completed in 2013), in 2015 we received termination notices related to 23 MetroPCS tenant sites, two of which were subsequently rescinded. The majority of the MetroPCS sites where we have received termination notices have been vacated. We believe the impact of past consolidation is already reflected in our occupancy rates. Any additional termination of leases in our portfolio would result in lower rental revenue, may lead to impairment of our real property interests, or other adverse effects to our business.

Operating and Maintenance Expenses

Substantially all of our tenant sites are subject to effectively triple net lease arrangements, which require the tenant or the underlying property owner to pay all utilities, property taxes, insurance and repair and maintenance costs. Our overall financial results could be impacted to the extent the owners of the fee interest in the real property or our tenants do not satisfy their obligations.

EBITDA, Adjusted EBITDA and Distributable Cash Flow

We define EBITDA as net income before interest, income taxes, depreciation and amortization, and we define Adjusted EBITDA as EBITDA before impairments, acquisition‑related costs, unrealized or realized gain or loss on derivatives, loss on early extinguishment of debt, gain on sale of real property interest, unit‑based compensation, straight line rental adjustments, amortization of above‑ and below‑market rents, and after the deemed capital contribution to fund our general and administrative expense reimbursement. We define distributable cash flow as Adjusted EBITDA less cash interest paid, current cash income tax paid and maintenance capital expenditures. Distributable cash flow will not reflect changes in working capital balances.

EBITDA, Adjusted EBITDA and distributable cash flow are non‑GAAP supplemental financial measures that management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

our operating performance as compared to other publicly traded limited partnerships, without regard to historical cost basis or, in the case of Adjusted EBITDA, financing methods;

27


 

the ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders;

our ability to incur and service debt and fund capital expenditures; and

the viability of acquisitions and the returns on investment of various investment opportunities.

We believe that the presentation of EBITDA, Adjusted EBITDA and distributable cash flow in this Quarterly Report on Form 10-Q provides information useful to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to EBITDA, Adjusted EBITDA and distributable cash flow are net income and net cash provided by operating activities. EBITDA, Adjusted EBITDA and distributable cash flow should not be considered as an alternative to GAAP net income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Each of EBITDA, Adjusted EBITDA and distributable cash flow has important limitations as analytical tools because they exclude some, but not all, items that affect net income and net cash provided by operating activities, and these measures may vary from those of other companies. You should not consider EBITDA, Adjusted EBITDA and distributable cash flow in isolation or as a substitute for analysis of our results as reported under GAAP. As a result, because EBITDA, Adjusted EBITDA and distributable cash flow may be defined differently by other companies in our industry, EBITDA, Adjusted EBITDA and distributable cash flow as presented below may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

Factors Affecting the Comparability of Our Financial Results

Our future results of operations may not be comparable to our historical results of operations for the reasons described below:

Acquisitions

We have in the past pursued and intend to continue to pursue acquisitions of real property interests. Our significant historical acquisition activity impacts the period to period comparability of our results of operations. During 2015, Landmark acquired real property interests underlying 277 tenant sites that were subsequently included in drop-down acquisitions by the Partnership. The acquisitions were deemed to be transactions between entities under common control, which requires the assets and liabilities transferred at the historical cost of the parent of the entities, with prior periods retroactively adjusted to furnish comparative information. Operating results from the acquisition of real property interests are reflected from the date of acquisition by Landmark.

During the year ended December 31, 2015, the Partnership completed eight drop-down acquisitions of 761 tenant sites and related real property interests from the Sponsor and affiliates in exchange for total consideration of $268.2 million. Included in the 761 tenant sites acquired by the Partnership in 2015, 401 of these tenant sites were part of the right of first offer assets acquired from Landmark Dividend Growth Fund-C LLC (“Fund C”), Landmark Dividend Growth Fund-E LLC (“Fund E”) and Landmark Dividend Growth Fund-F LLC (“Fund F” and together with Fund C and Fund E, the “Acquired Funds”) for total consideration of $140.7 million. All of the acquisitions described above are collectively referred to as the “Acquisitions,” and the acquired assets in the Acquisitions are collectively referred to as the “Acquired Assets.” The Acquisitions are deemed to be transactions between entities under common control, which, under applicable accounting guidelines, requires the assets and liabilities to be transferred at the historical cost of the parent of the entities, with prior periods retroactively adjusted to furnish comparative information. See Note 3, Acquisitions to the Consolidated and Combined Financial Statements for additional information.

Derivative Financial Instruments

Historically, we have hedged a portion of the variable interest rates under our secured debt facilities through interest rate swap agreements. We have not applied hedge accounting to these derivative financial instruments which has resulted in the change in the fair value of the interest rate swap agreements to be reflected in income as either a realized or unrealized gain (loss) on derivatives.

28


 

General and Administrative Expenses

Under the Partnership’s Second Amended and Rested Agreement of Limited Partnership dated April 4, 2016 (the “Partnership Agreement”), we are required to reimburse our general partner and its affiliates for all costs and expenses that they incur on our behalf for managing and controlling our business and operations. Except to the extent specified under our Omnibus Agreement with Landmark (“Omnibus Agreement”), our general partner determines the amount of these expenses and such determinations must be made in good faith under the terms of the Partnership Agreement. Under the Omnibus Agreement, we agreed to reimburse Landmark for expenses related to certain general and administrative services that Landmark will provide to us in support of our business, subject to a quarterly cap equal to the greater of $162,500 and 3% of our revenue during the preceding calendar quarter. This cap on expenses will last until the earlier to occur of: (i) the date on which our revenue for the immediately preceding four consecutive fiscal quarters exceeded $80.0 million and (ii) the fifth anniversary of the closing of the IPO (November 19, 2019). The full amount of general and administrative expenses incurred will be reflected on our income statements, and to the extent such general and administrative expenses exceed the cap amount, the amount of such excess will be reflected on our financial statements as a capital contribution from Landmark rather than as a reduction of our general and administrative expenses, except for expenses that would otherwise be allocated to us, which are not included in the amount of general and administrative expenses.

Our historical financial results include a management fee charged by Landmark to cover certain administrative costs as the managing member of the Acquired Funds. Landmark is no longer entitled to receive a management fee for these services and will be reimbursed for its costs of providing these services subject to the cap under the terms of the Omnibus Agreement.

Basis in Real Property Interests

We have concluded that the contribution of interests by the Contributing Landmark Funds was deemed a transaction among entities under common control, since these entities have common management and ownership and are under common control. As a result, the contribution and acquisition of real property interests and other assets from the Contributing Landmark Funds to our Predecessor was recorded at Landmark’s historical cost.

The assets and liabilities acquired during the year ended December 31, 2015 are recorded at the historical cost of Landmark, as the drop-down acquisitions are transactions between entities under common control, our statements of operations of the Partnership are adjusted retroactively as if the transaction occurred on the earliest date during which the entities were under common control. Our historical financial statements have been retroactively adjusted to reflect the results of operations, financial position and cash flows of the Acquired Assets as if we owned the Acquired Assets as of the date acquired by Landmark for all periods presented. 

Factors That May Influence Future Results of Operations

Acquisitions of Additional Real Property Interests

We intend to pursue acquisitions of real property interests from Landmark and its affiliates, including those real property interests subject to our right of first offer. We also intend to pursue acquisitions of real property interests from third parties, utilizing the expertise of our management and other Landmark employees to identify and assess potential acquisitions, for which we would pay Landmark mutually agreed reasonable fees. When acquiring real property interests, we target infrastructure locations that are essential to the ongoing operations and profitability of our tenants, which we expect will result in continued high tenant occupancy and enhance our cash flow stability. We expect the vast majority of our acquisitions will include leases with tenants that are large, publicly traded companies (or their affiliates) that have a national footprint (“Tier 1”) or tenants whose sub‑tenants are Tier 1 companies. Additionally, we focus on infrastructure locations with characteristics that are difficult to replicate in their respective markets, and those with tenant assets that cannot be easily moved to nearby alternative sites or replaced by new construction. Although our portfolio is focused on wireless communication, outdoor advertising and renewable power generation assets in the United States, we intend to grow our portfolio of real property interests into other fragmented infrastructure asset classes and may pursue acquisitions internationally.

29


 

Changing Interest Rates

Interest rates have been at or near historic lows in recent years. If interest rates rise, this may impact the availability and terms of debt financing, our interest expense associated with existing and future debt or our ability to make accretive acquisitions.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our consolidated and combined financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2015, in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our critical accounting policies have not changed during 2016.

Historical Results of Operations of our Partnership

Segments

We conduct business through three reportable business segments: Wireless Communication, Outdoor Advertising and Renewable Power Generation. Our reportable segments are strategic business units that offer different products and services. They are commonly managed, as all three businesses require similar marketing and business strategies. We evaluate our segments based on revenue because substantially all of our tenant lease arrangements are effectively triple-net. We believe this measure provides investors relevant and useful information because it is presented on an unlevered basis.

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Results of Operations

Our results of operations for all periods presented were affected by acquisitions made during the year ended December 31, 2015. As of March 31, 2016 and 2015, we had 1,443 and 1,251 available tenant sites with 1,405 and 1,241 leased tenant sites, respectively. The following table summarizes the consolidated and combined statement of operations of our Partnership:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2016

 

2015

 

Change

Revenue

    

 

    

    

 

    

    

 

    

Rental revenue

 

$

7,572,969

 

$

6,024,127

 

$

1,548,842

Interest income on receivables

 

 

203,347

 

 

207,310

 

 

(3,963)

Total revenue

 

 

7,776,316

 

 

6,231,437

 

 

1,544,879

Expenses

 

 

 

 

 

 

 

 

 

Management fees to affiliate

 

 

 —

 

 

76,080

 

 

(76,080)

Property operating

 

 

5,028

 

 

1,684

 

 

3,344

General and administrative

 

 

1,102,722

 

 

983,985

 

 

118,737

Acquisition-related

 

 

72,080

 

 

1,223,317

 

 

(1,151,237)

Amortization

 

 

2,002,284

 

 

1,538,380

 

 

463,904

Impairments

 

 

 —

 

 

2,762,436

 

 

(2,762,436)

Total expenses

 

 

3,182,114

 

 

6,585,882

 

 

(3,403,768)

Other income and expenses

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,347,491)

 

 

(1,886,720)

 

 

(460,771)

Unrealized loss on derivatives

 

 

(3,048,116)

 

 

(872,498)

 

 

(2,175,618)

Gain on sale of real property interests

 

 

373,779

 

 

72,502

 

 

301,277

Total other income and expenses

 

 

(5,021,828)

 

 

(2,686,716)

 

 

(2,335,112)

Net income (loss)

 

$

(427,626)

 

$

(3,041,161)

 

$

2,613,535

 

Comparison of Three Months Ended March 31, 2016 to Three Months Ended March 31, 2015

Rental Revenue

Rental revenue increased $1,548,842, $1,209,125 of which was due to the greater number of assets in the portfolio during the three months ended March 31, 2016 compared to the three months ended March 31, 2015. Revenue generated from our wireless communication, outdoor advertising, and renewable power generation segments was $6,073,881, $1,350,487, and $148,601, or 80%, 18%, and 2% of total rental revenue, respectively, during the three months ended March 31, 2016, compared to $4,972,995, $1,041,192, and $9,940, or 83%, 17%, and less than 1% of total rental revenue, respectively, during the three months ended March 31, 2015. The occupancy rates in our wireless communication, outdoor advertising, and renewable power generation segments were 97%, 98%, and 100%, respectively, at March 31, 2016 compared to 98%, 100%, and 100%, respectively, at March 31, 2015. Additionally, our effective monthly rental rates per tenant site for wireless communication, outdoor advertising and renewable power generation segments were $1,759, $1,405, and $4,533, respectively, during the three months ended March 31, 2016 compared to $1,684, $1,230, and $959, respectively, during the three months ended March 31, 2015.

Interest Income on Receivables

Interest income on receivables decreased $3,963 due to the amortization of the principal balance. As a result of the transfer of investments in receivables from the Contributing Landmark Funds to the Partnership, which met the conditions to be accounted for as a sale in accordance with ASC 860, Transfers and Servicing, the investments in receivables were recorded at their estimated fair value as of November 19, 2014. As a result of the July 21, 2015 acquisition, the Partnership acquired an additional investment in receivables that was valued at $142,062 as of the acquisition date. We expect the amount of interest income on receivables to decline as the principal balance of the receivables amortize. We expect to reinvest the principal payments received into additional real property interests. Interest income on receivables is generated from our wireless communication segment.

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Management Fees to Affiliate

Management fees to affiliates decreased $76,080 during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to $76,080 of management fees to affiliates that are associated with the Acquired Funds. Landmark’s right to receive management fees ranging from $45 to $75 per asset per month for managing each of the Acquired Funds’ assets was terminated in connection with the Partnership’s acquisition of the Acquired Funds. Pursuant to the terms of our Omnibus Agreement, the Partnership instead reimburses Landmark for certain general and administrative expenses incurred by Landmark, subject to a quarterly cap equal to the greater of $162,500 and 3% of our revenue during the preceding calendar quarter.

General and Administrative

General and administrative expenses increased $118,737 during the three months ended March 31, 2016 compared to the three months ended March 31, 2015, due to an increase in additional accounting, tax and legal related expenses. Pursuant to the terms of our Omnibus Agreement, we will reimburse Landmark for certain general and administrative expenses incurred by Landmark, subject to the cap described above. For the three months ended March 31, 2016 and 2015, Landmark reimbursed us $799,954 and $692,872, respectively, for expenses related to certain general and administrative services expenses that exceeded the cap. The full amount of general and administrative expenses incurred is reflected on our income statements and the amount in excess of the cap that is reimbursed is reflected on our financial statements as a capital contribution from Landmark rather than as a reduction of our general and administrative expenses, except for expenses that would otherwise be allocated to us, which are not included in the amount of general and administrative expenses.

Acquisition‑Related

Acquisition‑related expenses decreased $1,151,237 during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 as a result of the acquisitions made under common control from Landmark and affiliates, which requires the prior periods retroactively adjusted to furnish comparative information. Acquisition‑related expenses are third party fees and expenses related to acquiring an asset and include survey, title, legal, and other items as well as legal and financial advisor expenses associated with the acquisition. As such, the three months ended March 31, 2015 acquisition-related expenses includes retroactive adjustments of $923,719 associated with the Acquired Assets.

Amortization

Amortization expense increased $463,904 during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 as a result of having 1,443 tenant sites as of March 31, 2016 compared to 1,251 tenant sites as of March 31, 2015. We expect amortization of investments in real property rights with finite useful lives and in‑place lease values to continue to increase based on increased acquisitions and assets acquired in 2015 contributing to a full period of amortization.

Impairments

Impairments decreased $2,762,436 during the three months ended March 31, 2016 compared to the three months ended March 31, 2015, primarily due to lease terminations in our wireless communication segment during the three months ended March 31, 2015. As a result of T‑Mobile’s acquisition of MetroPCS (completed in 2013), we have received termination notices related to 23 MetroPCS tenant sites, two of which have subsequently been rescinded. As of March 31, 2016, the majority of the MetroPCS sites where we have received termination notices have been vacated. Other recent consolidation events include Sprint’s acquisition of the remaining interest in Clearwire (completed in 2013), and AT&T’s acquisition of Leap Wireless (completed in 2014). We believe the impact of past consolidation is already reflected in our occupancy rates.

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Interest Expense

Interest expense increased $460,771 during the three months ended March 31, 2016 compared to the three months ended March 31, 2015, due to the increase in average outstanding balance under our revolving credit facility during the three months ended March 31, 2016 compared to the average outstanding balances under our revolving credit facility and the secured debt facilities for the three months ended March 31, 2015. As all the acquisitions were transactions between entities under common control, prior-period information has been retroactively adjusted to include interest expense of $875,064 related to the Acquired Funds’ secured debt facility for the three months ended March 31, 2015. Additionally, deferred loan costs amortization, which is included in interest expense, has been retroactively adjusted to include $211,212 for the three months ended March 31, 2015.

 

On March 23, 2016, the Partnership entered into an interest rate swap agreement with a notional amount of $50.0 million to fix the floating rate for existing borrowings at an effective rate of 4.17% over a three-year period beginning on December 24, 2018. Additionally, on March 31, 2016, the Partnership entered into two interest rate swap agreements with notional amounts of $20.0 million and $25.0 million to fix the floating interest rate for existing borrowings at an effective rate of 4.06% and 4.13% over a three-year period beginning on December 24, 2018 and April 13, 2019, respectively. These interest rate swap agreements extend through and beyond the term of the Partnership’s existing credit facility.

Unrealized Loss on Derivative Financial Instruments

We mitigated exposure to fluctuations in interest rates on existing debt by entering into swap contracts, as described above, that fixed the floating LIBOR rate. These contracts were adjusted to fair value at each period end. The unrealized loss recorded for the three months ended March 31, 2016 and 2015 reflects the change in fair value of these contracts during those periods.

Gain on Sale of Real Property Interests

During the three months ended March 31, 2016, we recognized a gain on the sale of real property interest of $373,779 related to the sale of one wireless communication site. During the three months ended March 31, 2015, we recognized a gain on the sale of real property interest of $72,502 related to one tenant site lost to eminent domain proceeding.

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Non‑GAAP Financial Measures

The following table sets forth a reconciliation of our historical EBITDA, Adjusted EBITDA and distributable cash flow for the periods presented to net cash provided by operating activities and net income:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2016

 

2015*

Net cash provided by operating activities

 

$

4,310,475

 

$

3,373,716

Unit-based compensation

 

 

(105,000)

 

 

(78,750)

Unrealized loss on derivatives

 

 

(3,048,116)

 

 

(872,498)

Amortization expense

 

 

(2,002,284)

 

 

(1,538,380)

Amortization of above- and below-market rents, net

 

 

321,006

 

 

286,745

Amortization of deferred loan costs

 

 

(196,972)

 

 

(354,590)

Receivables interest accretion

 

 

18,772

 

 

15,381

Impairments

 

 

 —

 

 

(2,762,436)

Gain on sale of real property interests

 

 

373,779

 

 

72,502

Working capital changes

 

 

(99,286)

 

 

(1,182,851)

Net loss

 

$

(427,626)

 

$

(3,041,161)

Interest expense

 

 

2,347,491

 

 

1,886,720

Amortization expense

 

 

2,002,284

 

 

1,538,380

EBITDA 

 

$

3,922,149

 

$

383,939

Impairments

 

 

 —

 

 

2,762,436

Acquisition-related

 

 

72,080

 

 

1,223,317

Unrealized loss on derivatives

 

 

3,048,116

 

 

872,498

Gain on sale of real property interests

 

 

(373,779)

 

 

(72,502)

Unit-based compensation

 

 

105,000

 

 

78,750

Straight line rent adjustments

 

 

(26,804)

 

 

(61,400)

Amortization of above- and below-market rents, net

 

 

(321,006)

 

 

(286,745)

Deemed capital contribution due to cap on general and administrative expense reimbursement

 

 

799,954

 

 

692,872

Adjusted EBITDA

 

$

7,225,710

 

$

5,593,165

Less: Predecessor Adjusted EBITDA

 

 

 —

 

 

(2,192,720)

Adjusted EBITDA applicable to limited partners

 

$

7,225,710

 

$

3,400,445

Less: Cash interest expense

 

 

(2,150,519)

 

 

(868,278)

Distributable cash flow

 

$

5,075,191

 

$

2,532,167

* Prior-period financial information has been retroactively adjusted for Acquisitions made under common control. See Note 3 to the Consolidated and Combined Financial Statements.

Liquidity and Capital Resources

Our short‑term liquidity requirements will consist primarily of funds to pay for operating expenses and other expenditures directly associated with our assets, including:

·

interest expense on our revolving credit facility;

·

general and administrative expenses;

·

acquisitions of real property interests; and

·

distributions to our unitholders.

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We intend to satisfy our short‑term liquidity requirements through cash flow from operating activities and proceeds from borrowings available under our revolving credit facility. We may also satisfy our short-term liquidity requirements through the issuance of additional equity, amending our existing revolving credit facility to increase the available commitments or refinancing some of the outstanding borrowings under our existing credit facility through securitizations or other long term debt arrangements. We have a universal shelf registration statement on file with the U.S. Securities and Exchange Commission (the SEC) under which we have the ability to issue and sell an indeterminate amount of common and preferred units representing limited partner interests in us and debt securities.

We intend to pay at least a quarterly distribution of $0.33 per unit per quarter, which equates to approximately $5.0 million per quarter, or $19.8 million per year in the aggregate, based on the number of common and subordinated units outstanding as of March 31, 2016. We do not have a legal obligation to pay this distribution or any other distribution except to the extent we have available cash as defined in our Partnership Agreement.

The table below summarizes the quarterly distribution related to our financial results:

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

Total Cash

 

Distribution

Quarter Ended

 

Per Unit

 

Distribution

 

Date

March 31, 2015

 

$

0.2975

 

$

2,332,038

 

May 14, 2015

June 30, 2015

 

 

0.3075

 

 

3,334,168

 

August 14, 2015

September 30, 2015

 

 

0.3175

 

 

4,077,232

 

November 13, 2015

December 31, 2015

 

 

0.3250

 

 

4,863,655

 

February 12, 2016

March 31, 2016 (1)

 

 

0.3300

 

 

4,953,601

 

May 13, 2016


(1)

On April 20, 2016, the board of directors of our General Partner declared a quarterly cash distribution of $0.33 per unit, or $1.32 per unit on an annualized basis, for the quarter ended March 31, 2016.  This distribution is payable on May 13, 2016 to unitholders of record as of May 3, 2016.

As of March 31, 2016, we had $228.5 million of outstanding indebtedness, and we had approximately $21.5 million of undrawn borrowing capacity, subject to compliance with certain covenants, under our revolving credit facility. In connection with the closing of our preferred equity offering on April 4, 2016, we used the cash proceeds, as described below, and available cash to repay a portion of the borrowings under our revolving credit facility. As of April 7, 2016, we had $208.5 million of outstanding indebtedness and approximately $41.5 million of undrawn borrowing capacity.

We intend to use the revolving credit facility, among other things, for real property interest acquisitions, working capital requirements and other general corporate purposes.

Our long‑term liquidity needs consist primarily of funds necessary to pay for acquisitions and scheduled debt maturities. We intend to satisfy our long‑term liquidity needs through cash flow from operations and through the issuance of additional equity and debt.

Cash Flow of the Funds

The following table summarizes the historical cash flow of the Partnership for the three months ended March 31, 2016 and 2015:

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2016

 

2015

Net cash provided by operating activities

    

$

4,310,475

    

$

3,373,716

Net cash provided by (used in) investing activities

 

 

1,975,629

 

 

(20,444,030)

Net cash provided by (used in) financing activities

 

 

(7,859,884)

 

 

17,033,876

Comparison of Three Months Ended March 31, 2016 to Three Months Ended March 31, 2015

Net cash provided by operating activities.  Net cash provided by operating activities increased $936,759 to $4,310,475 for the three months ended March 31, 2016 compared to $3,373,716 for the three months ended March 31, 2015. The increase is primarily attributable to the increase in rental revenue related to the Acquired Assets.

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Net cash provided by (used in) investing activities.  Net cash provided by investing activities was $1,975,629 for the three months ended March 31, 2016 compared to net cash used in investing activities of $20,444,030 for the three months ended March 31, 2015. The cash used in 2015 was due to the cash used to acquire 72 tenant sites during the three months ended March 31, 2016 compared to the cash received for the sale of 13 tenant sites during the three months ended March 31, 2016.

Net cash provided by (used in) financing activities.  Net cash used in financing activities was $7,859,884 for the three months ended March 31, 2016 compared to net cash provided by financing activities of $17,033,876 for the three months ended March 31, 2015. The cash used in financing activities is primarily attributable to a net reduction of borrowings of $4,500,000 during the three months ended March 31, 2016 compared to a net increase in borrowing of $22,706,485 during the three months ended March 31, 2015. Additionally, the difference between the cost and the sales price of assets sold by Landmark to us is treated as a distribution to Landmark.

Revolving Credit Facility

At the closing of the IPO, we amended and restated the existing secured debt facilities of Fund A and Fund D as a new $190.0 million senior secured revolving credit facility, which we refer to as our “revolving credit facility,” with SunTrust Bank, as administrative agent, and a syndicate of lenders. Our revolving credit facility will mature on November 19, 2019, and is available for working capital, capital expenditures, permitted acquisitions and general partnership purposes, including distributions. On June 3, 2015, the Partnership exercised its option to increase the available commitments under its revolving credit facility for an additional $60.0 million, resulting in aggregate commitments of $250.0 million. Substantially all of our assets, excluding equity in and assets of certain joint ventures and unrestricted subsidiaries, after‑acquired real property (other than real property that is acquired from affiliate funds and is subject to a mortgage), and other customary exclusions, is pledged as collateral under our revolving credit facility.

Our revolving credit facility contains various covenants and restrictive provisions that limit our ability (as well as the ability of our restricted subsidiaries) to, among other things:

incur or guarantee additional debt;

make distributions on or redeem or repurchase equity;

make certain investments and acquisitions;

incur or permit to exist certain liens;

enter into certain types of transactions with affiliates;

merge or consolidate with another company;

transfer, sell or otherwise dispose of assets or enter into certain sale‑leaseback transactions; and

enter into certain restrictive agreements or amend or terminate certain material agreements.

Our revolving credit facility also requires compliance with certain financial covenants as follows:

a leverage ratio of not more than 8.5 to 1.0; and

an interest coverage ratio of not less than 2.0 to 1.0.

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In addition, our revolving credit facility contains events of default including, but not limited to (i) events of default resulting from our failure or the failure of our restricted subsidiaries to comply with covenants and financial ratios, (ii) the occurrence of a change of control (as defined in the credit agreement), (iii) the institution of insolvency or similar proceedings against us or our restricted subsidiaries, (iv) the occurrence of a default under any other material indebtedness (as defined in the credit agreement) we or our restricted subsidiaries may have and (v) any one or more collateral documents ceasing to create a valid and perfected lien on collateral (as defined in the credit agreement). Upon the occurrence and during the continuation of an event of default, subject to the terms and conditions of the credit agreement, the lenders may declare any outstanding principal of our revolving credit facility debt, together with accrued and unpaid interest, to be immediately due and payable and may exercise the other remedies set forth or referred to in the credit agreement and the other loan documents.

Loans under our revolving credit facility bear interest at our option at a variable rate per annum equal to either:

a base rate, which is the highest of (i) the administrative agent’s prime rate in effect on such day, (ii) the federal funds rate in effect on such day plus 0.50%, and (iii) an adjusted one month LIBOR plus 1.0%, in each case, plus an applicable margin of 1.50%; or

an adjusted one month LIBOR plus an applicable margin of 2.50%.

As of March 31, 2016, we had approximately $228.5 million of outstanding indebtedness and approximately $21.5 million of undrawn borrowing capacity, subject to compliance with certain covenants, under our revolving credit facility. The Partnership was also in compliance with all covenants under its revolving credit facility at March 31, 2016.

Shelf Registrations

On December 3, 2015, the Partnership filed a universal shelf registration statement on Form S-3 with the SEC. The shelf registration statement was declared effective by the SEC on December 30, 2015 and permits us to issue and sell common and preferred units, from time to time, representing limited partner interests in us and debt securities up to an aggregate amount of $250.0 million.

On February 16, 2016, the Partnership filed a shelf registration statement on Form S-4 with the SEC. The shelf registration statement was declared effective on March 10, 2016 and permits us to offer and issue, from time to time, an aggregate of up to 5,000,000 Common Units in connection with the acquisition by us or our subsidiaries of other businesses, assets or securities.

At-the-Market Offering of Common Units

On February 16, 2016, the Partnership entered into an At-the-Market Issuance Sales Agreement (the “ATM Agreement”) pursuant to which we may sell, from time to time, Common Units having an aggregate offering price of up to $50.0 million.  We intend to use the net proceeds from any sales pursuant to the ATM Agreement for general partnership purposes, which may include, among other things, the repayment of indebtedness and to potentially fund future acquisitions. There were no Common Units issued during the three months ended March 31, 2016 under our ATM Agreement.

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Preferred Equity Offering

On April 4, 2016, the Partnership completed a public offering of $20.0 million 8.00% Series A Cumulative Redeemable Perpetual Preferred Units (“Series A Preferred Units”), representing limited partner interests in the Partnership, at a price of $25.00 per unit. We received net proceeds of approximately $18.8 million after deducting the underwriters’ discounts and offering expenses paid by us of $1.2 million. We used all proceeds to repay a portion of the borrowings under our revolving credit facility.

The initial distribution on the Series A Preferred Units will be paid on July 15, 2016 in an amount equal to $0.5611 per unit. Distributions on the Series A Preferred Units will accumulate at a rate of 8.00% per annum per $25.00 stated liquidation preference per Series A Preferred Unit.

In connection with the closing of the preferred equity offering, on April 4, 2016, the Partnership executed the Second Amended and Restated Agreement of Limited Partnership of Landmark Infrastructure Partners LP for the purpose of updating the form of Partnership Agreement and defining the preferences, rights, powers and duties of holders of preferred units.

Off Balance Sheet Arrangements

As of March 31, 2016, we do not have any off balance sheet arrangements.

Inflation

Substantially all of our tenant lease arrangements are effectively triple net and provide for fixed‑rate escalators or rent escalators tied to increases in the consumer price index. We believe that inflationary increases may be at least partially offset by the contractual rent increases and our tenants’ (or the underlying property owners’) obligations to pay taxes and expenses under our effectively triple net lease arrangements. We do not believe that inflation has had a material impact on our historical financial position or results of operations.

Newly Issued Accounting Standards

See Note 2, Basis of Presentation and Summary of Significant Accounting Policies, to the Consolidated and Combined Financial Statements for the impact of new accounting standards. There are no accounting pronouncements that have been issued, but not yet adopted by us, that we believe will materially impact our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our future income, cash flow and fair values relevant to financial instruments are impacted by prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. In the future, we may continue to use derivative financial instruments to manage, or hedge, interest rate risks related to our borrowings. Our primary market risk exposure will be interest rate risk with respect to our expected indebtedness.

As of March 31, 2016, our revolving credit facility had an outstanding balance of $228.5 million. Additional borrowings under our revolving credit facility will have variable LIBOR‑based rates and will fluctuate based on the underlying LIBOR rate. As of March 31, 2016, we have hedged $145.0 million through interest rate swap agreements. If LIBOR were to increase by 50 basis points, assuming no additional hedging activities, the increase in interest expense on our debt would decrease our future earnings and cash flow by approximately $0.4 million annually. If LIBOR were to decrease by 44 basis points to zero, the decrease in interest expense on our pro forma variable rate debt would be approximately $0.4 million annually.

38


 

Interest risk amounts represent our management’s estimates and were determined by considering the effect of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

Rising interest rates could limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness. We intend to hedge interest rate risks related to a portion of our borrowings over time by means of interest rate swap agreements or other arrangements. See further discussion in Note 8, Interest Rate Swap Agreements, to the Consolidated and Combined Financial Statements for additional information.

Item 4.Controls and Procedures

Disclosure Controls and Procedures

Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, and has concluded that our disclosure controls and procedures were effective as of March 31, 2016.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are not a party to any litigation or governmental or other proceeding that we believe will have a material adverse impact on our financial condition or results of operations. In addition, under our Omnibus Agreement, Landmark will indemnify us for liabilities relating to litigation matters attributable to the ownership of the contributed assets prior to the closing of the IPO. In addition, pursuant to the terms of the various agreements under which we have acquired assets from Landmark since the IPO, Landmark will indemnify us for certain losses resulting from any breach of their representations, warranties or covenants contained in the various agreements, subject to certain limitations and survival periods.

 

Item 1A.  Risk Factors

There are no material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015.

39


 

Item 6. Exhibits

 

 

 

Exhibit
number

 

Description

1.1 

 

At-the-Market Issuance Sales Agreement, dated as of February 16, 2016, by and among Landmark Infrastructure Partners LP, Landmark Infrastructure Partners GP LLC, Landmark Infrastructure Operating Company LLC and FBR Capital Markets & Co., MLV & Co. LLC and Janney Montgomery Scott LLC (incorporated by reference to Exhibit 1.1 of our Current Report on Form 8-K filed on February 16, 2016).

1.2 

 

Underwriting Agreement dated March 30, 2016 among Landmark Infrastructure Partners LP, Landmark Infrastructure Partners GP LLC, Landmark Infrastructure Operating Company LLC and RBC Capital Markets, LLC, and FBR Capital Markets & Co., as representatives of the several underwriters (incorporated by reference to Exhibit 1.1 of our Current Report on Form 8-K filed on April 4, 2016).

3.1 

 

Second Amended and Restated Agreement of Limited Partnership of Landmark Infrastructure Partners LP (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed on April 4, 2016).

31.1*

 

Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal executive officer.

31.2*

 

Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal financial officer.

32.1*

 

Section 1350 Certifications (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002).

101.INS*

 

XBRL Instance Document.

101.SCH*

 

XBRL Schema Document

101.CAL*

 

XBRL Calculation Linkbase Document.

101.LAB*

 

XBRL Labels Linkbase Document.

101.PRE*

 

XBRL Presentation Linkbase Document.

101.DEF*

 

XBRL Definition Linkbase Document.

 

 

 

 

 

*Filed herewith.

 

 

 

40


 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of El Segundo, State of California, on May 5, 2016.

 

 

 

 

 

 

 

Landmark Infrastructure Partners LP

 

 

 

 

By:

Landmark Infrastructure Partners GP LLC, its General Partner

 

 

 

 

By:

 

 

 

/s/ George P. Doyle

 

Name:

George P. Doyle

 

Title:

Chief Financial Officer and Treasurer

 

 

 

41