Radius Global Infrastructure Inc (RADI) 2020 Q4 法說會逐字稿

Good morning, and welcome to Radius Global Infrastructure Fourth Quarter 2020 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 Fourth Quarter and Full Year 2020 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, www.radiusglobal.com. Bill?

Thanks, Jay. Thank you, and welcome, everyone, to Radius' Fourth Quarter and Year-end 2020 Earnings conference call. We hope everyone is doing well and preparing for a gradual return to a new normal.

2020 was a pivotal year for Radius as we completed our merger with Landscape Acquisition Holdings, re-domiciled to Delaware, and listed on the NASDAQ in the third quarter. During this time, our team remained extremely focused on growth capital deployment in acquiring and managing real property interest underlying critical communication sites, including under wireless towers, rooftops, fiber interconnection sites, data antenna system networks and related digital infrastructure assets.

In 2020, we've more than doubled year-over-year acquisition spend of $221 million. When taking into consideration the cost of the origination platform, this represents a blended purchase yield of 7.2%. After the application of leverage, we expect these investments will produce returns in the mid-teens over their asset lives. In addition, we expect this overall growth in scale will result in a proportional decline in acquisition SG&A as we realize benefits from incremental operating scale and leverage.

In coordination with our capital deployment efforts, our team has been actively exploring ways to enhance our liquidity and is continually -- continuously focused on lowering our cost of capital to support our core asset origination growth as well as other growth initiatives. The significant growth achieved in the fourth quarter and the entire year resulted in our owning, as of year-end, 5,427 sites and 7,189 lease streams.

These results represent 18% growth over sites and leases owned at the end of 2019. We deployed $118 million of new capital in the fourth quarter compared to $38 million in the fourth quarter of 2019, bringing our annual total in 2020, as I mentioned before, to $221 million, more than twice the amount deployed in 2019.

Our team swiftly and successfully adapted to the wide-ranging impacts of the pandemic. The success of this underscores the effectiveness of our global origination platform. With respect to our portfolio composition and attributes, we ended the year with 56% of our sites in Europe, 26% in North America and 18% in South America, with 59% of our annualized in-place rents represented by Europe, 26% of these rents represented by North America, and 15% in South America.

U.S. rental streams continue to be dominated by ground under tower assets at 73%, with the balance primarily representing rooftop property interest. Internationally, 52% of our rental streams are rents under towers and 32% are from rooftops. The weighted average remaining tenant term of our portfolio leases at year-end 2020 was approximately 9 years. In 2020, our rents enjoyed 4.9% of a contractual escalator and organic growth, offset by 1.1% in churn, for net growth of 3.8%.

This combination of long-term revenue visibility, attractive annual growth and low annual churn reinforces for us the desirability of the digital infrastructure asset plans. We are enthusiastic about our growth prospects in 2021. Our global pipeline remains extremely active, and we are diligently working to pursue accretive opportunities for our shareholders.

The massive annual global investment in digital infrastructure continues to produce tailwinds that propels our business model, both in our existing operations and new jurisdictions. We look forward to sharing our ongoing process. Now Glenn Breisinger, our CFO, will discuss our financial results in more detail. Glenn?

Thanks, Bill. We are pleased with our fourth quarter performance, which capped a year of strong growth.

Fourth quarter revenues were $20.1 million, which was up 36% compared to the prior year quarter, and gross profit was $19.9 million, up 37% over the prior year. In terms of asset growth, during the fourth quarter, we deployed $118 million of new capital compared to $38 million during the prior year fourth quarter, a 210% increase.

This origination activity represented $9.5 million in rents across 286 lease streams. This brought our full year deployment to $220.8 million, up 123% from the comparable prior year period. Our strong performance, both in the quarter and for the full year, demonstrates the value of the origination platform that we have developed over the past 10 years.

We have posted our earnings release, our 10-K in the supplemental financial reporting package on our website to provide additional details and assist you with the analysis of the company. As you review our results, keep in mind that in the prior year period, AP Wireless had not yet been acquired. So our year-to-date financial statements for 2020 commenced with the completion of our acquisition of AP Wireless on February 10, 2020. We have provided our results for 3 time periods to assist you in billing comparable periods for the full year. Please refer to our supplemental reporting package for a pro forma 12-month presentation on our relative key performance metrics.

Turning to our full year results. The company delivered $69.8 million in combined revenues, representing a 25% increase over the prior year period. Reflecting the growth in our rental streams from both our in-place portfolio escalators, other revenue enhancements and acquired rental streams, our annualized base rents at year-end increased 35% to $84.1 million from $62.1 million the year before. Our gross profit increased 25% year-over-year to $69.1 million as compared to $55.4 million a year ago, in line with our revenue growth.

Our growth was fueled by $256.1 million of net growth spend for the full year, of which $35.4 million was for selling, marketing, underwriting and related costs to acquire assets producing annualized in-place rents of $18.5 million. As Bill mentioned, these rent streams produced a year 1 fully burdened, unlevered yield of 7.2%.

I would like to note that our origination SG&A as a multiple rent acquired decreased by a full multiple turn from approximately 3x in 2019 to approximately 2x in 2020. We anticipate that, as Radius continues to grow and originate assets, operational SG&A should decrease on a proportional basis over time.

With respect to our balance sheet and liquidity, at year-end, we had total gross debt outstanding of $735.4 million and net debt of $577.5 million with aggregate cash of $215.4 million. This debt is 100% institutional fixed rate at a weighted average cash coupon of 4.3% and interest-only until maturity. The weighted average term is 7 years, and we presently have no material refinancing due prior to 2023.

Subsequent to year-end, we added debt of approximately EUR 77 million, representing USD 94 million equivalents in February 2021 with the issuance of 8-year fixed and floating rate, interest-only secured junior notes under one of our existing debt facilities. This debt carries a 3.9% coupon for cash pay and 1.75% of interest paid in kind. This allows us to continue to enhance our liquidity and lower our cost of capital to support our growth initiatives.

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

Thank you, Glenn. This concludes our prepared remarks. We would now like to open the call for questions. Operator, please open the lines for any questions. Thank you.

(Operator Instructions) Our first question is from Sami Badri with Crédit Suisse.

Congrats, everyone, right out the gate towards the end of the year, 4Q '20. I just have a couple of questions for you guys. The first one is, looking at your metrics like the number of sites acquired and then the annualized in-place rents average per site in 4Q '20, so I'm just trying to take kind of some KPIs and compare 4Q to one of the prior quarters. Was there a change in region or type -- or asset types that were acquired in 4Q '20 that kind of may be throwing off the averages per site a little bit?

Yes. I think it's a good question, Sami, and good morning to you. Yes, we've had, in addition of incremental asset classes, as I mentioned in my prepared remarks, sometimes as asset classes produce different rents than we'll see in certain countries for wireless underneath towers, those asset classes, again, being sort of fiber aggregation points and distributed in tenant system, typically indoors versus a hospital, as an example.

Got it. Got it. So just in 4Q '20, you guys found yourselves more just acquiring that specific type of asset, and that was essentially like the predominant focus just because the averages were thrown off a little bit. And I just want to make sure I completely understand all those.

I wouldn't say that was predominant, but you're going to occasionally get, as you know, there's a distribution that happens that can throw the average off because you have 1 or 2 larger deals, let's say, take a large hospital that we were successful in acquiring as an example.

Those are the type of things that can throw our average off. But on the whole -- I guess the way we view it is our mission is to find essential critical assets with high credit quality tenants that are driving great rents. And so we don't really distinguish in our mind the quality the asset. We just happen to have, I guess, looked at the adjacencies and said they're completely similarly situated as to what we've been doing before.

Got it. Got it. So I think I have one follow-up to just this topic before I move to the next set of questions is, would these kinds of assets that you guys are acquiring, these aggregation points or these -- think of these as like -- well, aggregation point is probably the best way to put it, but are these considered higher value or stickier sites when you compare them to some of the other assets in the portfolio on a relative basis?

I guess the way we view it is our mission is to do a great job in underwriting. So every site is different. But the answer is, I think, they're just equivalent. We know they'll stand the test of time. If you look at the overall network, which is just something that we've spent 30 years doing, which is building networks and recognizing what sites suggest are really incredibly difficult to replace or just uneconomic to replace. So I guess the -- simply said, it's -- they're very sticky and they're very compelling, at least to us.

Got it. Got it. So shifting over to SG&A, and you guys have a slide, Slide 15 in the supplemental that -- or in the presentation that was also published today. So you guys made a comment regarding the multiple, the origination SG&A as a multiple of rent acquired with it coming down about 2x in 2020, what should be the investor expectation for this multiple as you guys continue to grow over time? Should we be looking at similar type of multiple compression cadence or is this going to start normalizing over the next couple of years?

I think it's a good question, and I hate to give any forward guidance as to what will or won't be. One of the things that will happen is as we enter into new jurisdictions, it often takes an investment upfront. So I'm hesitant to tell you that this is just a trend and it's always going to happen.

Now that being said, scale economics should lead to just further improvement. As to quantify what we think that would be, it's just too difficult for us to say. And that's why we're determined not to give any more forward guidance. But we're hopeful we get more efficient every year.

Got it. Got it. So along the lines of what you just said, you guys are not going to provide maybe quantitative 2021 or forward-looking guidance. But maybe on the qualitative side, if you look at the macroeconomic industry trends that were essentially in play in 3Q and 4Q of 2020, would you say the same economic or macroeconomic drivers for your business are still there in 2021?

I'm not sure I know exactly what you're referring to on the macro, but I think what we saw in 2020 should hopefully still exist for 2021. But you just -- you never know what's going to happen out there, just like we never knew there was going to be a pandemic this last year.

Our next question is from Ric Prentiss with Raymond James.

Glad you're doing well. Couple of follow-up questions to Sami's there as well. As we think about acquisition CapEx, clearly, that's one of the governing factors to creating the growth over time. How should we think about your targets and your aspirations of how much could be put to work as we think about the next 1, 3, 5 years maybe?

Look, it's a great question. I think the way we were always trained is to under promise and over deliver. I think a lot of it comes down to how well we can identify, acquire some of the adjacent assets.

And then, number two, our ability to enter into new jurisdictions, which, of course, we will expand what we're able to acquire. And then third, our team just continuing to do their job in our local operating markets. I think those are the 3 core drivers, at least for what we would consider the origination side of our business.

And then on the other front, we, like everybody else, are seeing quite a lot of activity just from an M&A perspective in assets that are much larger in scale, being portfolios, that's going on. And at some point, I wouldn't be surprised that you see us selectively making a larger acquisition. You would imagine that we spent a fair amount of time on a bunch of them in the last couple of quarters. But that doesn't mean when you seek to get marriage, you always win. So you would imagine, as we haven't announced anything, that we didn't win some deals that we were really seriously looking at.

But I think if it's okay, it's hard to project out, that's why I said to Sami that forward guidance is really hard for us, but we feel very confident that we have a long runway to originate. It's just really hard to, I guess, predict or forecast what that's going to be.

Right. But if you think, longer term, yes, any thoughts, obviously, origination can bounce around quarter-to-quarter or month-to-month? Any thoughts about kind of the size of the checkbook that might be able to be put to work just to scale it as far as the goalpost?

I think it's pretty substantial. When you think about it, the operating markets we're in today, there's roughly 1 million wireless sites and then you add in some of the adjacent asset classes. And then if you said yourself, the target jurisdictions where we think we can expand to, which have the sort of characteristics that we look for, probably is in the sort of another 500,000 wireless sites that are there. And presently, we're approaching 6,000 sites that we own. So you can see the total addressable market is huge. It's just being efficient and buying, of course, the right assets and buying at, what we would consider, to be the right price.

And so I know I'm not answering your question specifically as you like. I just would say that the runway is quite long, and frankly, wide for us. We just have to keep our head down at execute.

That makes sense. And you mentioned, obviously, pricing in the marketplace. How is that affecting you? Because definitely, a lot of people are excited by digital infrastructure. Interest rates have been low, although maybe trending up a little bit, but it definitely has created maybe a tougher environment to get assets at the prices you want. Just maybe give us a sense of what you're seeing in the marketplace?

Yes. I think that's a great point. And candidly, prices are up. We've seen that predominantly from tower companies, especially in Europe, who are now out there also acquiring assets. That being said, the markets are quite large, so that I think there's room for everybody. Notwithstanding that as well, when we look back historically at the prices that we paid, I like to think about it as a spread to the local inflation in sovereign bond. And so because interest rates have gone down, we're still sustaining roughly the same spread that we've had before even as prices move up. And that goes to Sami's question about the macroeconomic factors.

Now that being said, we will have more increased competition with all the MNOs shedding their assets to tower companies. And I also would add, I'm impressed in the -- I was a bit surprised at how fast this shedding has occurred. I give Cellnex a lot of credit for how aggressive they've been. So that's happened, I guess, faster than we think. But our mission, of course, is to keep ahead of it and to also expand other jurisdictions where typically there aren't as many dominant tower companies as well, which gives us sort of greenfield to acquire.

Makes sense. And final one for me. As we think about growth rates, organic growth rates or kind of same-site growth rates, how should we think about the dynamics of what you guys can be producing in '21 and beyond kind of on a CAGR basis than on revenue or adjusted EBITDA?

It's a good question. If you noticed in our supplemental, around 70% of our rents are CPI linked, so that's your first base growth that you've got. I think the second thing that comes is, the larger we get, the bigger that what we would call asset enhancement team that we actually put to work. And that means doing a better job of taking, whether it's our rooftops or ground, and getting additional lease up.

That can come from a carrier and/or a tower company deciding to put a generator and they need excess space. It can come on a roof, but from another tenant as an MNO adding additional radio access network equipment. And then lastly, the thing that drives us, and I think you'll notice this as well in our debt, is lease renewal. Oftentimes, when we buy sites, they are well below market. And our goal is really to be constructive with our tenants.

We just want to make sure we get paid a fair market-based rent. And if you'll notice, and I forget which page it's on, I think our average lease expiration when rents -- when leases expire and that we can actually enter into the lease renewal negotiation is roughly 9 years longer in the U.S., but in Europe, substantially shorter. And so we didn't disclose the actual number, but that will also give us, we believe, a pretty good lift on rents just targeting market rent, not trying to be more aggressive than that. Our goal remains being a passive landlord, first and foremost.

(Operator Instructions) Our next question is from Walter Piecyk with LightShed Partners.

That's Piecyk as you guys know. I have sympathy, it's not an easy name to pronounce. Your weighted average property life jumped up in Europe. Is that a result of renewals of a set of the assets or was that from -- is that just a reflection of where the acquisition activity occurred this quarter?

I think it's the latter. It's also the fact that in some of the cases we did buy what you would call fee simple, which is effectively perpetuity or 99 years. So it skews the average up. That's going to bounce around all over the place.

My perspective is anything 40, 50 years, we always feel like we have an embedded option to get to 99 because if you ever want to go back to a landlord and say to them, "Hey, I'll buy years 60 through 99," most of them won't be around, and therefore, they'll take the money. So that's why we don't always shoot for getting 99 right off the bat.

Got it. And then in Europe, obviously, area of opportunity for you there, pretty significant. Cellnex, their activity in acquiring portfolios and Vodafone spinning out its tower, how does that change the dynamics, if at all, for the opportunity that you have or the prices that you have to pay to buy additional sites?

Well, I think certainly, as we come across them in a competitive situation, it will change the price that we pay. I mean, it will go up. Sometimes we'll win. But if they want to win and make it an uneconomic offer to protect the property underneath their sites, they're always going to win.

So that being said, it has long been our goal to establish partnerships with one or multiple tower companies because we think we can do a better job, given that we're laser-focused on buying property and doing it in a constructive, productive way for everybody. So stay tuned. We'll see what happens on the front.

And then coming -- again, I know Europe is a big part of the story, but coming back to the U.S. now that C-band is done, I mean, there's obviously some debate about how much densification is required. Is new cell site construction an opportunity, do you think? Or is it really just going to existing assets?

Are you asking just in the U.S. only?

Just -- yes, sorry, just in the U.S.

I think it always depends on a given market, as you well know. So there certainly will be places where cell site construction is going to be needed. Will it increase in terms of the percentage year-to-year that we see towers that have been built over time?

My personal opinion, and this is just my opinion, is it will stick to the regular trends. I'm still an enormous believer that when we think about densification and we think about the addition or the swap out of adding massive MIMO antenna array, that as massive MIMO, I guess, equipment gets further cost reduced and further shrunk in its size and weight, it's going to become a very powerful tool, whether for coverage or capacity, because, as you know, the more antenna elements you put up, the more capacity you get and it's rather linear.

And so I'm just a very big believer in its capability, which is a long-winded way of saying that at a given site, you're going to be able to add many, many, many antennas. And even if that means augmenting a tower, that's still cheaper, most of the time in building a new macro tower and/or saying to yourself, I've got to get backhaul power and getting a small cell out there. Now Richard, who's our Chief Operating Officer, Richard Goldstein and I debate that -- this till the cows come home all the time. But it's about economics. Just like a -- sorry, keep going on.

I was just saying, just the last question is, I'm taking it from the prior questions that in terms of acquisition CapEx, obviously, you had a big quarter, and you could look at the year much larger than you had in 2019. But you just don't want to give a range in terms of acquisition CapEx or growth capital that you would spend in a given year.

Because I think what Ric was probably pressing on is when we look at this as what's going to continue to fuel that growth going forward, getting some sense of your belief that, hey, we're going to do, let's call it, $150 million or $100 million of acquisition CapEx in 2021, that it doesn't necessarily have to be a promise that you deliver over, whatever, under promise over deliver, but it gives us kind of more confidence that the pipeline -- that you have the confidence in the pipeline rather than just saying like, hey, in a market, there's 5,000 sites that we have and 5,000 sites that are available, that's a big market opportunity.

I think putting a dollar amount in terms of what you think the amount of growth capital you can spend in a given year, it would probably be helpful in terms of understanding that market opportunity.

No, I appreciate that. I mean I think we're really optimistic that what we achieved in 2020 can indeed be replicated. And you would imagine, we always like to show a nice straight line going up until the right on a graph, so we'd like to keep growing that. The thing I would mention is, prior to being public, we were capital constrained, and so we could buy what we can afford.

Now that we're public and have capital on our balance sheet as well as access to capital, whether in the form of debt or equity, that frees us up to do a lot more things, both in our existing operating markets as well as outside of. But to give you, say, I guess, more succinctly, we feel very confident that we have the ability to replicate what we've done this year. I just hate to say -- I just hate to say that and get committed if that's forward guidance.

No, I understand. But that statement in and of itself was helpful. So I appreciate that, Bill. Have a great day.

Sure. Well, you're good at asking the questions.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Berkman for closing comments.

Thanks very much, operator, and I appreciate everybody joining today. Look forward to our next earnings call. And of course, if anybody should have any questions, feel free to reach out to myself personally or anybody at Radius. And we're happy to talk to any and all shareholders or the like. Have a good day. Thanks very much.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.