Radius Global Infrastructure Inc (RADI) 2021 Q1 法說會逐字稿

Good morning, and welcome to the Radius Global Infrastructure's First Quarter 2021 Financial Results Conference Call. (Operator Instructions) Today's conference is being recorded.

I will now turn the call over to Jay Birnbaum, Radius' General Counsel. Please go ahead, sir.

Thank you, operator, and welcome, everyone, to the Radius Global Infrastructure First Quarter 2021 Earnings Call.

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.

In addition, 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 the supplemental financial information available on our website at www.radiusglobal.com. Bill?

Thanks, Jay. Thank you all for joining us today for Radius' First Quarter 2021 Earnings Conference Call. This quarter marks the 1-year anniversary of Radius Global's establishment as a publicly traded company having completed our founding U.K. London Stock Exchange listing transaction in February 2020 just prior to the onset of the pandemic.

Despite the challenges faced by operating a global business during that time, we have significantly scaled the size of the company, including another quarter of accelerated growth in capital deployment and acquired rents in the first reporting period of 2021.

Specifically during the first quarter, we invested approximately $108 million of acquisition CapEx and acquired approximately $8 million in additional annual in-place rents, continuing the trend of accelerated capital deployment reported in the fourth quarter of 2020.

With these newly acquired rents, our total annualized in-place rents has increased to a run rate of $90.6 million, a year-over-year increase of 49%. In addition, this scale in recurring rental revenue continues to drive operational leverage relating to our origination platform and related costs.

The scope of digital telecom infrastructure assets, which we are evaluating, continues to expand not only by the amount of capital investment but also by asset type. Our extensive multinational origination network continues to uncover and capture accretive, mission-critical digital infrastructure assets ranging from our core leasehold interest underlying wireless cell sites and distributed antenna systems to fiber connection-rich communications routing sites.

All of the assets we acquire have similar attributes that meet our underwriting criteria. Mainly, they represent durable, low-risk, triple-net real property rental streams paid by the world's largest communication operators and infrastructure companies, representing underwritten equity risk-adjusted levered returns target in the low to high teens, depending on jurisdiction and -- depending on jurisdiction.

To support our growth plan in the quarter, we completed 2 incremental debt financings of $94 million and $75 million, with the $94 million that was in euros, which was EUR 77 million, respectively. And last night, we completed a PIPE equity offering of $200 million in common equity for a combined raise for the quarter of $369 million, representing both debt and equity.

All these stock funds will be used to continue our pace to capital investment, which we are optimistic will continue throughout 2021.

Our investment funnel continues to benefit from the acceleration of global investment in digital infrastructure necessary to support the voracious demand for mobile data, mobile video conferencing and other bandwidth-intensive uses. We are excited about putting incremental capital work for our shareholders, and we look forward to sharing our progress with you in the coming quarters.

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

Thanks, Bill. The capital deployed in the first quarter added meaningful scale to our portfolio. As of the end of the first quarter, we own 5,627 sites with 7,435 lease streams, represented by a high credit quality tenant base comprised of 42% tower companies and 58% mobile network operators. With respect to our annualized in-place rents, at the end of the first quarter, 62% are represented by Europe, 24% by North America and 14% by South America.

In the first quarter, our platform generated 3.8% growth from escalators and other organic growth, offset by 1.2% of gross churn. Revenues were up 42% to $22.2 million over the first quarter of 2020, and gross profit rose to $21.9 million, up 41% over the prior year.

As Bill mentioned earlier, we grew our asset base by $107.8 million in the quarter compared to $28.4 million last year, representing a 280% increase. This level of deployment added $8 million in rent, 216 new sites and 251 new lease streams. We anticipate that these new lease streams will generate a fully burdened, initial cash yield of approximately 6.9%, reflecting the acquisition of longer-weighted average property right terms as well as more emphasis on acquisitions in non-emerging market jurisdictions where individual asset returns are higher.

With the growth of our portfolio, operating G&A is improving significantly from last year and beginning to reflect the benefits of increasing scale. We anticipate that this trend will continue as we deploy incremental capital.

Turning to our balance sheet and liquidity. At March 31, we had $814 million total gross debt outstanding and net debt of $673 million. The debt carries a weighted average cash coupon of 4%. Overall, our debt has a weighted average term of 6.9 years, and our first maturity of $102 million is in 2023.

In the quarter and subsequent to quarter end, we completed 2 debt financings, a EUR 77 million euro-denominated or USD 94 million, 8-year floating and fixed-rate interest note under an existing international credit facility. And in April, we issued $75 million in debt secured by U.S. rental streams at 98%, with a 6% cash pay maturing in April 2023. Both financings represent holding company level debt that accompanies the senior level of debt at the asset company level.

With regard to yesterday's PIPE transaction, we agreed to issue 14,336,918 Class A common shares at a price of $13.95 per share to various investors. This price represents the 5-day volume-weighted average price per share, or VWAP, of $14.68, less a 5% discount. Such discounts are customary in PIPE transactions as the purchaser receives unregistered securities with a registration right obligating the company to file a registration statement with respect to such shares at a later date.

This transaction is expected to close on May 14, 2021, and the company is obligated to file the registration statement for such shares no later than June 11, 2021. We pursued a pipe offering rather than a sale of registered shares because the company is not yet eligible for shelf registration under the SEC's seasoning rules, that eligibility will occur in November of this year.

As Bill mentioned, the equity will be used to continue funding our origination pipeline. Please refer to the supplemental materials posted to our website this morning for additional details. As a reminder, the GAAP financials for the first quarter of 2020 only reflect the period after the acquisition of AP Wireless. In our supplemental materials, we provide full first quarter results for 2020 for comparative purposes. Bill?

Thanks, Glenn. That concludes our prepared remarks. Operator, can you please open the call for questions?

(Operator Instructions) Our first question comes from the line of Ric Prentiss with Raymond James.

Obviously, a strong quarter on the acquisition front. Can you help us understand a little bit about the asset type and locations of where you were able to put this capital to work here in the first quarter?

Sure. As you can imagine, a substantial amount, of course, is our wireless ground-related assets. In addition, we've got both fiber regeneration points as well as fiber aggregation points, as well as indoor distributed antenna system rents that we've also included. And that has assisted us in, as you can imagine, in accelerating our origination investments.

And obviously, the -- I guess the $300 million-dollar question is how is the pacing as we look going forward? Last quarter call doesn't seem that long ago, you talked about kind of the goalpost of what you could do. If we look at -- you did $118 million last quarter, $108 million in the first quarter, but you were for a long time doing just $50 million to $100 million in a year. You guys were doing like $100 million a quarter. How should we think about the pacing and where you're going from here?

And what really changed, as we get that question from investors, what changed to let you kind of get up to this 2x level per quarter versus what had been annual levels?

And look, it's a great question. I think starting with the last part, what changed is the addition of an additional asset class. We came to the conclusion in both our underwriting and otherwise, that the distributed antenna systems and the fiber-related properties have exactly the same characteristics as our wireless properties do.

I'd say the only difference that we typically find is that we're buying fee simple, at least for the fiber properties, which is a fancy way of saying it's sort of 99 years in life rather than less than 60 years, and that typically means that you're going to put more money up for a given amount of rent that you're buying, because you get a longer duration.

So I think the other thing I'd say is those rental streams, on average, are larger than what wireless rents typically are. So that, of course, relates directly to increased origination amounts.

And then the third one is we are, at the moment, primarily focused on doing it in Europe. But you would imagine we're open to expanding this additional asset class everywhere where we have existing operations, and we still are hopeful that we will enter into new jurisdictions as well.

As to the goalpost. I think optimistic is the word because we still haven't come up with a, I guess, a forward metric that's making us comfortable to give real hard guidance. We're still wrestling with it. I think by the next quarter, we'd like to come up with a way, but we just didn't have a chance to do it this time. I hope that's okay.

Our next question comes from the line of Sami Badri with Credit Suisse.

The first question I have is on the organic rent growth and how it just slowed down a little bit versus prior quarters. Can you just walk us through why that slowed down?

I'm going to turn it over to Glenn in a second, but I would just give you the macro observations and remind you that every year, we don't buy the same -- excuse me, every year with those rents that are growing, we have an FX impact that happened just as part of the macro. Glenn, do you want to address that?

Yes, I can address that. So it's down a bit and it's really related to the revenue enhancement component, Sami. The contracted escalators are pretty consistent, and I think our consistent conversation around this has been that we thought our revenue enhancement component generally would run from 3 quarters to 1.5% on a growth rate basis. And that the 2020 growth rate of 2% was higher than we anticipated. So we think we're in that -- the 1% on the net organic growth seems to be more consistent with what we've seen historically and what we expect.

Got it. The other question I had was on the SG&A as a multiple of rent acquired. You guys had a slide in your deck last quarter, there isn't one this quarter. Can you just walk us through how that ratio did in this cycle?

Sure. So specifically with respect to the slide on how to view Radius, we're seeing significant scale on the SG&A expenses. And if we're looking at -- particularly at that slide, I think you're focused on the column B. And that shows not only the acquisition CapEx but also it shows the SG&A costs associated with acquiring those assets that we believe would be capitalized if we paid it to a third party. The silver lining is we get a tax deduction for it in-year.

However, having said that, with respect to the 2021 $9.1 million, that runs as a multiple -- of SG&A as a multiple of rent acquired just over 1.1 turns, and we saw that multiple in the prior quarter -- the prior year's quarter, March 31, 2020, that was in the 2.8x multiple range. So we're continuing to see significant scale year-over-year and quarter-over-quarter of our SG&A expense related to the origination platform.

Our next question comes from the line of Walter Piecyk with LightShed Partners.

Bill, if you look at like 2016 to 2019, your acquisition multiple was under 9.5x. And I'm calc-ing that just by doing the acquisition CapEx over the acquired rent, obviously, it climbed a little bit last year and then it looks this quarter to be like 13.5. I think you had just mentioned to Ric's question about paying more up for fee-simple or doing fee-simple rent agreements for fiber and that meant you were paying more upfront.

Is that the reason that the multiple -- acquisition multiples are climbing? Or is there a geographic mix shift? Can you just talk a little bit about that and kind of how we should think about acquisition multiples going forward?

Sure. No, it's a good question. And there's really, I guess, 3 buckets to think about. Number one, you pointed out geographic mix shift is right on the money. If we had bought 100% in Brazil, of course, you would all expect the yield to be much, much higher, given the risk-reward nature. So you have to always keep that in consideration, recognizing that we're not going to buy the exact same amount of assets in each country every single quarter. So the mix is constantly going to shift.

I think the second thing that's happening within this is the duration, as you pointed out. If you were to buy an asset for 20 years, meaning the net present value of 20 years versus a net present value of 99, of course, the 99 will cost more money, but the rent is still the same. So you take the rent, divide it by what you cost you pay, you have the yield. But of course, when you're buying 99 years, you are getting a longer duration or more valuable assets, theoretically speaking, if we all live that long.

I think the last bucket is the reality that given the pace of mobile network operators shedding towers to telecos, [we already see] increased competition. But the market is just so wide, that even with the competition, we will see sometimes when active prices will go up, but we still feel very optimistic both on what we can originate and add compelling yields as we originate. I'd say the bulk of...

So how much of it is vary going forward? Should we just kind of assume a 13 ballpark range and then just be pleasantly surprised if you get cheaper assets going forward?

I hate doing that because the mix could change, right? If we find -- that's always where it's hard to actually project and to give you a better sense than that. And the mix can change by country, the mix can change by whether it's fiber-related or wireless-related, whether it's 99 years versus 30 years.

You have to -- as we like to liken inside our shop, we're both flying visually and flying by instruments. And the instruments allow us to kind of think very carefully about sort of the overall mix when we do our underwriting and when we put in place our leverage.

Got it. So your argument is, look, if we're looking at the terminal value, you'd buy at 13, it's worth more because in year 20 you're not going to have to put up some more money to extend that lease with that underlying holder? Understood.

That's correct on the 99. The other thing I'd point out is we only bought 20. Typically, we could go back in year 5 and extend that for not very much money to a landlord. So that's -- it's almost like an embedded option, even though it's not really.

Do you report duration of the overall asset bundle somewhere in the -- one of these back books or -- okay.

Yes, I think we -- yes, we do.

All right. Perfect.

Yes, we do, Walt. Yes, we do. And you can see from that slide, it's going to show you 2 things. It's going to show you a bit of the geographic shift, and it's going to show you the lengthening of the term, more so in Europe, which coincides with the geographic shift that we talked about.

I got you. Can I kind of just give you one follow-up on that geographic shift?

Yes.

You gave the 62% number in your prepared comments. Is the U.K. still about 25% of that -- of the total? Not of the 62%, but are they still kind of in that 25% ballpark?

I don't think we've broken it out. Or have we, Glenn, in the 10-K? I can't remember.

Yes. Well, what -- we tend to do that. The U.K., on a percentage basis, is a little less. It's about 21%.

Our next question comes from the line of Jon Petersen with Jefferies.

So just looking at your -- where your rents are coming from your -- from the tower companies, it increased to 42%, it was 30% last quarter. I'm guessing that's American Tower's acquisition of the Telefónica portfolio, you can correct me if I'm wrong there. But my bigger question is, as you're dealing with more towercos, I guess how does the dynamic in the relationship shift? And what are kind of the revenue upside or downside impacts from dealing with the tower company versus dealing with the carrier directly?

No, it's a really good question. I think first and foremost, we consider the tower companies our partners because they are tenants, but we have to have a good symbiotic relationship. I think that, clearly, the larger we're getting and their continued acquisition of towers, means that we are today and will continue to be, their largest landlord, whether it's American Tower, Cellnex, Vantage and the like.

I think one of the opportunities for us is to, at some point, come to some type of agreement, whether it's a master lease or otherwise, where we both can partner in -- I guess in a more tight manner. And you imagine, we speak to all these guys all the time. And I don't think there's much more to say other than we'll just keep our head down and keep acquiring and managing our sausage factory, so to speak.

Does it increase the possibility that you might sell some of your land parcels to the tower companies down the road?

Well, there's always the option to sell at any time. That's really sort of a Board-related question for us, and of course, it relates to value. That being said, we're always tax-sensitive and also we really believe that owning a long-term inflation-linked, I guess, revenue stream with associated organic upside, whether it's from the rooftop or otherwise, just has incredible value.

So to want to have to sell that, they're going to have -- they have to really step up to make it worth our while than just outright sell. I think we like hanging on to it because where else in this environment would you want to put your money in many respects?

Got it. That makes sense. And you said inflation-linked, so that's a good segue to my next question. So the majority of your rents are indexed to inflation. Are there caps on that? There's some people throwing out some pretty high inflation numbers. Would you be able to match that? Or do you cap at a certain level?

I don't believe we have any caps in our leases. But just to remind you, every single lease is different because we're buying them individually, which is why the master lease concept. If we have, call it, 1,000 leases with a tenant, they're all completely different.

Right.

Yes. The only element of that, I would say, is we do disclose the annual escalators. There are no caps, but we do have some higher -- there's sort of some higher CPI or OMV, some lower CPI or OMV, But basically, by and large, they're all related to changes in market value of the assets.

I guess more clearly -- just to clarify that for a second. We don't have any caps. OMV is a mechanic in 1 or 2 countries that is basically a just renewal negotiation, where everybody recognizes that you're going to get inflation as part of a renewal. It may not happen quarter-to-quarter though in this cycle. But just to be simple, there are no caps.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Thanks, operator. Look, we're extremely excited about the opportunities ahead. We operate in an enormous and expanding addressable market, as I've previously mentioned, and we believe we're well positioned just to execute our growth plan.

I want to thank everybody for joining us today and we look forward to catching up with you over the coming weeks. Thanks again.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.