Q1 2022 Radius Global Infrastructure Inc Earnings Call
[music].
Greetings and welcome to radius global infrastructure first quarter 2022 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 the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Jason Hart head of IR.
And over to you.
Thank you operator, and welcome everyone to the radius global infrastructure first quarter 2022 earnings call.
On this morning's call Bell Brookman, our CEO and co chairman will provide an overview of our first quarter 2022 results followed by a more detailed update from Glen <unk>, 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 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 yesterday's earnings release, and the supplemental financial information available on our website at www Dot radius global Dot Com Bill.
Thank you all for joining us today for our first quarter 2022 earnings conference call.
I'm pleased to report continued strong growth in the first quarter, we now own over 8300 lease streams on over 6300 digital infrastructure sites in over 20 countries.
During the first quarter, we deployed approximately $75 million of acquisition Capex, representing approximately $6 million in additional annualized rents, resulting in 36 million of GAAP revenue for the quarter, an increase from our total annualized in place rents to a run rate of 125 million.
This is a year over year increase of 38% for a portfolio of high quality, primarily triple net annually escalating untapped local inflation linked cash flow streams underlying our digital infrastructure related sites.
We previously mentioned the timing of certain transactions can be difficult to predict. Please note that we have few deals that were originally scheduled to close in the first quarter that we now expect to close in the second quarter. Notwithstanding this based on the deals that we've already closed this year and our current pipeline of investment opportunities. We remain optimistic that we will.
Exceed our previously issued outlook for the deployment of at least 400 billion of acquisition Capex during 2022 ideally by comparable margin.
As a reminder, we're continuing to broaden the scope of properties, we seek to acquire to a wider pool of digital infrastructure and related assets all of these or similar attributes to the REO properties, we own underlying wireless towers in rooftop cell sites. These additional asset types include rents generated from fiber aggregation points of presence indoor wireless does.
Any panic systems and data centers. We're also pursuing tower build to suit opportunities, where we are developing and constructing towers. Upon the award of a contract from a tenant in certain markets, where the risk adjusted returns meet our investment criteria.
Digital infrastructure related assets that we seek to acquire from dirt are predominantly long duration triple net rental streams, where our primary tenants or the worlds largest mobile network operators and communications and data infrastructure companies.
Rental streams typically underlying strategically located properties and sites and are characterized by being difficult and expensive to move a replicate and recession resistant as they are an essential component of our Thailand delivery of a variety of mission critical communications and data services.
Including the capital raised from our April 2022 debt refinancing, which our CFO Glenn Bryce here will discuss in more detail. We now have approximately $846 million in cash and equivalents on our balance sheet. The vast majority of this cash is available to deploy for acquisitions and development opportunities that meet our underwriting criteria.
Targeted returns for our shareholders.
Timing of our aggressive capital raising activities over the last 15 months was purposely pursued in anticipation of shifting trends in the credit markets to ensure we have a level of liquidity to which we can deploy to meet our origination goals for the coming quarters.
Note that all of our outstanding debt is fixed rate or capped interest only and has a weighted average remaining term of over six years.
As yet another reminder, most of the senior management team had worked together for over 30 years, we believe our decades of experience building operating and investing in communications infrastructure across economic cycles, combined with our 300 plus multi jurisdictional team.
<unk> database and analytics, we built over the past decade remains somewhat but most important competitive advantages we possess.
Basically enormous addressable market of over 1 million wireless sites in our current markets not even factoring in other new jurisdictions, we can expand into as well as well as additional fiber in das assets for us to target. We continue to believe that we've only scratched the surface of the digital infrastructure related opportunities globally, Greenbrier singer or.
<unk> will now provide an overview of our current holdings and financial results in more detail Glen.
Thanks Bill.
We continue to grow the portfolio in the first quarter, taking advantage of investment opportunities across our expanded global footprint to deploy capital.
As of the end of March.
Real property interests and over 6300 sites.
With over 8300 lease streams represented by a tenant base comprised of.
38% tower companies.
2% mobile network operators, the vast majority of which are investment grade.
Yeah.
With respect to our $125 4 million of annualized in place rents.
<unk> 31.
A 45% already nominated in euros, 17% in British pounds, 16% in U S dollars, 3% Australia.
2% in Canadian dollars, and the remaining 17% and other global currencies.
Approximately 83% of our rents are located in developed markets.
With the remainder predominantly based in Brazil, Chile and Mexico.
Yeah.
Importantly, nearly 80% of our portfolio has contractual uncapped local inflation linked.
<unk> related escalators.
Which provide us with meaningful protection against the impact of rising inflation, while also meeting the impact of rising interest rates.
The other 20% of our portfolio has annual contractual escalators.
Generally the 3% geographically these fixed escalators.
Rents are preliminarily located in U S, Canada and Australia.
Revenues were up 38% to $30 6 million in the quarter gross profit, what we refer to as growing cash flow.
It's 36% to $29 8 million, resulting in a gross profit margin of approximately 97%.
We deployed $74 6 million for acquisition Capex in the first quarter compared to $107 8 million in the first quarter of 2021.
Resenting $5 8 million of annual rent across 194, new lease streams.
We anticipate that these newly streams will generate a fully burdened initial cash yield of approximately six 5% of total growth spend basis.
This includes approximately $15 million of origination SG&A.
That we spent in the quarter.
Please note that this six 5% when compared to previous years does not reflect the same store sales as each quarter. We are acquiring assets from a different mix of countries that have different acquisition cap rates due to many factors that may vary by jurisdiction.
In the first quarter, our existing portfolio of brands on a constant currency basis, excluding rents we acquired in the quarter generated approximately 4% revenue growth from the combination.
Our contractual escalators and organic revenue enhancements.
Which was then partially offset by approximately 1% from growth trend.
Morning, and net organic revenue growth of approximately 3% on a year over year basis.
This compares to two 7% net organic revenue growth in the first quarter of 2021. This.
This quarter over quarter increase is partially due to our contractual inflation based escalators, which are beginning to reflect the significant increase in inflation across all of our jurisdictions, which reached a 20 year high in 2021.
Turning to our balance sheet and liquidity during the quarter, we borrowed an additional 225 million euros.
Part of a new 750 million euro financing facility.
Company entered into in December 2021, the initial borrowing of USD $257 5 million as of the funding date has a fixed annual interest cost of approximately three 2%.
This new borrowing matures in January 2030.
At the beginning of the second quarter.
As we recently announced we refinanced our existing $102 5 million domestic senior secured facility, which was scheduled to mature in October of 2023, and we entered into a new 165 million facility.
Especially when it accrues interest at a fixed annual rate of approximately $3 six 4% and will mature in April 2027.
This compares to an interest rate of 425% under the previous credit facility.
That's part of the closing of the transaction radius received an a rating from Fitch for the facility, which has a leverage cap of 975 times eligible annual cash flow defined as annual in place rents less servicing fee.
Inclusive of this recent foreign refinancing.
<unk> now has $1 6 billion of total gross debt outstanding.
Debt of $793 2 million.
At the end of the first quarter.
Again, all of our outstanding debt is interest only fixed rate or capped with a weighted average cash coupon of three 6% and a weighted average remaining maturity of six two years.
As Bill mentioned previously the company had approximately $846 million of liquidity most of which is available for incremental investments as of March 31.
Please refer to the supplemental materials posted to our website yesterday after the market close for additional details.
Bill.
Thanks, Brian before we open the call for questions I would like to acknowledge the market rumors that surplus in the media last week.
While we are always focused on shareholder value creation as I'm sure. You can appreciate we have a policy of not commenting on market rumors accordingly, we request and I really mean, we request that you. Please keep questions today related to our first quarter results and to our business and outlook with that operator. Please open the call for question.
<unk>.
Thank you.
At this time, we will be conducting a question and answer session.
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One moment, please while we poll for questions.
First question comes from the line of Ric Prentiss with Raymond James. Please go ahead.
Hey, good morning, everybody.
Hey, good morning, guys.
A couple of questions.
I'll respect your request not to ask you about the market rumors although we're all actually you're obviously very very interested in that.
Maybe a way of asking you a related question would be you had the series a founder's preferred.
Stock.
I see you made the announcement that you're going to pay the shares.
In May may 13th I think for this year the 'twenty one performance.
Those work in case, there was a potential deal.
Is there a value that has to get ascribed to them with a cumulative just just wondering how if there was some strategic transaction, how we should think about.
As founders a series a founder's type stocks.
Look it's a good question what I guess I can say is it really depends on the type of transaction.
And.
I think that's probably all I should say right now on it because it's.
Quite complicated and.
I think.
Yeah, I think that's all it can be said right now I hope it's okay.
That's why we're just I guess, a second type of question along with that is I think last year. The Founder's series a founders' shares were paid like in February this year in May as there is there. Some reason why that varies what month or quarter. It gets paid out in any given year.
It is a cumulative preferred and.
From a timing perspective, most of the time, we're just trying to get our act together and worked through lots of things that we've got going on as well is according with our board to make a declaration sitting out.
There's no rhyme or reason.
Okay.
And then a separate question, obviously origination SG&A that we exclude from our <unk> calculation and valuation efforts.
It did grow up in the quarter, how should we think about the trend line of that origination SG&A line is that something that only goes up over time as you add more countries is it something that fluctuates up and down as as transactions are being worked on but maybe not even constantly I'm just trying to take the trend lines and how we should think about that line.
I think it's going to trend up and down because a lot of it's driven by a which country are and what type of transaction and appetite for doing some of the aggregation points or larger scale.
Portfolio base, which can be more efficient from an acquisition SG&A, but again with this one it's awfully hard to predict and Glenn would you add any other color to it.
No I think we've covered the relevant items as far as timing is concerned and some spend.
Ahead of realizing rent streams as we grow the teams.
Right.
And there are deals that maybe haven't closed yet that were maybe slip a week into <unk> could there be some money within the quarter that didn't actually absolutely absolutely.
Absolutely, yes, yes, well summarize Rick that's actually that's absolutely the issue.
It gets harder we only want to give you annual guidance Ric because of just the lumpiness of how quarters work and they are the.
The arbitrary date.
Okay that makes sense. Thanks, good luck to everybody.
Okay.
All right.
Thank you. The next question comes from the line of Sami Badri with credit Suisse.
Please go ahead, hey, Sammy how youre doing.
Hey, doing really well. Thank you guys for the question.
So first one I wanted to kick it off with us regarding the inflation linked escalators and the capped versus uncapped kind of conversation. So really I think we understand that you guys have not capped escalation now what does that functionally mean with your customers in the negotiation so does that mean.
It's an open conversation with the customer or do you just.
You come up with a number that you think is fit.
You put it in the contract and that is it is.
That is the CPI escalation could just walk us through how those usually go.
Yes, I mean, I think right now for the moment, we are negotiating site by site.
And when that happens the historical paradigm is that uncapped CPI escalators in almost all the countries, excluding the U S and U K and so what happens then is.
Our perspective is it inflation has been low for a long period of time in the past.
They got the benefit of that over 10 years 20 years, historically and now going forward it may actually be.
It may increase because of the environment, we're living in now that being said, it's a basically a negotiation.
No different than any other negotiation I think the good news is we've tried to be a good landlord. We have discussions about should we ever do a master lease all the time with various counterparties, whether or not we can reach a win win situation I think time will tell but I feel very good that.
We will continue to have on cap escalators as current lease negotiations.
Got it.
My other question is when you think about the regions or countries that are taking the most amount of time to deploy capex and acquire sites, which regions or countries are essentially seeing elongated lead times to completing a deal or whats moving a lot slower than you guys expected.
Well I think it's really about asset type when the deals get larger sometimes it takes more time, but every single deal.
As we always like to refer to it as sort of social invest in because youre dealing with another human being on the other side.
Cant always predict pacing of Gwen transactional happens or gets done.
Just can't.
Got it my.
And my last question I know you guys can't comment about.
Activity or anything thats been in the media or the news, but one thing that one question, we get often from investors is what if your business was operating in the private market what leverage level can it operate at could you just give us some insight in terms of how to think about that.
Yes, I mean, I think if you're asking what's the maximum amount of leverage we could put them in the business.
I have a hunch, we could take it up.
Probably a fair amount more but then the question is whether you're a private or public is sort of.
It's irrelevant to that decision, it's more as an investor.
Much risk how much reward clearly we've tried to take the steps to give ourselves enough liquidity to be able to fund many quarters going out we're actually we're really successful maybe not that many quarters, but the point being that we locked in rates now we raised a lot we do like to run with cash in the back.
Once you are a cushion because let's.
Let's asleep at night, perhaps in a private setting one wouldn't need as much of a cushion.
But it really depends on facts and circumstances, when you compare public versus private.
Got it thank you.
Thank you. The next question comes from the line of Nate Crossett with <unk> book.
Please go ahead.
Hey, Nate.
Hey, good morning, guys.
Just on the pipeline.
Yeah, how far out can you be normally at visibility too.
Is it 90 days or is it six months and then also when we're thinking about that $400 million how much of that should we kind of assume is.
Tower ground leases versus the other types of assets that youre doing.
Both good questions I'll take the second one first we just haven't broken them out a lot of it is because we think the asset classes are really the same risk reward.
Investment analysis for us and rather than detailing of one versus the other and then.
A lot of complexity and confusion for our shareholders. Our perspective was if you have the same tenant the same credit quality tenants.
Same.
Life of lease contracts same uncapped inflation escalators.
Historically, and even going forward, if not broken that out in terms of your first question.
Im spacing on what it was in your mind repeating it.
Is that visibility how far out.
<unk> ability.
It's like with any pipeline.
Have visibility I think to the size of the pipeline. It's just what do you think your conversion will be in the pipeline, what's the pacing of the conversion because obviously you're never going to hit it perfectly every quarter because that's not what likes like and then once you have done the conversion at what entry price of entry cap rate that you're paying to be in there.
Those are harder to predict which is why I think we've come to trying to give a year guidance as opposed to quarterly because we just don't know the pace on quarterly and we'd go out too far it's just hard to know how much the conversion will be because the market in the world can change I mean give an example.
Think about what our world look like six months ago, or 12 months ago, given Ukraine War and all the other elements of volatility that the markets Youre seeing presently.
Okay. That's helpful.
Just one on pricing.
How has kind of that mood in relation to rates and your ability to kind of adjust that pricing.
That's a really good question I think that.
It's probably going to be able to be better answered next quarter, because there's always sort of a lag before the market kind of understands that rates are moving and so we will see whether or not and how that trickles down into the one by one acquisition market on the larger scale deals we will see it after.
Some extent because the counterparties are more sophisticated.
Typically these are all generalizations.
Okay. That's helpful. Maybe just one quick expense question I heard that you guys didn't renew your office space.
That.
Is that true and I just wanted to know like what's the rationale.
It's not that we didn't renew our office space Youre going to laugh is part of.
Our lease everybody in the building.
Got kicked out because the landlord soccer wanted to convert the building to condos.
For residential use and so we all have to go find space and we're in the process of negotiating a new lease slowly because new York real estate owners, where landlords are not the ease that people are going to negotiate with but we're hopeful that we'll be in this space in the next two to three weeks if we're lucky if we're lucky.
Okay. Thank you.
Mhm.
Thank you.
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The next question comes from the line of Jon Petersen with Jefferies. Please go ahead.
Hey, John Hey, good.
How's it going.
Great I apologize if I missed this youre not the only company with M&A rumors swirling.
But did you break down.
Your acquisitions this quarter, how much of it leaned towards land under towers rooftop easements other type of stuff.
No we typically havent done it and we didn't do it this quarter either.
Yeah, I would just answer that question for someone else.
It's just because the rent streams at our in our mind, a really equivalent because.
Similar tenants similar contractual term.
Similar delivery or underlying.
Property for mission critical services. So we just haven't broken it out.
Okay.
And then on I guess, maybe a follow on to that comment on different fee streams. So.
On page 16 on the supplemental you guys breakout the property REIT type.
About 36% of fee simple and the rest of it.
<unk> leasehold interest things like that that aren't fee simple permanent.
Ownership I mean, how do you guys. When you buy these different property types, how do you underwrite the difference and you're right to the land.
And how do you feel like that those valuations should be viewed differently within your portfolio.
It's a great question I would say that the actual property you're right. We don't really distinguish oftentimes we preferred not to buy T. Simple because of course, we're not taking on the burden of utilities maintenance or taxes.
What happens if we buy less than a fee simple perpetuity or 99 years, we do get to amortized for tax purposes that property right, which has substantial value to let us she'll what would otherwise be taxable income.
And then in certain countries like Latin America, we typically like to buy shorter lives because we view it as effectively at our option if and when we wanted to extend that.
Right.
That particular property right and typically if you go back to someone and let's say you've got 20 more years left and we can track their age when we say to ourselves let's go by years.
'twenty one through 50, we believe that the price that we would have to pay or even the structured finance approach we may take.
That that incremental value will be nominal and then the last thing I'd say is that whats interesting is when you have uncapped inflation escalators the movement of 25 basis points over the duration of your property right of an inflation escalator, which you can't predict is in some respects the equivalent that many more.
More years of property right duration. So it just says it's awfully hard to value that inflation escalator. So we think about that.
As we kind of review, where we are in a property right term I hope that's helpful. Yeah, No that's really helpful.
And I am just curious on the fee simple interest.
Is that does that lean more towards North America versus Europe versus Latin America. I mean is there one market that kind of stands out as making up the majority of that.
I think it's sometimes it's.
It is all over the place I would say at the moment is probably leaning more towards Europe at the moment because that can change.
Oftentimes, it's what is the seller are willing to do.
And then of course as I mentioned Latin America, we're going to typically want to buy shorter.
Got it.
I mean, sometimes you get frustrated because you want them to be pattern right, but when do you think about it when you have all of these individuals and the fragmentation of our markets.
It's not always going to be we know this is always going to happen and we can predict what the trend will be it's just not like that.
People.
An example people sell when they need money or they sell when they are afraid right.
Environments like this are typically good for us.
Sad to say, but when you have warm when you have a recession.
A potential recession of rates moving around or volatility people, then will desire to derisk.
Makes sense.
And then in terms of your tenant types, you're you've kind of floated around 40% being from tower codes, but you do have a lot of Europe and we're seeing a lot of these European.
Portfolios from the carriers being sold to the tower codes I mean, do you think that.
Opens up opportunities for you to sell maybe smaller portfolios of the tower COSE or one off properties. I mean, we don't we don't get much disclosure from you on when you guys ever sell some of your fee streams.
To the tower Kos.
The significant thing that's happened is it something that could happen more.
I don't think we've ever done it to be honest with you.
You're asking a good question because the traditional triple net companies that are out there publicly traded underneath the KFC or other sort of retail outlets. They do every year sort of weed out the portfolio and sell some we do get people who call all the time offering to buy certain components of our portfolio and Thats one way to form <unk>.
One of which is to sell them and recycle but for the moment, we've always thought that getting to much greater scale is more important than just selling.
A small part of our portfolio. So typically as we get to scale I think we've always believed that at some point, we'll get into a a good master lease agreement with some of our largest tenants and those are the American towers to sell next as vantage is just three examples.
Okay. That's all very helpful. Thank you so much sure.
Thank you.
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A quick reminder.
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Yeah.
As there are no further questions, ladies and gentlemen, we have reached the end of question and answer session and I would like to turn the call back to Bill Berkman for closing remarks.
Thank you operator, and thanks, everybody for joining US today, we remain excited about the opportunities in front of us in 2022 and.
Thereafter.
And of course, we look forward to catching up with.
Each and everyone of you individually and always feel free to reach out to Jason <unk>, who runs investor relations for us if and if you'd like to speak to us directly.
Thanks again.
Yeah.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.