Q3 2022 Radius Global Infrastructure Inc Earnings Call
Greetings and welcome to radius global infrastructure third quarter 2022 results conference call at.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation if.
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.
It's now my pleasure to introduce your host Jason Harps head of Investor Relations. Thank you you may begin.
Operator.
Welcome everyone to the radio global infrastructure third quarter 2022 earnings call.
At the moment no brookman, our CEO and co chairman will provide an overview of our third 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 we begin I would like to remind everyone that many of the comments made today are considered forward looking statements under federal Securities laws.
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 dotcom.
No.
Thanks, Jason and thank you all for joining us today for our third quarter 2022 earnings conference call.
Even amidst the current global economic and political environment I am pleased to report the continued resiliency and stability of our business as we continue to deliver what we believe to be attractive risk adjusted returns.
This is evidenced by strong growth in the third quarter, where our assets generated record quarterly GAAP revenue of $35 3 million up 29% year over year, which is net of the impact of recent volatile foreign exchange rates.
We now own over 8800 lease streams on over 6700 digital infrastructure sites in over 20 countries.
Our large well diversified portfolio of high quality Triple net rents underlying mission critical digital infrastructure assets enjoyed the benefit of predominantly uncapped inflation adjusted escalators and this quarter's results show continued growth from these valuable lease provisions as you will hear shortly I rent portfolio had net organic and.
Realized growth of approximately 4.3% in the third quarter, which includes both inflation escalators and other organic growth up from 3.7% in the second quarter and up from 2.7% in the third quarter of 2021.
As noted in our supplemental disclosures at the end of September approximately 76% of our portfolio escalates annually, 5% escalates every three years and 17% escalates every five years the rate of growth from escalators on our existing ranch grew four 8% in the quarter and we expect the rate of growth to continue.
And U S inflation based escalators continue to phase in.
We would like to again note that we have quarterly variability in the amount of capital deployed.
This quarter, we invested approximately 70 million to acquire 5 million in additional annualized rent increasing our total annualized in place rents to a run rate of approximately 134 million, representing a 21% year over year increase on a constant currency basis using exchange rates as of deferred.
Quarter of 2021, our portfolio would have grown 38% to approximately 152 million the difference between what we reported and what we would have reported on a constant currency basis is attributable to the U S. Dollar appreciation during the past year, most notably against euros, and British pounds, which depreciated by 15%.
And 17% respectively.
Please note that our Levered ran significantly mute FX impact, because we borrow and collect rent and deploy capital locally all of which acts as a natural hedge.
Our total acquisition Capex of 324 million for the first three quarters of 2022 keeps us on a trajectory to exceed our original guidance, where we expect to deploy 400 million plus of acquisition Capex for the current calendar year.
Our pace of acquisition Capex has also been impacted by a strengthening U S. Dollar on a constant currency basis, we would have deployed 378 million in the first three quarters as compared to the $324 million. We did deploy the difference between what we reported and what we would have reported on a constant currency basis is again due.
To U S dollar appreciation during the past year again, most notably to the euro since the majority of the rents. We've acquired this year had been denominated in euros.
Please note that we have benefited from the ability to buy international assets at a lower price. When we have deployed cash held in U S dollars due to the strengthening of the U S. Dollar against other currencies after making these investments we now have nearly $500 million on the balance sheet available for incremental value accretive acquisitions raised from.
Drawn debt facilities that are 100% fixed rate or capped with a blended cash coupon of approximately 3.6% interest only with our first maturity of 75 million out of a 1.5 billion of debt due in 2024.
I'm extremely proud of our global team for continuing to produce strong results meeting our high underwriting standards and target returns, especially in this macroeconomic environment.
With the pace of capital investment into global digital infrastructure supporting communication networks, and data storage data processing and data delivery continuing to grow to keep up with demand our addressable market of potential acquisition continues to grow in a range of asset types continues to broaden which of course provides our team of originators with a toll.
The addressable market of 1 million plus potential properties to acquire in the current JAK jurisdictions, where we presently operate where most of these addressable assets continue to be owned by a highly fragmented set of landlords.
We are highly mindful of recent volatility in the macroeconomic environment and capital allocation capital allocation is always a key area for us, which we are always seeking to optimize real time. In addition to constantly reviewing our underwriting criteria. We are updating targeted unlevered returns the factory and local.
Fictions market conditions against the backdrop of future financing costs with the objective deploying capital to achieve the best long term risk adjusted return.
A couple of other updates in the past our treasury function has delivered nominal interest income with recent interest rate increases we expect to generate more attractive near term interest income on our cash on hand until it is deployed into higher return opportunities.
We are also reviewing our SG&A cost structure to identify potential areas of cost reduction and greater financial and operational efficiencies. Lastly, we're also testing new structured finance offers to digital infrastructure property owners to optimize our returns well embraced <unk>. Our CFO will now provide an overview of our current holdings in financial results in more.
More detail Brian .
Thanks, Bill we continue to grow the portfolio in the third quarter, taking advantage of investment opportunities.
Across our expanding global footprint to deploy capital.
As of the end of September .
As Bill previously mentioned, we owned real property interests and over 6700 sites with over 8800 lease streams represented by a tenant base comprised of 39% tower companies.
61% mobile network operators.
The majority of which are investment grade.
With respect to our $133 6 million of annualized in place rents as of September 30th.
9% are denominated in euros and 14% in British pounds.
16% in U S dollars represent in Australian dollars, 1% in Canadian dollars and the remaining 16% in other global currencies.
Nearly 84% of our rents are located in developed markets with the remainder predominantly based in Brazil, Chile and Mexico.
Importantly, nearly 80% of our portfolio.
Its contractual uncapped escalators.
Who are directly or indirectly linked to local inflation indices, which provides us with meaningful protection against the impact of rising inflation.
Also muting the impact of rising interest rates.
The other 20% of our portfolio has contractual escalators that are generally fixed at 30% annually.
Graphically these fixed escalator rents are primarily located in the U S, Canada and Australia.
Revenues were up 29% year over year to $35 3 million in the quarter and gross profit what we refer to as ground cash flow rose, 25% to $33 6 million, resulting in a gross profit margin of approximately 95%.
Our ground Castro our margin has been impacted by expenses associated with fee simple interest acquired primarily for property taxes.
We deployed $70 1 million for acquisition Capex in the third quarter, which represents a 45% decrease from the $126 5 million, we reported in the third quarter of 2021.
The slower pace of investment resulted in a 4.9 million of additional annual rent across.
317 newly streams, we anticipate that these new lease streams will generate a fully burdened initial cash yield of approximately five 8% total growth spend basis.
Which includes approximately $14 2 million of origination SG&A that we spent in the quarter.
Please note that this five 8% reflects onetime expenses and foreign currency exchange impacts and when compared to previous years.
The same store sales at each quarter, we were acquiring assets or a different mix of countries that have different acquisition cap rates due to many factors that vary by jurisdiction.
In the third quarter, our existing portfolio of brands on a constant currency basis, excluding rents we acquired in the quarter generated five 3% revenue growth from the combination of our contractual escalators and organic revenue enhancements, which was partially offset by approximately 1% of gross churn.
Owning a net organic revenue growth of four 3% on a year over year basis.
This compares to 2.7% net organic revenue growth in the third quarter of 2021. This increase was primarily due to our contractual inflation based escalators, which are beginning to reflect a significant increase in inflation across all of our door stitches.
Turning to our balance sheet and liquidity radius now has approximately $1 5 billion of total gross debt outstanding net debt of $982 million as of the end of the third quarter.
Then 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 five seven years.
The company had approximately $517 million of liquidity for 93 million of which is available for incremental investment as of September 30th.
Radius also had $1 2 billion of available uncommitted borrowing capacity under various debt facilities. In addition to the ability to access the worldwide credit and capital markets.
If the market conditions in order to issue additional debt or equity if needed or desired.
Please refer to the supplemental materials posted to our website yesterday after the market close for additional details.
Bill.
Thanks, Glenn operator, please open the call for questions. Thank you.
Thank you.
Ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad.
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Our first question comes from the line of Ric Prentiss with Raymond James. Please proceed with your question.
Hey, Rick good morning.
Hey, good morning, everybody.
Couple of quick questions first glad to see CPI escalator, starting to continue to move up.
Through the quarter.
How should we think about I know you've mentioned 76% of the leases.
Update annually, how far through the process of updating those Roe.
Is there some way for us from the external side to get a sense of where these could be headed as you think about where inflation is and all the different markets you're working on.
That's a good question Glenn do you want to take risk through the true weighted average expectation do you have it handy.
Sure. So I think if you look at how we've called out the rents by jurisdiction are annualized in place rents and then think about the inflation and all of those various jurisdictions back droughts.
You know where you are in North America versus our Australia, and Canada, the fixed the fixed components, you're probably running.
Oh, our present run rate basis today of you know in the 5% range and if you. If you look at that compared to the debt. This stated inflation in those marketplaces are probably at about 60% on a trailing basis is probably the best way to think about that.
Okay and in terms of when it catches up Rick you know they it kicks in I mean, there's sort of you got to just do all the weighted averages, but I would expect within the next 12 12 months is our expectation that it will approach where inflation is today, because we're always lagging so you'd have to inflation went higher will lag if inflation went lower will still.
Lagging still be higher if that makes sense.
Second question.
On the acquisition front.
Obviously, you've been covering this space, a long time with towers and other digital infrastructure.
There was a saying in tower land that sometimes the best asset you can buy as yourself when you consider what other assets are going for what your asset is trading at do you guys have any flexibility or desire to look at using any of your cash or liquidity sources to buy back stock.
Yeah, I think we would well the answer is absolutely we do we'd probably have upwards of around $300 million of flexibility to buyback our stock should we our board decided to do that so we look at both the buybacks of our stock we look at the buyback of our converge you know whichever one we think at a given time offers a better return than what we're doing.
We're in the market.
I think from our perspective.
It has to be really really.
I guess, let me say it this way the comparison between what we can buy out there versus buying back our stock we always feel that when we're buying our assets. It's not just about buying inflation. It's not just about buying an asset that we know it's going to stand the test of time, but as we put in our supplemental deck today, it's not just the spread.
For us we always think we can get more organic growth as an example, a rooftop he's in Chester rooftop, it's actually a tower because there was incremental space that we can add incremental tenants and roughly 30% of our assets. Our rooftops. So when we think about a long term investment perspective, it's not that we wouldn't use stock buybacks selectively.
We talk about it at every board and if you know our heritage you know being partners with Malone He's been the master of making buybacks. So it's definitely on our radar I think for right now the way we view it as kind of attention with roughly $500 million of cash that you could call. It borrowed at 3.6% you want to capture that.
Spread as fast as you can because it's got 5.7 years on a weighted average maturity to be used.
And then you say to yourself as I Wanna capture what's the fastest and best way to do that you say, we've got buybacks. We've got new assets and then you ask yourself don't you want to optimize returns, but it may take you six months to get the complete optimization of returns, which of course Act circular league to undermine your using that spread right away.
A long winded way of saying that.
Every single day, we wake up more asset allocators and buybacks or just one thing that we focus on I think for right now practically speaking if we announced it we're just not sure we could buy that much we certainly would influence the price very substantially at least in our expectation and our view and so when we think about that rather getting into the cycle, saying to everybody.
We're buying back every quarter, we still think the returns are out there. They justify what were doing of course, especially with the spreads that we have so to speak on the cash and then when we combine that with of course, the organic growth that we think we can drive on top of it you know I think it's just business as usual on a very steady asset sorry for the long winded answer.
Well, it's thoughtful and that's what we want to see and hear because.
Sometimes you can also like you've pulled out just send a message to the market about whether you think that because at some point Glenn touched on it as you know Mars who's a debt raise but some holders equity raises to so you are correct with either with Watson.
The value that you're saying that you're producing.
No absolutely I mean, we think about the equity raise might as well just touch on it because I have a hunch you're going to ask me anyway.
No equity for US comes Episodically, when we think we need it to of course match against the originations in a perfect World you really want to raise just in time equity just when you need it but nothing's ever perfect, so whether or not we do it as we've done in the past, where you're issuing equity or you decide you want to issue equity on a subsidiary.
The level or frankly take the approach that some of the triple net traditional Reits have done where they selectively sell assets every year use of cash and reinvest. So can you sell at a much higher multiple than what you're going to reinvest the cash that we typically haven't liked to do that we would like to hold our assets for a long time, because we think that if we can.
Stay invested at sort of the best use of our cash without any friction now that being said the buying cell approach worked pretty original pioneers of people buying land for a long time. So it's something we watch is just another tool in the capital formation toolbox.
Last one for me appreciate that as well.
Obviously, you saw Vodafone vantage tower portfolio get finally announce who the winter wasn't that yeah. There is there is a lot of money out there in the private space.
Have you been approached would you in and engaged approach with private equity, saying, we've got a lot of money looking to put it in Wilmington digital infrastructure and you guys can be a platform.
Well, what I I guess I can say to you is a number one we don't really comment on any specific rumors as just sort of the policy the company and what our board has set out but look everybody is talking to everybody. All the time there is a substantial amount of capital that's out there in different types of funds and I don't think we lose a wink of sleep.
Over our ability to form capital you know when we shouldn't need it. The question then is.
I always like to think of things not just from pure finance, but also what else can we do with anybody as we're thinking about our future and there's no right or wrong answer but.
Yes, we're really flexible we always are willing to listen to anybody and.
I think that's what I would say.
Stay well everybody.
Yeah. Thanks I appreciate it.
As a reminder, it is star one to ask a question. Our next question comes from the line of Sami Badri with Credit Suisse. Please proceed with your question.
Sami Hi, Thank you.
Hey, guys.
Well I think he made a comment earlier on your prepared remarks regarding targeted returns of invested capital.
Can you just expand on that comment I know I didn't really hear a percentage or something else that you were kind of framing could you just give us more color and expand on that comment. Please.
Sure No I think it's a great question I mean first and foremost I know you've heard me say this before every single one of our jurisdiction demands commands a different threshold IRR and we start from the ground up saying to ourselves you know the classic sort of finance theory, what's the equity risk premium when we compare it to the U S and other countries so that.
Why we say, it's we're not reporting same store sales because if the mix of countries differs the actual quote unquote first your yield will also difference what you would.
Expect to achieve in Brazil, as a first year yields can be very different than what you're going to expect to achieve in France. Just as an example, so there is no one set overall holistic.
Return criteria, what I would say is that we then go into the process of saying, we've got three prints, 0.6% money and clearly we want to be above that to earn whatever the return is but that's only the first portion just to hit it home again, we don't see ourselves just as a spread business. We think we can and.
We have driven organic growth and we expect to do more organic growth on top of just the spread I think the third thing is that you know when we look at our first year yield and this is where I. It's it's hard to explain to investors, but the b.
The accountants, the GAAP accounting rules make us expense, the origination SG&A, which distorts our EBITDA when in our mind, it's part and parcel of buying assets and we view. It really is just capex now on the positive side, we get a deduction for it. So when we think about the first year yields since the IRA.
Is letting us deduct what is really 10% of the purchase price, we think about that in the context of the yields and then the other thing when we look at yields that it doesn't show, which is very obvious is the prevailing inflation that we think is going to happen in the next year two years three years and then of course, what we think we can grow.
The asset from a organic growth, whether that's because the rents are below market and at least renewal, we can bring them up to market or it's a rooftop or we think we can add another 10 or so yield is a measure, but it's not a same store measure and we're going back to your question on returns each jurisdiction is different but suffice to say.
If your our shareholders you're betting on our ability to capital allocate our ability as an investment committee so to speak as underwriters and I think that's just something we spend a huge amount of time, you know rethinking rethinking the rules that we set out there.
Got it.
Just just so I'm sure I'm clear on it I think your explanation was pretty good right. So timing could be a factor moving parts could be a factor and then just region of origination. These are factors for why yields could come down a little bit in the medium term before they finally stabilize after some of these kind of transitory effects start to.
Kind of be ironed out is that the right way to interpret it and I have one other no I wouldn't I wouldn't say that I would say and I I hate to do this because everybody wants it to be one size fits all I guess, we would too but you know every country's yields we're gonna be different based on what's happening in that given jurisdiction at that moment in time, that's the first thing to think about.
I think the second thing is.
We don't know yet because it will probably likely be a lad, whether or not in for when all of the current macro environment forces trickled down to individual landowners, who all of a sudden have a greater need to sell because they've got a greater need for capital or they're just afraid of the current environment at the moment, we're still seeing pricing relative.
At least stable that's out there you know when I think about other real estate classes as you know I've read in some of the Triple net REIT traditional investor presentations. They see 12 months to 18 months before you know the.
The market adjusts for a private seller I don't know what that'll be the case for us, but you know I do think theres a lag I'm optimistic that we will see prices begin to adjust to the overall market, which of course should inure to our benefit I also think that with more volatility probably people will need more capital, but again, we're in there.
Early days, we haven't seen that yet and any any material form so that would go against what you're saying about yields going lower.
I don't have a crystal ball I, just would say right now I'm expecting them to sort of remain stable for the moment with I guess, the hopeful expectation that yields will go up that we have to purchase.
Got it got it okay I apologize I actually have two follow ups. So first one just a quick one your your adjusted EBITDA margin came in higher than what we've typically modeling and it sounds like you guys structurally or doing things a little bit different going forward just from like a a cost and just business management perspective.
Or is it safe to assume that adjusted EBITDA margins would hover around the range you guys just reported or at least the next couple of quarters, maybe even 2023. So that's question. One question. Two is we're just trying to think about the economic forces here and the way that radius has positioned does economic turbulence, including rising rates globally.
Create more motivated sellers and thereby it gives you better deals better opportunities or is it are we in a situation here, where the economic dynamics are creating a situation, where there's a lot more waiting and seeing both on the radio side and the seller side just because so many pieces are moving around and in most cases unfavorably from a seller's perspective so.
Let me let me answer your second one first and then I'll, let Glen answer the EBITDA margin question.
The second one I was trying to address before when I was giving you how we think about returns and yields and I wasn't probably clear enough were trying to see when and if of course, it'll spark all this volatility more potential property owners to want to sell their property at the moment, we haven't really seen it in a giant material.
Wei I'm sure it'll be country by country. Our expectation is it takes a little while just as I mentioned before in the Triple net traditional guys experience to see that flow through to individual property owners I would expect it to happen I just don't know when I would expect we'd have more volume I don't know when that will kick in because typically.
People need capital again when markets are the way they are I hope that answers. Your question on the economic forces I guess the way we view our business is and I Hope you. This is really clear on a gross debt basis, we're probably levered at 11, and a half plus time.
Of our rents and I say, that's grows because thats not net of cash to be clear, but at 11 and a half times borrowing in a local currency you have 11 and a half times that you are hedged in FX. So if as an example, the euro weakens that means the amount of debt. We owe back is a lower amount that means the amount of interest we have.
To pay a lower amount so that's why I, even at a giant movement Unlevered, we are muted and what happens on the impact to us on a levered basis.
I hope that makes sense that would be an economic force and the other thing I would say on the economic forces is it and it's funny because you want to look at the forward curve all the time, but what we've all probably noticed it's changing up and down as volatile as the existing interest rate itself. So for us probably the most important thing will be.
It'll cost of cash when we go to borrow you know academically, we really liked to think about it as a separate cost and does it get the returns we want but you can be lazy can say well blended with the 3.6% because we know we still have a spread if we wanted to do it that way I think the second thing, which is most important to all of our shareholders and us is.
What do we think the cost of borrowing will be when we have to refi our weighted average maturity of five seven years. That's five seven years from now and our Crystal ball is as good as everybody else's Crystal ball, which means there is not very good.
And so those are the things that I think weigh on us as we think about our world and while there's mark to market volatility. We just believe by owning these assets long term applying steady leverage such that as we delever with natural escalators as we delever by acquiring more rent. So we want to increase our borrowings.
For two purposes, one is.
It does give us excess liquidity to we think we can have good organic growth. In addition to the spread and then three we do get a pretty terrific tax shield when we get to borrow from an interest deduction and it's really powerful as evidenced by I Wanna say approximately 240 million of Nols that we currently have as at the end of <unk>.
Q3.
I hope that helped you on the EBITDA margin Glenn do you want to address that yeah. Yeah. Sure. So you know we don't give guidance on an on projecting forward, but your instincts are right you you've consistently seen and we can and we would expect to see continue to see scale in the operations on the on the cost relative to the revenues and the NDA.
Our gross our gross margin. So yes, we would expect this directionally continuously the gross AR.
The adjusted EBITDA margin overtime.
Got it got it thank you very much.
Thanks Amy.
Our next question comes from line of Walter Piecyk with like you said.
With your question.
Hey, Walt I think we were over the 11 minutes. So we didnt make your hall of Fame quarterly earnings I want to point that out to Beth [laughter] Alicia over 40.
We're trying [laughter]. So this is probably a dumb question is given the nature of your business, but is there anything to think about in terms of churn here you guys only give one death I'm also like you've actually got up to the 0.3.
Maybe that's just like point to 557, but aside from what's happening in the current quarter.
Is there you know if you think about maybe global economic issues as a possibility not a likelihood should there be anything that could elevate churn even the slightest fit as we go into next year.
Yeah, you know I don't right now in terms of our Crystal ball I think we've been really steady for 10 10 plus years at around 1%, which is I think kudos to all of our underwriting and that team, which I'm not actually part of day to day. So I give them all the credit going forward, we don't see anything that's going to cause that because we try.
Really hard to make sure we're buying sites that we think will stand the test of time it'd be a mission critical but then again I didn't predict the Ukraine War. So you know what can I tell you anything is possible, but I do think it probably runs around 1% roughly.
We send malware spin stuff in the news there's been stuff in the news recently.
Well, maybe telecom Italia getting purchased by the government.
Is there any chance that that has any impact on you guys. It again comes down to underwriting what we love about Italy is that it is part of the EU. There now collectively borrowing together so I don't want to make the case just for Italy, but you've got a mission critical service from the incumbent telco and whats.
Most important for us when we're buying either ground under their towers rooftops or somebody there switching stations is make sure we pick the right ones in great locations, which just can't be replicated and that comes down to a lot of hard work on the ground and frankly really good diligence and we just feel like we are effectively buying.
A secured piece of credit on Telecom Italia that no matter what happens to its capital structure. They don't have a choice but to pay us because we're just mission critical for them and in addition, you know we tried to maintain and I think we're getting even closer to them to see what other things. We can provide them. In addition to just being a capital provider on a sale lease back.
Basis.
Sale leaseback they.
She had a lot of these a long time ago. So we're buying them from another third party, but I think having a great relationship with our tenants is really important.
I'm on my other question Bill was less about the financing risk is as more into you know I remember a year or two ago. When you were first kind of coming out. The you know there was some issue in the UK about whether the government in some ways can regulate you know the rents on ground leases or I forget what the exact noise was.
My point is like if the state owns the telco.
Do you think and if a country like Italy.
Should we think about any potential risk of you know them using that ownership to regulate what they're paying for ground leases underneath our towers.
Look anything is possible, but I would tell you that.
You know we have a contract I think contractual law in these countries, especially the EU. If they wanted just override it like that it's sending a strong message you know between international countries as to how they view property and I think that's just really hard to do and that's a long long haul even for Italy. So you know Matt.
In the U S coming in and saying, we just started taking your property. We're not paying you anything you have real recourse because it's not just you they're saying about domain.
Everybody on the real estate business is going to say what are you doing to me now that being said we have to make sure. We do a good job we have to make sure we're being well diversified and that's my point about going back and having a good relationship with your tenant because you know we've been exploring various energy related options with them and which could be pretty powerful.
You know more to come on that but that's why I like to think of ourselves not just as a spread business. So.
Got it.
And then again I didn't predict the Ukraine, or you know who knows what's going to happen in this world never say never but just Elon musk by Telecom Italia I mean, he bought everything YOD God help us so.
So if if.
You know the 400, obviously executed on for this year, maybe if I missed this in the prepared remarks apologize, but when you think about next year without setting a number.
And given that kind of financing environment would you anticipate.
A higher what do we call. This acquisition Capex number in 2023, and 2022 or or is it a year to kind of take pause then you know to wait to see how it kind of rates that shakeout.
Well first of all I don't think we would necessarily take pause to wait till rates shake out because as I've mentioned earlier, we've got $500 million of investable cash roughly at a 3.6% sort of cost of that debt. So I think we're in good shape no matter whats going to happen with rates that being said you should ask me that question at the end.
Our fourth quarter call because I think that's when we'll probably give next year's guidance and by the way you know little stuff moving as quickly and I was more worried not about rigs, but what's going to happen with our Congress today that can have as big an impact on the world as anything else.
That's true.
Thank you.
Yeah, Thanks, a lot.
Our next question comes from the line of Jon Petersen with Jefferies. Please proceed with your question.
Hey, Julien, Thanks, Hey, How's it going.
I know this has probably been tackled from a few different angles, but I guess I'm just thinking about your your rising escalators you know due to inflation. Obviously, that's a good thing, but then the rising cost of capital and how we should kind of think about going in yields on acquisitions. So I'm just curious from an underwriting perspective, how you balance those two things because I would imagine act was going in acquisition yields arent going up.
One for one with your rising cost of debt, but like how do you how do you factor.
No inflation expectations ensure underwriting.
So actually we don't we typically you still keep our projections at around 3% fixed across the whole world. It just lets us kind of have an apples to apples comparison. So we you know it's an extra benefit if inflation is running higher I think the place where on our real underwriting we spent a lot of time on.
Besides the price per day is not necessarily the yield on which we're paying but as I mentioned earlier, if we think the rents that we're buying are really below market for whatever historical reason that when the contract is up we just wanted to bring them to market. You know that would say Oh, you've paid a high a excuse me a lower yield or cap rate, but.
Yet we know there's more value to come whereas another example for whatever reason the tenant never paid the person or the property owner that we're buying the right amount of rent for the last five years, if we see that we're going to collect it that's kind of influence of course, what we're gonna pay and we do think about our world less on a cap rate or yield.
Even though everybody likes that from just an ease of Oh.
Either multiples are tools like that.
We really think about it on an IRR basis. So in that IRR is not just is it below market is there and to recollect, but then is it a rooftop do we think when we look at sort of the RF planning across a given city do we think we can add another half the tenant. Therefore, that's lease up do we think the uncertain sites. They have generators aren't they don't have generators for any.
Angie as battery backup if they need a January they need extra space, so things like that go into our.
Our underwriting calculus as much as just finance and spread and so that's why I think you'll hear US say, we don't think we're justice spread only business.
Yeah.
And then I guess one other question on acquisitions, just from the seller side.
To the extent that there is potentially a recession around the corner.
How should we think about the kind of opportunities that might create for you guys from.
Individual site owners wanting to generate liquidity I mean should we think about that as a as a potential good thing for you guys or do you kind of expect we'll we'll just see lower acquisition volume and that isn't much of an offset.
Well you know I'm I'm optimistic that we can maybe remain at sort of the pace. We've been I'm optimistic you know I guess the the normal theory would be that you would think there'd be more origination volume because people are going to need more money, because they're going to get more.
More aware of what's happening in the economic forces in the world because some of them are very educated and thoughtful and some just don't pay any attention. So all that being said you know I think we're hopeful that we'll see a both an uptick in volume and perhaps a rerating of price, where you know yields will go up for us, but I can't promise that and if it does happen.
We don't know, whether it's 12 months 18 months from now or if it ever comes and so I think we keep our head down we want to put our capital to work that is at such a low locked in cost, which we feel both some lucky in and I guess ratified that we knew raising capital you're supposed to do it when you can not when you need it right.
And so that's what we've tried to do and.
Just feel optimistic of what our what we can do out there I am hopeful that you know with volatility we may notice other areas in the mission critical space that perhaps we can mine and so we're always watching for that.
Got it alright, that's all very helpful color. Thank you okay. Yeah. Thanks, so much.
Okay.
Our next question comes from the line of Simon Flannery with Morgan Stanley . Please proceed with your question.
Thank you very much.
So I can just get into this topic about the activity levels in the acquisition Capex I know FX was part of it but can you just give us a little bit of color about what was going on this quarter with your deal flow what was it.
Fewer there were fewer opportunities.
Your surface was it fewer of them cleared your hurdles.
No.
Over the last.
You know it's funny, we we we always put this line in that there's just variability quarter to quarter and some of the variability and I'm sure. You can appreciate this is just when we can close.
We don't try to close desperately to make it for the quarter, which is why we give more of an annual guidance and we do quarterly because we just cant predict timing. Yeah. These are we like to think of this as the social M&A game. These are human beings and the other side and you know deals take a life of their own and so sometimes you can close really fast and easy and sometimes for whatever reason.
It lags.
So I wouldn't read anything into the number at all you know to me I'm sorry.
It was pretty pretty much business as usual correct one.
Quarter, well have a much bigger quarter another quarter could be lower but you know at the end of the year what did we actually achieve and then when we look at is what was the IRR when we're really studying it country by country, even though we try to groom it up for you because it isn't the same store sales.
And then I think you talked about examining your cost structure.
You know I think in the past you said a lot of your yeah.
Below the line or the SG&A et cetera is variable not fixed, but perhaps just give us a little bit more color on what we can expect there.
Yeah, I mean, I don't I don't I don't think we can give you any hard expectation I just think that this environment suggests of course always says to us and to our entire team worldwide you got to pay attention to what our efficiency is and where can we wring out things and we just didn't notice before because we've been running so hard to acquire so much.
So I'm not making any promises.
But I think it's a place that we can definitely dig in and I'm hopeful we can wring out something now that being said, we're such tax nuts that every time when we think about some of these expenses. We do think that it just adds to our NOL as well so of course, it's better to reduce them, but if we don't you know uncle Sam sharing some of the burden so to speak.
Okay. Thanks, and then just last one for me I think you hinted a couple of times about potentially broadening your asset types.
Is there anything significantly new in your approach you know in the loss.
First quarter or.
I wouldn't say, there's anything new.
We're still just to remind everybody.
Property Triple net under towers rooftop easements, where we haven't tenors indoor das rents. So it's like an indoor tower, where we're owning the wall so to speak that we get that lease out.
We've got data centers were wrong, the property underneath them oftentimes the actual building in structure and just triple net or double net it out and then of course some of the switching centers are mostly in Europe .
Type of thing and oftentimes the switching center actually a lot of the time there was a sell side as well. So you know that's right now what we've been doing we do dabble in some tower development. When we think we can win you know a particular a build to suit contract with a good tenant in a good location, whose got a cup.
100 towers coming out of the ground, it's not really super material, but it has a place given all the different teams we have out there I'm hopeful that we can keep growing that business because the returns as you probably know better than I do they're really really good and then some of these places even because there is such a difficult sites that were trying to win she actually dip.
Called sites to build we often get paid for all that extra headache are higher return and we kind of like just rolling our sleeves up and doing the work.
Great. Thanks, a lot.
Thanks Simon.
There are no further questions in the queue.
I hand, the call back to management for closing remarks.
Thanks, everybody for joining us of course, we're always available should any of our shareholders or analysts want to reach out to us to talk to us about anything and everything I wish everybody well. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect your lines at this time.
Wonderful day.
Yeah.