Q3 2021 Radius Global Infrastructure Inc Earnings Call

November 11, 2021

Greetings and welcome to radius global infrastructure third quarter 2021 results conference call. At this time all participants are in a listen only mode. A brief question answer session will follow the formal presentation. If anyone should require operator assistance during todays conference. Please press star zero.

<unk> on your telephone keypad as a reminder, this conference is being recorded I would now like to turn this conference over to your host Mr. Jason <unk> head of Investor Relations. Thank you. Sir you may begin your presentation.

Thank you operator, and welcome everyone to the radio global infrastructure third quarter 2021 earnings call.

On this morning's call they'll Brooklyn, our CEO and co chairman will provide an overview of our third quarter results followed by a more detailed update from Glen pricing or.

Our Chief Financial Officer.

After these comments, we will open up the call for your questions before.

Before we begin.

I would like to remind everyone that many of the comments made today are considered forward looking statements under federal Securities laws.

As described in our earnings release and filings with the SEC. These statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed these statements speak as of today's date and we undertake no obligation obligation publicly to update or revise these forward looking statements.

On today's call, we may discuss certain non-GAAP financial information you can find this information together with reconciliations to the most directly comparable GAAP financial measure in this morning's earnings release and supplemental financial information available on our website at www dot radius global Dot com.

Now I'd like to turn the call over to Bill.

Thanks, Jason and thank you all for joining us today for our third quarter 2021 earnings Conference call I'm pleased to report that we continued to execute on our growth strategy in the third quarter.

We generated revenue growth of 54% in the quarter over the prior year period through continued acquisitions of digital infrastructure assets, which meet our underwriting criteria combined with organic growth from our existing portfolio Triple net rents.

During the quarter, we deployed approximately 127 million of acquisition Capex, continuing the trend of accelerated capital deployment, we began in the fourth quarter of 2020.

This capital investment resulted in the acquisition of 9 million in additional annualized rent increasing our total annualized in place rents to a run rate of 110 million a year over year increase of 60%.

We are seeing the benefits of increased scale and larger sized acquisitions of recurring rental revenues continued to drive operational leverage against our origination platform costs, which Glen will discuss in greater detail shortly.

During the quarter, we raised approximately $265 million of capital to support our acquisition strategy also we recently expanded into two and there are two new international markets, taking our current footprint up 21 countries as well as continuing to broaden the scope of properties, we target to a wider pool of.

Digital infrastructure assets again with similar attributes as we have shared with you on our most recent earnings calls.

Range of digital Telecom infrastructure assets. We are pursuing include triple net rents generated from distributed antenna systems and fiber aggregation points.

All of the acquired assets have similar attributes in underwriting criteria, specifically, we believe they represent long duration low risk triple net rent streams paid by the world's largest communications operating and infrastructure companies.

With regard to the pace of originations, we remain optimistic about our ability to continue acquiring <unk>.

Terrible cash flow streams generated from real property interests underlying digital infrastructure for at least the next several quarters based on our current pipeline of acquisition opportunities.

Pacifically, we're targeting the deployment of 400 million plus of acquisition capital expenditures during 2022, which continues the pace of approximately 100 million plus of capital deployed per quarter that we reported for the past four quarters.

I would emphasize that this is an average as there exists some variability by quarter, resulting from the timing of closing larger transactions.

On October 5th we celebrated our first anniversary as a U S publicly traded company I am extremely proud of what our employees have achieved not just during the past year, but over the past decade, we continue to executing our strategy to penetrate a massive addressable market to build a high quality portfolio.

Mission critical communication sites, which will allow us to achieve greater economies of scale and generate attractive risk adjusted returns for our shareholders over time.

Glenn will now provide an overview of our current holdings and financial results in more detail.

Thanks Bill.

We continue to grow the portfolio at an elevated pace in the third quarter, taking advantage of investment opportunities across our footprint to deploy capital.

As of the end of the third quarter, we owned real property interests at over 6000 sites with nearly 8000 lease streams.

Represented by a tenant base comprised.

Comprised of 38% tower companies and 62% mobile network operators.

The vast majority of which are investment grade.

With respect to our $110 4 million.

Annualized in place rents as of September 30th.

43% are denominated in euros.

19% in British pounds, 70% in U S dollars and the remaining 22% and other global currencies.

Approximately 80% of our portfolio has contractual rent escalators that are based on inflation or a similar mechanism.

Which provides us with meaningful protection against the impact of rising inflation.

Yeah.

Revenues were up 54% to $27 5 million in the quarter and gross profit or ground cash flow rose 52%.

$26 9 million, resulting in a gross profit margin of approximately 98%.

In the third quarter, we generated three 8% revenue growth from escalators and other organic growth.

Offset by one 3% of gross churn.

Resulting in net organic revenue growth of approximately two 6% on.

On a year over year basis.

Which compares to two 7% net organic revenue growth in the third quarter of 2020 on a constant currency basis.

As Bill mentioned earlier, we deployed $126 5 million for acquisition Capex in the quarter compared to $38 9 million in the year ago period, representing a 225% increase and up from $125 4 million in the second quarter.

This level of deployment added $8 9 million in annual rent generated from 163, new sites across 198, new lease streams.

We anticipate that these new lease streams will generate a fully burdened initial cash yield of approximately six 4% on a net growth spend basis with a greater proportion of Brent acquired and developed markets than higher yielding emerging markets.

With the continued growth of our portfolio, we are seeing the benefits of greater economies of scale from our acquisition platform reflected in a lower multiple of origination SG&A to rent acquired.

Specifically the multiple of origination SG&A to rent acquired declined to one point Forex in the third quarter versus $2 66 in the prior year period.

Turning to our balance sheet and liquidity during the quarter, we issued $264 5 million of aggregate principal amount of two 5%.

Senior unsecured convertible notes that mature in September 2026.

The company used approximately $33 million of the net proceeds from the notes to pay the cost of capped call transactions that raised the effective conversion rate of the notes to $34 80.

From $22 62, thereby reducing potential dilution.

Inclusive of the convertible notes at September 30th radius had $1 2 billion total gross debt outstanding and net debt of $785 million.

That we have at the AP wireless level carries a weighted average cash coupon of four 1%.

On a weighted average term of five nine years.

Our first scheduled maturity of $75 million is in 2023.

As a result of the recently completed debt financing the company had $415 million of liquidity available for incremental investment as of quarter end.

Please refer to the supplemental materials posted.

To our website yesterday after the market close for additional details.

Bill.

Thanks, Glenn and again I want to reiterate that our team has just done an incredible job and I'm really I think we are all really appreciative of the hard work that everybody does so.

That concludes our prepared remarks, operator, please open the call for questions. Thank you.

At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Formation tone will indicate your line is in the question queue.

You May press Star two true move your question from the queue for participants using speaker equipment. It may be necessary for you to pick up your handset before pressing the star keys, one moment, while we poll for questions.

Our first question comes from the line of Sami Badri with Credit Suisse. You May proceed with your question.

Thanks, Dan Thank you.

Hey, guys.

First question is when I'm looking at your asset origination SG&A.

At one four times ranked acquired but this had been lower if you did not enter the two new countries that you're messaging here today and that's my first question.

And the next question is I know you guys aren't really big fans of giving us kind of a forward looking guidance or anything kind of in that can really.

Underlying where we should be modeling how should we be thinking about next year's growth trajectory relative to 2021.

Glenn do you want to ask the first question. These are the SG&A.

Sure Jamie.

Sami the impact on the two new countries was pretty marginal.

On the on the present SG&A spend since it's not as a significant component of it.

As you know well.

Continuing to ramp up teams to grow our incremental revenue streams in all asset classes. So we're seeing a little bit of spend.

In building our teams ahead of acquisition Capex.

And hopefully we'll get more countries open. Besides these two now as to your second question.

Well yeah.

I thought we were doing a great thing because we gave four quarters of effective what we thought we'd be investing in terms of growth Capex, we're always willing to get too far over our skis.

Think we joke around that if we can give you perfect guidance.

It's sort of it's a non issue if we're under we're over it.

Not really great for us so we're trying to do our best Sami. So we were pretty excited to say fine. We've got this much confidence that our pipeline is such that for the next four quarters, we can originate $400 million.

Growth Capex.

Got it.

And one other follow up for you and it's about when sales teams come on in the hiring of new exacts being put in place what is the productivity velocity of these executives is it.

They basically joined the company hit the ground begin addressing opportunities and then theres conversions at the three to nine month, Mark or is it more like they come on board with leads and you guys hire them because that leads.

And it's going to take six months no matter, what our three months or less like maybe you could just give me an idea.

What the what the productivity ratio our conversion rates look like for the new the new people coming in.

It's a great question Stanley I think it depends on the groups and it depends on.

The countries and as you know or as we've talked about before.

On the origination platform Theres two elements of this one is to generate the leads and to tee them up to close in the second element is to close the leads which takes some time.

Underwriting and legal standpoint so.

It's hard to say on average across the country across the company and across the countries, but I would say you are in a six to nine to 12 months.

Period of maturation of the pipeline.

I would just add it's different by every country not to beg off the question. It's just there's not one uniform.

Approached all of US the other thing is it's terrific. When we can grab someone who brings their own leads the table. Most of the time, we're assigning the leads to them based on all of our proprietary databases impacts people that we contacted four or new leads so I think like with any new person joining a team there's always going to be.

Our lead time to train them and to get them up to speed.

Got it thank you very much.

Sure. Thanks Kenny.

Our next question comes from the line of.

Ric Prentiss with Raymond James You May proceed with your question.

Good morning, Hey, good morning, everyone.

Couple of questions follow up on Sami's, one yeah, we actually we were thankful to get that.

Pipeline guidance out there.

Obviously that makes the other question, though is it's what's the level of competition for these assets. When you think of as far as the pricing cap rates that you can hold that pacing off as we should assume there's maybe some blended targets that youre going.

No great questions I think.

Competition point of view nothing has really changed in what we've discussed in the last couple of quarters certain countries, we're going to see some competition and typically it's for only a select number of assets because the market is so large that sure we'll see it on some assets where someone else maybe a competitive bidder, 99% of the time, it's typically a tower company.

But in a lot of cases, we just won't see them.

So I'm, sorry, I can't give you any more scientific than that answer than that.

But.

And then in the new countries, where there we try to select places where of course rule of law and all of the macro dynamics are what we're looking for in our underwriting process and one factor of course is is it competitive in the market or not we see a tower company.

Coming into the market and so our hope is we keep adding new countries as well as mining this really huge total addressable market.

As you think about cap rates should we be thinking kind of all in acquisition Capex plus the origination SG&A should we be thinking here and they're kind of low to mid six range.

Okay.

In the seven range.

It's funny.

It's hard to just give you any that precisely for two reasons. One is we do we have some some FX variability specifically with the UK most regions recently, because the pound has weakened.

More than anybody suspected the second thing is that.

I'd, rather just keep us in that I guess at worst case six okay worst case, it's six to seven is a good range. Rick you just cant predict it because our mix country to country is different and each country has its own different sort of weighted average yield that we're buying that believe it or not in Germany is different in Spain is different in France, France is.

Certainly different from Brazil.

I'm, saying and so when we look at our overall weightings.

It's hard to have a same store sales yield because it really depends on where we're mining in a particular quarter mining, meaning acquiring assets.

Probably which asset category they are into not just the country. Okay.

Other question for me on two other questions quickly for me, we're hearing more and more from different tower companies that they're putting roper's rifles refusals into either land leases how is that affecting you guys wound grocers are coming in.

Well I think that you're going to laugh when I say this I'm trying to thread the needle so I don't pay too much to our competitors I think theres a lot of different approaches structured finance such that we.

We believe that they let me say it this way we are hopeful that they won't be a problem for us.

Okay.

But if I say too much more than of course, Mike in February we'll try to figure out it changed around that too.

I would say to you Rick one other thing we're always expanding with new offers.

And those new offers can take many forms and.

Let's just say that when you focus only on what we do everyday versus a tower company focusing on.

Being an operating the steel and with their tenants. We think we can stay ahead of the curve in the.

I would like to think more creative in how we.

Offer make offers to our customers our tenants or landlords.

And one more final one for me if I could on the organic side of things the base business multi acquisition flywheel based business.

Escalators had been trending Lisa I'm, sorry, Lisa has been trending down the last couple of quarters <unk> was 1% when that zero percent, 0.9% <unk>, 0.6%. This quarter. Obviously there were some decimal places in there too, but how should we think about what's causing that to kind of tail down and what is a good run rate going.

Were there any one timers in some of these carriers just help us understand that trend line in the recent past.

Im going to let Glenn can give you more detail my guess is its FX.

Yes, Rick.

It's a good question there is a bit of variability in that and it's look it's country by country and asset by asset specific.

Behind the scenes you have.

A significant portion of these lease streams escalates annually versus on a term so there's all kinds of things behind it but our general thought process.

Expectation of.

5% to one 5% overtime its been pretty consistent so that's all on the organic basis typically to the organic Rick.

Again, I think a little more of its FX I wouldn't read into it that theres a trend line down I don't think that's the case at all if anything we.

We hope to do better because we dedicate more people to the effort and at the end of the day when we look back three or four years ago, we didn't that again, our people and we saw what happened we made the investment to effectively.

Increased lease up.

Right.

Stay well guys I appreciate the questions. Thanks, Rick Yeah.

Our next question comes from the line of.

Simon Flannery with Morgan Stanley You May proceed with your question.

Great. Thank you good morning, Bill Thanks for the guide on your investment next year.

On the pipeline. So has something changed that gives you more confidence in the outlook for the longer period of time, maybe just characterize that or is it more of that as we kind of approach here and you felt like it was something that you wanted to share with us, but you're the visibility as being similar to what it was and then on the countries you probably don't want to name them, but perhaps just.

You talked about some more coming just take us through your kind of screening process on what youre looking for.

Is this going to be material to the kind of opportunity pool or are these more kind of tuck in type.

Okay.

No both are really good questions.

Let's start with the country's first.

Rule of law is just critical to us making sure that we can enforce our rights within our court system. So that's absolutely one of our first test I think the second test is where are the big tower companies, which we view to be terrific credit it's.

It's not that we don't love the underlying credit of the and I know, we like that as well, but you know when you have the towers is just one more layer because there's sort of a sandwich in between us and the other now so that's another big threshold tax tress macroeconomics of our country also big threshold test, which currency there in it's really easy for us to add.

A country that is already in your at least so that you would imagine is attractive to us to do and then.

What else is.

Have the actual amino market already either consolidated where they spun off their towers or four carriers merged three we take that into consideration I think those would be the basic attributes.

Got to we I don't I don't like to look at any countries just like a little single I always feel like if we're going to go in we should be able to really do our job and actually it's not like going into Luxembourg, where there's very few sites. We try to go to a place of making investment where it's meaningful enough for a good return on the startup investment required.

You get a new country openings.

Our hope is to get even a bunch more there we haven't really you can't Asia, it's not the easiest nut to crack.

But that is certainly an opportunity for us.

Now of course I forgot your first question.

It was on the pipeline items whats change to give the visibility store to go to them.

Well I think our team basically persuaded me that okay, we should get a little more quarters of guidance, because I'm always under promise over deliver and.

You get into a rhythm there you can expect for quarters going into the future, but as they said to me we've had our sea legs in place long enough, but now we can actually walk properly and we do have visibility when you felt comfortable with it.

To actually put that down in writing and stand behind it of course, if we don't need. It then the one against black and blue, but so be it but no we're really optimistic and a lot of it is just because.

We really do have the pipeline and we can see it and we're in the glide path hopefully for closing over the next four quarters.

Five quarters right.

Thanks, a lot.

Sure.

Our next question comes from the line of Jon Petersen with Jefferies. You May proceed with your question.

Great. Thanks, Hey, How's it going.

Thanks.

Sorry, if I missed this but on the acquisitions you did this quarter I mean, if you have you broken out how much of that was tower land D E S and and fiber aggregation sites can you give us a sense of what the mixes.

No, we really haven't and I think the purposeful reason and I've said. This on past calls is that we truly think of these as theres just no different in the asset class and rather than people, saying Oh. They only bought this much of this asset classes of this of the other class. We just view it as one of the same thing and so.

So I'd say the only real difference between the construct would be that typically it's a longer property right. When we buy whether it's aggregation point, that's fiber aggregation point or a distributed antenna system rent.

So long winded way of saying, we're just don't break it out okay.

Okay.

Alright, and then I think it is simply too.

Right.

Uh huh.

That's always good.

Do you have the I think the majority of your rents are indexed to inflation I think about two thirds or some some form of it.

Are there any caps there I mean, if we are seeing inflation of.

<unk> hundred 67% like does it cap out at 4% or something anything like that that would be less.

Actually that's one of the things we always liked the most which is I think it's around 77%. If you look at our supplemental materials is what is linked to inflation.

There are no caps. Unlike if you look at some extra some of the power companies I'd say, a big piece of their contracts are inflation linked but our cat sometimes they are capped at three sometimes four sometimes it too.

Correct.

And just to clarify right. So it's it's some form of inflation in the U K C RPI right and a lot of countries. It's it's whatever they're using for CPI.

In Brazil, it's the <unk> and the <unk>. So it depends on what the country is but it's generally their guidance on inflation and.

And to confirm what Bill said is there is there are no caps.

Is that is there a lag on that like could we go through like a year of really high inflation and then it would be like the next year that it kicks in or is it more than that.

It's a good question.

So good observation and I think youre going to see this.

With all businesses in this space because the majority of the rent streams are paid in advance right and you have a high percentage that escalate.

On a term rate.

Probably 70% escalate annually the remaining escalate on some form of a term of three year or five year escalator. So depending on where you are in that cycle, there will be a little bit of a lag with respect to the inflation. Okay. There also we do escalate.

Smaller proportion quarterly and otherwise so as you can imagine there is no one size fits all for the lease and the rates done and implemented globally.

Okay, Alright thats helpful. Thank you.

Sure.

Our next question comes from the line of.

David Barden with Bank of America, You May proceed with your question.

Thanks, Hey, guys, Hey, guys. Thanks for taking the questions.

I have a similar question to to Simon's question on countries, but this is with respect to kind of asset portfolios. The targets you kind of highlighted that youre diversifying.

Into the das systems in the fiber aggregation points I'm interested.

For instance.

Data centers and other types of kind of just generic digital infrastructure is kind of in your crosshairs and if so.

How would you evaluate that and win and then I think the second question would be congrats on the $265 million financing you did it in a kind of interesting structure with the capped call hedge on the conversion price a couple of questions on that one could you tell me what you think.

The all in cost of funds for that transaction was.

Why you did it the way you did it and is the hedge duration matched with the 2025 maturity. Thanks.

Right.

I'll take that one Glenn we did it because first and foremost.

It could be done really quickly where it wouldn't have that much management distraction. We wanted to be the first one out of the gate immediately after labor day, and we were in I think execution between Morgan Stanley and Goldman They get a terrific job for us.

Specifically on the capped call just to remind you we are effectively buying back any dilution that could convert otherwise would've had on us. So I won't go through all the mechanics, but suffice to say that we do take dilution above $34 a share that was what we bought with having the capped call.

All in cost can be looked at in different ways, because one has to value the actual option.

Volatility is just a hard measure to come up with as you well know I think from our mind. This is not a science if the coupons to 5% we figure because of the capped call because we're buying back that dilution we were getting to probably spoke and this isn't a proximity. Please don't hold me to it probably around.

4% in that neighborhood all in and the way we look at that is Theres also if the cap call never gets exercise, we get effectively a nice tax deduction benefit as you get to know us we're pretty tax nutty and we always think about what is our after tax return.

The good news is EBIT approaching 4% on the costs, we have really no covenants is unsecured debt at the radius hold co level and we thought that flexibility was pretty terrific. Your last question on the.

The tightening of it have call is coterminous with the debt. So we're protected for the entire duration. You should also know that not only can we sell the capital if we ever wanted to depending on where volatility is it should it ever really spike, but we also can prepay.

I forget the timing maybe after two years with the prepaid to cover it shouldn't want to.

Yes. After three after three under certain conditions, obviously liquid properly obviously liquidity is one of them and it is all matched up.

Yeah on the chemicals to run to the end of the.

Period end up David on the data Center question and the answer is yes. We are we do buy data centers, we havent broken them out we've tried to sort of say that their fiber optic aggregation points.

You all know when we buy a fiber activation point oftentimes are many times they have a cell site on the roof. Sometimes it can also be used as a data center. So we've tried hard to frame. It is one thing because if we start slicing and dicing. This one does that.

We thought it would just get too complicated. So we've made a distorting this blank fiber aggregation point.

Our label, but yes, we do.

Do buy data centers, and we will continue and look if we can find larger opportunities that we think are.

Don't have much operational responsibility of course long term contracts, where we get down the property to structure, that's right in our sweet spot of what we think you know our mission should be which is sort of triple net.

Our double net.

Perfect. Thanks for the help guys.

Yes sure.

Yeah.

Our last question comes from the line of.

Walter Piecyk with light shed you May proceed with your question.

How do we do on timing for our recording.

And don't forget back on that one with the final rule.

But I do I like the word tax now do I think I'm gonna try and worked out into my vocabulary as well.

So our history and who was taught us that so.

100%.

So you've been doing on Capex like 120, whatever 130.

The kind of acquisition Capex.

400 down from that is it are you just kind of setting the bar and there is opportunity for upside or why would that be.

Why should that be lowered and I said basically $400 million plus I tried to emphasize okay.

Okay.

Honestly, that's like who.

Who was that it was that he was the sprint CFO always like something or more like what the EBITA. Okay gotcha.

Okay, and then the things that I.

I want to under promise, we want to under promise over deliver so I'm, okay with that.

Just a second question on that which kind of goes the opposite way which is.

If you look at if you forecast that out then if you used I think you had 165 left on the facility.

Probably have to come back to the capital markets, but you know in the fourth quarter of <unk>.

Next year, assuming that the 100 or higher continues to pace of that.

Some people would look at inflation data and get concerned about the 10 year.

And say like Okay, why not lock in more capital now rather than take that risk and deal with it next year and then just getting back to Barton's question.

When you look at future financings should we think about it in terms of what you just did and convert type things or is it more debt.

Just kind of just just interested in your thought process around timing and structure of future financings as you progressed through.

Yeah, I think look you should be on our team because youre raising all the good points and I'm happy to say that everything you discussed is really in motion.

We expect to do a slew of debt financings.

Some will probably close by year end, if we're lucky others will be our first or second quarter of next year that you'll be very happy when you see both the proceeds.

These mindful of not having to raise equity, but we our acquisition machine, but we think we're going to have good execution and the execution be shouldn't be different depending on where in the world. We're borrowing than what you saw on the convert I think in the convert we were willing to have it be slightly higher because of just the extraordinary flexibility.

From a covenant and it being unsecured, but yes, you're right on the money and we hope to deliver what I think you would like to see.

Okay can I just clarify.

Hum.

Thought you were suggesting the availability on our capital structure with respect to.

Our combined <unk> wireless debt structure.

As of today between the DAC NDA PW.

Working capital debt facility, the availability uncommitted of course, and we're not paying a commitment fee is $950 million is the availability under those platforms today and we did specifically say.

With respect to in our earnings script.

Scheduled maturity is $75 million and 23. So I think you can imply that I'm not trying to buy a whole infrastructure.

Yes.

Actually what I was less concerned about the you know the maturities more of just kind of lining it up maybe we missed some other stuff you can draw down upon so it sounds like you got to happen.

And I see the rents are naturally deleveraging because of the escalator on organic growth. So we product Ben.

Refinance and bring it back up to eight.

Eight times, a quarter times internationally and we can go as high as 10 times to the U S. So when you factor in a refinance of the U S. A tack on to Glen referred to as the back that is really our international facility and then you have.

Ah another facility that we're working on that we will disclose more when we get it done it gives us a fair amount of powder.

That's just the timing of when we get them finished but we're really optimistic on them.

Got it thank you.

Okay.

Ladies and gentlemen, we have reached the end of today's question answer session I would like to turn this call back over to Mr. Bergman for closing remarks.

Thanks, operator, and thanks, everybody for joining us today.

We're really proud of the results and continue to be excited about the opportunity in front of us both in.

All of our different asset classes that you've asked questions about today as well as doing our job trying to pure around corners to find new asset classes or new variance of what we're doing that have long term durable cash flows from terrific credit quality tenants. So hope everyone has a good day, we look forward to catching up with a lot of union.

Thanks, operator.

Thank you for joining US today. This concludes today's conference you may disconnect your lines at this time.

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Greetings and welcome to radius global infrastructure third quarter 2021 results conference call. At this time, all participants are in a listen only mode.

A question and answer session will follow the formal presentation. If anyone should require operator assistance during todays conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn this conference over to your host Mr. Jason <unk> head of Investor Relations. Thank you. Sir you may begin your presentation.

Patients.

Thank you operator, and welcome everyone to the radio global infrastructure third quarter 2021 earnings call on.

On this morning's call Bill Brooklyn, our CEO and co chairman will provide an overview of our third quarter results followed by a more detailed update from Glen pricing or.

Our Chief Financial Officer.

After these comments, we will open up the call for your questions.

Before we begin.

Like to remind everyone that many of the comments made today are considered forward looking statements under federal Securities laws.

Nation, you can find this information together with reconciliations to the most directly comparable GAAP financial measure in this morning's earnings release and supplemental financial information available on our website at www dot radius global Dot com.

And now I'd like to turn the call over to Bill.

Thanks, Jason and thank you all for joining us today for our third quarter 2021 earnings Conference call I am pleased to report that we continued to execute on our growth strategy in the third quarter, we generated revenue growth of 54% in the quarter over the prior year period through continued acquisitions of digital infrastructure assets.

Which meet our underwriting criteria combined with organic growth from our existing portfolio Triple net rents.

During the quarter, we deployed approximately 127 million of acquisition Capex, continuing the trend of accelerated capital deployment, we began in the fourth quarter of 2020.

This capital investment resulted in the acquisition of $9 million in additional annualized rent increasing our total annualized in place rents to a run rate of $110 million a year over year increase of 60%.

During the quarter, we raised approximately $265 million of capital to support our acquisition strategy also we recently expanded into two new and Youre at two new international markets, taking our current footprint up 21 countries as well as continuing to broaden the scope of properties, we target to a wider pool of.

Digital infrastructure assets again with similar attributes as we have shared with you on our most recent earnings calls.

<unk> a digital telecom infrastructure assets. We are pursuing include triple net rents generated from distributed antenna systems and fiber aggregation points.

With regard to the pace of originations, we remain optimistic about our ability to continue acquiring <unk>.

Variable cash flow streams generated from real property interest underlying digital infrastructure for at least the next several quarters based on our current pipeline of acquisition opportunities.

I would emphasize that this is an average as there exists some variability by quarter, resulting from the timing of closing larger transactions.

A mission critical communication sites, which will allow us to achieve greater economies of scale and generate attractive risk adjusted returns for our shareholders over time.

Glenn will now provide an overview of our current holdings in financial results in more detail.

Thanks Bill.

We continue to grow the portfolio at an elevated pace in the third quarter, taking advantage of investment opportunities across our footprint to deploy capital.

As of the end of the third quarter, we owned real property interest in over 6000 sites with nearly 8000 lease streams.

Represented by a tenant base.

Apprised of 38% tower companies and 62% mobile network operators.

The majority of which are investment grade.

With respect to our $110 4 million.

Okay annualized in place rents as of September 30th.

43% are denominated in euros.

19% in British pounds, 70% in U S dollars and the remaining 23% and other global currencies.

Approximately 80% of our portfolio has contractual rent escalators that are based on inflation or is it more mechanism.

Which provides us with meaningful protection against the impact of rising inflation.

Yeah.

Revenues were up 54% to $27 5 million in the quarter and gross profit or ground cash flow rose 52%.

$26 9 million, resulting in a gross profit margin of approximately 98%.

In the third quarter, we generated three 8% revenue growth from escalators and other organic growth offset by one 3% of gross churn.

Resulting in net organic revenue growth of approximately two 6%.

On a year over year basis.

Which compares to two 7% net organic revenue growth in the third quarter of 2020 on a constant currency basis.

This level of deployment added $8 $9 million in annual rent.

Generated from 163 new sites.

<unk> 198, new lease streams.

With the continued growth of our portfolio.

We are seeing the benefits of greater economies of scale from our acquisition platform reflected in a lower multiple of origination SG&A to rent acquired.

Specifically the multiple of origination SG&A to rent acquired declined to one point Forex in the third quarter versus $2 six six in the prior year period.

Turning to our balance sheet and liquidity during the quarter, we issued $264 5 million of aggregate principal amount of two 5%.

And your unsecured convertible notes that mature in September 2026.

The company used approximately $33 million of the net proceeds from the notes to pay the cost of capped call transactions that raised the effective conversion rate open notes to $34 80 from.

From $22 62, thereby reducing potential dilution.

Inclusive of the convertible notes at September 30th radius had $1 2 billion total gross debt outstanding and net debt of $785 million.

That we have at the wireless level carries a weighted average cash coupon of four 1%.

The weighted average term of five nine years.

Our first scheduled maturity of $75 million is in 2023.

As a result of the recently completed debt financing the company had $415 million of liquidity available for incremental investment as of quarter end.

Please refer to the supplemental materials posted.

To our website yesterday after the market close for additional details.

Bill.

Thanks, Glenn and again I want to reiterate that our team has just done an incredible job and I'm really I think we are all really appreciate the hard work that everybody does.

So that concludes our prepared remarks operator, please open the call for questions. Thank you.

At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.

You May press Star two true move your question from the queue for participants using speaker equipment. It may be necessary for you to pick up your handset before pressing the star keys.

While we poll for questions.

Our first question comes from the line of Sami Badri with Credit Suisse. You May proceed with your question.

Thanks, Dan Thank you.

Hey, guys.

First question is when I'm looking at your asset origination SG&A at one four times rent acquired but this had been lower if you did not enter the two new countries that you're messaging here today.

That's my first question then.

And then the next question is I know you guys aren't really big fans of giving us kind of a forward looking guidance or anything kind of that can really.

Underlying where we should be modeling how should we be thinking about next year's growth trajectory relative to 2021.

Glenn you want to ask the first question. These are the SG&A.

Sure Jimmy the impact on the two new countries was pretty marginal on the.

On the present SG&A spend since it's not as a significant component of it.

As you know.

Continuing to ramp up teams to grow incremental revenue streams in all asset classes. So we're seeing a little bit of spend.

In building our teams ahead of acquisition Capex.

And hopefully we'll get more countries open. Besides these two now as to your second question.

Well yeah.

I thought we were doing a great thing because we gave four quarters of effective what we thought we'd be investing in terms of growth Capex, we're always willing to get too far over our skis and I think we joke around that if we can give you perfect guidance.

It's sort of it's a non issue if we're under we're over.

Got it.

And one other follow up for you and it's about when sales teams come on in the hiring of new exacts being put in place what is the productivity velocity of these executives is it.

And it's going to take six months, no matter, what or three months or less like maybe you could just give me an idea.

What the what the productivity ratio our conversion rates look like for the new the new people coming in.

Two good questions, Jamie I think it depends on the groups and it depends on.

The countries and as you know or as we've talked about before.

On the origination platform Theres two elements of this one is to generate the leads.

And to keep them up to close in the second element is to close the leads which takes some time from underwriting and legal standpoint. So.

It's hard to say.

On average across the country across the company and across the countries, but I would say you are in a six to nine to 12 months.

Period of which of maturation of the pipeline.

I would just add that it's different by every country not to beg off the question. It's just there's not one uniform.

Approached all of this the other thing is is terrific. When we can grab someone who brings their own leads the table. Most of the time, we're assigning the leads to them based on all of our proprietary databases impacts people that we are contacted four or new leads so I think like with any new person joining a team there's always going to be.

<unk>, our lead time to train them and to get them up to speed.

Got it thank you very much.

Sure. Thanks Kenny.

Our next question comes from the line of Ric Prentiss with Raymond James You May proceed with your question.

Hey, Thanks, Good morning, Hey, good morning, everyone.

Couple of questions follow up on so obviously, yes, we actually we were thankful to get that.

Pipeline guidance out there.

Obviously that is the other question, though is it's what's the level of competition for these assets. When you think of it as far as the pricing cap rates that you can pull that pacing off as we should assume there's maybe some blended targets that youre going.

No great questions I think.

From a competition point of view nothing has really changed in what we've discussed in the last couple of quarters certain countries, we're going to see some competition and typically it's for only a select number of assets because the market is so large that sure we'll see it on some assets where someone else maybe a competitive bidder, 99% of the time, it's typically a tower.

Our company, but in a lot of cases, we just won't see them.

So I'm, sorry, I can't give you any more scientific than that answered that.

But.

And then in the new countries, where there we can try to select places where of course rule of law and all of the macro dynamics are what we're looking for in our underwriting process and one factor of course is it competitive in the market or not we see a tower company.

Coming into the market and so our hope is we keep adding new countries as well as mining this really huge total addressable market.

As we think about cap rates should we be thinking kind of all in acquisition Capex plus the origination SG&A should we be thinking here and the kind of low to mid six range.

Okay.

Seven range.

It's funny.

It's hard to just give you any of that precisely for two reasons. One is we do we have seen some FX variability specifically with the UK most regions recently, because the pound has weakened.

More than anybody suspected the second thing is that.

I'd, rather just keep us in that I guess at worst case six okay worst case, it's six to seven is a good range. Rick you just cant predict it because our mix country to country is different and each country has its own different sort of weighted average yield that we're buying that believe it or not in Germany, France, and Spain being different in France, France is.

Certainly different from Brazil.

I'm, saying and so when we look at our overall weightings.

It's hard to have a same store sales yield because it really depends on where we're mining in a particular quarter mining meeting acquiring assets.

Probably which asset category with her into not just the country. Okay.

Other question for me or two other questions quickly for me, we're hearing more and more from.

Tower companies that Theyre, putting roper's rightfully refusals into either land leases how is that affecting you guys wound grocers are coming in.

We believe that they let me say it this way we are hopeful that they won't be a problem for us.

Okay.

You're saying.

But if I say too much more than of course, Mike in February we'll try to figure out it changed around that too.

I would say to you Rick one other thing we're always expanding with new offers and those new offers can take many forms and.

Let's just say that when you focus only on what we do everyday versus a tower company focusing on being an operating the steel and with their tenants. We think we can stay ahead of the curve in the eye.

Like to think more creative in how we.

Offer make offers to our customers our tenants or landlords.

Okay. One more final one for me if I could on the.

The organic side of things the base business and with the acquisition flywheel based business.

It had been trending Lisa I'm, sorry, Lisa has been trending down the last couple of quarters <unk> was 1%, we got zero percent, 0.9% <unk>, 0.6%. This quarter. Obviously, there were some decimal places in there too, but how should we think about what's causing that to kind of tail down in what is a good run rate going forward.

Are there any one timers in some of these periods just help us understand that term loan and the lease up Paul I'm going to let Glenn can give you more detail my guess is its FX.

Okay.

Yes, Rick.

It's a good question there is a bit of variability in that and it's look it's country by country and asset by asset specific and behind the scenes you have.

A significant portion of these lease streams escalates annually versus on a term. So there's all kinds of things behind it, but our general thought process and expectation of five.

5% to one 5% overtime its been pretty consistent so that's helpful, but on the organic but specifically to the organic Rick.

Again, I think a little more of its FX I wouldn't read into it that theres a trend line down I don't think Thats. The case at all if anything we.

Increase Lisa.

Right.

Stay well guys I appreciate the questions. Thanks, Rick Yeah.

Our next question comes from the line of.

Simon Flannery with Morgan Stanley You May proceed with your question.

Great. Thank you good morning, Bill Thanks for the guide on your investment next year.

On the pipeline. So has something changed that gives you more confidence in the outlook for the longer period of time, maybe just characterize that or is it more of that as we kind of approach here and you felt like it was something that you wanted to share with us, but you're the visibility has been similar to what it was and then on the countries you probably don't want to name them, but perhaps just.

You talked about some more coming just take us through your kind of screening process on what youre looking for.

Is this going to be material to the kind of opportunity pool or are these more kind of tuck in type.

No both are really good questions.

Let's start with the country's first.

It's not that we don't love the underlying credit of the and I know, we like that as well, but you know when you have the towers is just one more layer because theres sort of a sandwich in between us and the other now so that's another big threshold tax duress macroeconomics of the country also big threshold test, which currency there in it's really easy for us to add.

A country that is already in your at least so that you would imagine is attractive to us.

And then.

I think what else is.

Have the actual amino market already either consolidated where they spun off their towers or four carriers merged and we take that into consideration I think those would be the basic attributes.

Got to we I don't I don't like to look at any countries just like a little single I always feel like if we're going to go in we should be able to really do our job and actually it's not like going into Luxembourg, where very few sites. We try to go to a place of making investment where it's meaningful enough for a good return on the startup investment required.

You get a new country open.

Our hope is to get even a bunch more there we haven't really you cant Asia, it's not the easiest nut to crack.

But that is certainly an opportunity for us.

Now of course I forgot your first question it was on the pipeline.

Line items whats change to give the visibility store to go to them.

Well.

Our team basically persuaded me that okay, we should get a little more quarters of guidance, because I'm always under promise over deliver and.

To actually put that down in writing and stand behind it of course, if we don't immediate than you on the one against black and blue, but so be it but no we're really optimistic and a lot of it is just because.

We really do have the pipeline and we can actually see it and we're in the glide path hopefully for closing over the next four quarters.

Five quarters right.

Thanks, a lot.

Sure.

Yes.

Our next question comes from the line of Jon Petersen with Jefferies. You May proceed with your question.

Great. Thanks, Hey, How's it going.

<unk>.

Sorry, if I missed this but on the acquisitions you did this quarter I mean have you broken out how much of that was tower land DAA asses and and fiber aggregation sites can you just give us a sense of what the mixes.

No, we really haven't and I think the purposeful reason and I've said this on past calls is that we truly think of these as well.

There's just no different in the asset class and rather than people, saying Oh. They only bought this much of this asset class of this of the other class. We just view it as one of the same thing and so I'd say the only real difference between the construct would be that typically it's a longer property right when we buy whether it's aggregate.

Asian point, that's fiber aggregation point or a distributed antenna system rent.

So long winded way of saying, we just don't break it out.

Okay.

Alright, and then I think it is simply too.

Right.

Uh huh.

Simple is good.

Do you have the I think the majority of your rents are indexed to inflation I think about two thirds or some some form of it.

Are there any caps there I mean, if we are seeing inflation of.

567% like does it cap out at 4% or something anything like that that would be a lag.

Actually that's one of the things we always liked the most which is I think it's around 77%. If you look at our supplemental materials is what is linked to inflation.

And there are no cast. Unlike if you look at some extra some of the power companies I'd say, a big piece of their contracts are inflation linked but our cat sometimes they are capped at three sometimes four sometimes it too.

Chris.

Just to clarify right. So it's some form of inflation in the U K RPI right and a lot of countries. It's it's whatever they are using for CPI.

In Brazil, it's the <unk> and the <unk>. So it depends on what the country is but it's generally their guide on inflation and.

And to confirm what Bill said is there is there are no caps.

Is that is there a lag on that like could we go through like a year of really high inflation and then it would be like the next year that it kicks in or is it more.

That's a good question.

It's a good observation and I think youre going to see this.

With all businesses in this space because the majority of the rent streams are paid in advance right and you have a high percentage that escalate.

On a term.

Smaller portion quarterly and otherwise so as you can imagine there is no one size fits all for the lease and the rates done and implemented globally.

Okay, Alright thats helpful. Thank you.

Sure.

Our next question comes from the line of.

David Barden with Bank of America, You May proceed with your question.

Thanks, Hey, guys, Hey, guys. Thanks for taking the questions.

I guess I have a similar question to to Simon's question on countries, but this is with respect to kind of asset portfolios. The targets you kind of highlighted that youre diversifying.

Sure.

Do the das systems in the fiber aggregation points.

Interested if.

For instance.

Data centers and other types of.

Just generic digital infrastructure is kind of in your crosshairs and if so.

How would you evaluate that and win and then I think the second question would be you know congrats on the 265 million financing you did it in a kind of interesting structure with the capped call hedge on the conversion price.

Couple of questions on that one could you tell me what you think the all in cost of funds for that transaction was why you did it the way you did it and is the hedge duration matched with the 2025 maturity. Thanks.

Right.

I'll take that one Glenn we did it because first and foremost we could do.

<unk> done really quickly where it wouldn't have that much management distraction. We wanted to be the first one out of the gates immediately after labor day, and we were in I think execution between Morgan Stanley and Goldman did a terrific job for us.

Specifically on the capped call just to remind you we are effectively buying back any dilution that could convert otherwise would have had on us. So I won't go through all the mechanics, but suffice to say that we do take dilution above $34 a share that was what we bought with having the capped call.

Actual all in cost can be looked at in different ways, because one has to value the actual option and volatilities just a hard measure to come up with as you well know I think from our mind. This is not a science if the coupons to 5% we figure because of the capped call because we're buying back debt does.

Sure we were getting to probably.

And this isn't a proximity please don't hold me to it probably around 4% in that neighborhood all in and the way. We look at that is Theres also if the cap call never gets exercise, we get effectively a nice tax deduction benefit as you get to know us we're pretty tax nutty and we are always thinking about what is our after tax return.

The good news is EBIT approaching 4% on the costs we have.

No covenants. This is unsecured debt at the radius hold co level and we thought that flexibility was pretty terrific. Your last question on.

The tightening of it have call is coterminous with the debt. So we're protected for the entire duration you should also know that.

What can we help a capped off we ever wanted to depending on what the volatility is it should it ever really spike, but we also can prepay.

I forget the timing maybe it's after two years with the prepaid to convert shouldn't want to.

Yes accurately after three under certain conditions, obviously liquidity.

Obviously liquidity is one of them and it is all matched up.

On the chemicals to run to the end of the.

Period.

David on the data Center question. The answer is yes, we are we do.

<unk> data centers, we havent broken them out we've tried to sort of say that their fiber optic aggregation points.

You will know when we buy a fiber aggregation point oftentimes are many times. They are a cell site on the roof. Sometimes it can also be used as a data center. So we've tried hard to frame. It is one thing because if we start slicing and dicing. This one does that.

We thought it would just get too complicated. So we've made it sort of is blank fiber aggregation point.

Label, but yes, we do.

By data centers and will continue and look if we can find larger opportunities that we think are.

Don't have much operational responsibility of course long term contracts, where we get down the property to structure, that's right in our sweet spot of what we think our mission should be which is sort of triple net.

Our double that.

Perfect. Thanks for the help guys.

Yes sure.

Yeah.

Our last question comes from the line of.

Walter Piecyk with <unk> you May proceed with your question.

How do we do on timing for our recording.

I also get back on that one with a final wrap up.

But I do I like the word tax now do I think I'm going to try and work that into my vocabulary as well.

History, and who was taught us that so.

Hundred percent.

So you've been doing on Capex like 120, whatever 130.

On the kind of acquisition Capex.

400 down from that is it are you just kind of.

Setting the bar and there's opportunity for upside or why would that be.

Why should that be lowered now you said basically 400 million plus I tried to emphasize okay well.

Okay.

Unemployed.

Who is that who is the who is the sprint CFO always like something or more like what their EBIT. Okay gotcha.

Okay, and then the things that.

I want to under promise, we want to under promise over deliver so okay. And then just the second question on that which kind of goes the opposite way which is.

Look at if you forecast that out then if you used I think you had 165 left on the facility you'd probably have to come back to the capital markets, but you know in the fourth quarter.

Next year assume.

The 100.

Our higher continues at pace at that I mean.

Some people would look at inflation data and get concerned about the 10 year.

And say like Okay, why not lock in more capital now rather than take that risk and deal with that next year and then just getting back to barton's question.

When you look at future financings should we think about it in terms of what you just did in converting type things or is it more debt.

Just kind of just just interested in your thought process around timing and structure of future financings as you progressed through.

Yes, I think look you should be on our team because youre raising all the good points and I'm happy to say that everything you discussed is really in motion.

We expect to do a slew of debt financings.

Some probably close by year end, if we're lucky others will be our first or second quarter of next year that youll be very happy when you see both the proceeds and are always mindful of not having to raise equity, but we our acquisition machine, but we think we're going to have good execution and the execution be shouldnt be different depending on where.

And the world, we're borrowing than what you saw on the convert I think in the convert we were willing to have it be slightly higher because of just the extraordinary flexibility.

From a covenant and it being unsecured, but yes, youre right on the money and we hope to deliver what I think you would like to see.

Thanks Claire.

Aurify Walt.

I thought you were suggesting the availability on our capital structure with respect to <unk>.

Our combined <unk> wireless debt structure as of today between the DAC Anda PW.

Working capital debt facility, the availability uncommitted of course, and we're not paying a commitment fee is $150 million is the availability under those platforms today and we did specifically say.

With respect to in our earnings script.

Scheduled majority is $75 million and 23, so I think you can imply that oh.

Sorry about that whole infrastructure.

Yes.

Well I was less concerned about the you know the maturities more of just kind of lining it up maybe we missed some other stuff you can draw down upon so it sounds like you got to happen.

Just going to see the rents are naturally deleveraging because of the escalator on organic growth. So we product Ben.

Refinancing and bring it back up to eight.

Eight times, a quarter times internationally and we can go as high as 10 times to the U S. So when you factor in a refinance of the U S. A tack on to Glen referred as the back that is really our international facility and then you have.

Ah another facility that we're working on that we will disclose more when we get it done.

Gives us a fair amount of powder.

That's just the timing of when we get them finished but we're really optimistic on them.

Got it thank you.

Okay.

Ladies and gentlemen, we have reached the end of today's question answer session I would like to turn this call back over to Mr. Bill Bergman for closing remarks.

Thanks, operator, and thanks, everybody for joining us today.

Look we're really proud of the results and continue to be excited about the opportunity in front of us both in.

All of our different asset classes that you've asked questions about today as well as doing our job trying to peer around corners to find new asset classes or new variance of what we're doing that have long term durable cash flows from terrific credit quality tenants. So hope everyone has a good day, we look forward to catching up with.

A lot of you individually thanks operator.

Thank you for joining US today. This concludes today's conference you may disconnect your lines at this time.

Q3 2021 Radius Global Infrastructure Inc Earnings Call

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