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Greetings, and welcome to Radius Global Infrastructure Third Quarter 2021 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn this conference over to your host, Mr. Jason Harbes, Head of Investor Relations. Thank you, sir. You may begin your presentation.
Thank you, operator, and welcome, everyone, to the Radius Global Infrastructure third quarter 2021 earnings call. On this morning's call, Bill Berkman, our CEO and Co Chairman, will provide an overview of our third quarter results, followed by a more detailed update from Glenn Breisinger, 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. 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.
And now I'd like to turn the call over to Bill.
Thanks, Jason, and thank you all for joining us today for our third quarter 2021 earnings conference call. I'm pleased to report that we continue to execute on our growth strategy in the third quarter. We generated revenue growth of 54% in the quarter over the prior year period through continued acquisitions of digital infrastructure assets, which meet our underwriting criteria combined with organic growth from our existing portfolio of triple net rents.
During the quarter, we deployed approximately $127 million of acquisition CapEx, continuing the trend of accelerated capital deployment we began in the fourth quarter of 2020. This capital investment resulted in the acquisition of $9 million in additional annualized rent, increasing our total annualized in-place rents to a run rate of $110 million, a year-over-year increase of 60%. We are seeing the benefits of increased scale as larger-sized acquisitions of recurring rental revenues continue to drive operational leverage against our origination platform costs, which Glenn will discuss in greater detail shortly.
During the quarter, we raised approximately $265 million of capital to support our acquisition strategy. Also, we recently expanded into 2 new international markets, taking our current footprint up 21 countries as well as continuing to broaden the scope of properties we target to a wider pool of digital infrastructure assets, again with similar attributes.
As we have shared with you on our most recent earnings calls, the range of digital telecom infrastructure assets we are pursuing include triple net rents generated from distributed antenna systems and fiber aggregation points. All of the acquired assets have similar attributes in underwriting criteria. Specifically, we believe they represent long duration, low-risk triple net rent streams paid by the world's largest communications, operating and infrastructure companies. With regard to the pace of originations, we remain optimistic about our ability to continue acquiring durable cash flow streams generated from real property interest underlying digital infrastructure for at least the next several quarters based on our current pipeline of acquisition opportunities.
Specifically, we are targeting the deployment of $400 million plus of acquisition capital expenditures during 2022, which continues the pace of approximately $100 million plus of capital deployed per quarter that we've reported for the past 4 quarters. I would emphasize that this is an average as there exists some variability by quarter, resulting from the timing of closing larger transactions.
On October 5, we celebrated our first anniversary as a U.S. publicly traded company. I am extremely proud of what our employees have achieved, not just during the past year, but over the past decade. We continue to execute on our strategy to penetrate a massive addressable market to build a high-quality portfolio of mission-critical communication sites, which will allow us to achieve greater economies of scale and generate attractive risk-adjusted returns for our shareholders over time.
Glenn will now provide an overview of our current holdings and financial results in more detail.
Thanks, Bill. We continue to grow the portfolio at an elevated pace in the third quarter, taking advantage of investment opportunities across our footprint to deploy capital. As of the end of the third quarter, we own real property interest in over 6,000 sites with nearly 8,000 lease streams, represented by a tenant base, comprised of 38% tower companies and 62% mobile network operators, the mass majority of which are investment grade.
With respect to our $110.4 million of annualized in-place rents as of September 30, 43% are denominated in euros, 19% in British pounds, 17% in U.S. dollars, and the remaining 22% in other global currencies. Approximately 80% of our portfolio has contractual rent escalators that are based on inflation or a similar mechanism, which provides us with meaningful protection against the impact of rising inflation.
Revenues were up 54% to $27.5 million in the quarter, and gross profit over ground cash flow rose 52% and $26.9 million, resulting in a gross profit margin of approximately 98%.
In the third quarter, we generated 3.8% revenue growth from escalators and other organic growth, offset by 1.3% of gross churn, resulting in net organic revenue growth of approximately 2.6% on a year-over-year basis, which compares to 2.7% net organic revenue growth in the third quarter of 2020 on a constant currency basis.
As Bill mentioned earlier, we deployed $126.5 million for acquisition CapEx in the quarter compared to $38.9 million in the year-ago period, representing a 225% increase and up from $125.4 million in the second quarter. This level of deployment added $8.9 million in annual rent generated from 163 new sites across 198 new lease streams. We anticipate that these new lease streams will generate a fully burdened initial cash yield of approximately 6.4% on a net growth spend basis, with the greater proportion of rents acquired in developed markets than higher-yielding emerging markets.
With the continued growth of our portfolio, we are seeing the benefits of greater economies of scale from our acquisition platform, reflected in a lower multiple of origination SG&A to rent acquired. Specifically, the multiple of origination SG&A to rent acquired declined to 1.4x in the third quarter versus 2.6x in the prior year period.
Turning to our balance sheet and liquidity. During the quarter, we issued $264.5 million of aggregate principal amount of 2.5% senior unsecured convertible notes that mature in September 2026. The company used approximately $33 million of the net proceeds from the notes to pay the cost of cap call transactions that raised the effective conversion rate of the notes to $34.80 from $22.62, thereby reducing potential dilution.
Inclusive of the convertible notes, at September 30, Radius had $1.2 billion total gross debt outstanding and net debt of $785 million. The debt we have at the AP wireless level carries a weighted average cash coupon of 4.1% and a weighted average term of 5.9 years. Our first scheduled maturity of $75 million is in 2023.
As a result of the recently completed debt financing, the company had $415 million of liquidity available for incremental investment as of quarter end. Please refer to the supplemental materials posted to our website yesterday after the market close for additional details. Bill?
Thanks, Glen. And again, I want to reiterate that our team has just done an incredible job, and I think, we are all really appreciative of the hard work that everybody does.
So that concludes our prepared remarks. Operator, please open the call for the questions. Thank you.
[Operator Instructions] Our first question comes from the line of Sami Badri with Credit Suisse.
First question is, when I'm looking at your asset origination, SG&A at 1.4x rent acquired. Could this have been lower if you did not enter the 2 new countries that you're messaging here today? And that's my first question. Then the next question is, I know you guys aren't really big fans of giving us kind of a forward-looking guidance or anything kind of that can really underline where we should be modeling, but how should we be thinking about next year's growth trajectory relative to 2021?
Glenn, do you want to answer the first question vis-a-vis the SG&A?
Sure. Sami, the impact on the 2 new countries was pretty marginal on the present SG&A spend since it's not as a significant component of it. As you know, we're continuing to ramp up teams to grow our incremental revenue streams in all asset classes. So we're seeing a little bit of spend in building our teams ahead of acquisition CapEx.
And hopefully, we'll get more countries open besides just these 2. Now as to your second question, look, I thought we were doing a great thing because we gave 4 quarters of effective what we thought we'd be investing in terms of growth CapEx. We're always well to get too far over our skis. And I think we joke around that if we give you perfect guidance, sort of it's a nonissue. If we're under or over, it's just not really great for us. So we're trying to do our best, Sami. So we were pretty excited to say fine. We've got this much confidence that our pipeline is such that for the next 4 quarters, we can originate $400 million of growth CapEx.
Glenn, 1 other follow-up for you, and it's about when sales teams come on and the hiring of new execs being put in place, what is the productivity velocity of these executives? Is it they basically join the company, hit the ground, begin addressing opportunities and then there's conversions at the 3 to 9-month mark? Or is it more like to come on board with leads and you guys hire them because they have leads? And it's going to take 6 months, no matter what, or 3 months or less? Like maybe you could just give me an idea just what the productivity ratio or conversion rates look like for the new people coming in?
It's a good question, Sami. I think it depends on the groups, and it depends on the countries. And as you know, or as we've talked about before, on the origination platform, there's 2 elements of this. One is to generate the leads and to tee them up to close, and the second element is to close the leads, which takes some time from an underwriting and legal standpoint. So it's hard to say on average across the across the country -- across the company and across the countries. But I would say you're in a 6 to 9 to 12-month period of maturation of the pipelines.
And I would just add that it's different by every country, not to beg off the question. It's just -- there's not 1 uniform approach to all of this. The other thing is, it's terrific when we can grab someone who brings their own leads to the table. Most of the time, we're assigning the leads to them based on all our proprietary databases and pass people that we are contacted or new leads. So I think like with any new person joining a team, there's always going to be a lead time to train them and to get them up to speed.
Our next question comes from the line of Rick Prentiss with Raymond James.
A couple of questions follow-up on Sami's one. Yes, we obviously were thankful to get that -- the pipeline guidance out there. Obviously, that -- I guess the other question, though, is it's -- what's the level of competition for these assets? What are you thinking as far as the pricing and cap rates that you can hold at pacing off at as you should assume there's maybe some blended targets that you're going for?
Yes. No, great questions. I think from a competition point of view, nothing's really changed in what we've discussed in the last couple of quarters. In certain countries, we're going to see some competition. And typically, it's for only a select number of assets because the market is so large that, sure, we'll see it on some assets where someone else may be a competitive bidder. 99% of the time, it's typically a tower company. But in a lot of cases, we just won't see them. So I -- sorry, I can't give you any more scientific of an answer than that. But -- and then in the new countries, we're there, we try to select places where, of course, rule of law and all the macro dynamics are what we're looking for in our underwriting process. And one factor, of course, is, is it competitive in the market or not? Do we see a tower company coming into the market? And so our hope is we keep adding new countries as well as mining this really huge total addressable market.
And as we think about cap rates, should we be thinking kind of all in, acquisition CapEx plus the origination SG&A. Should we be thinking here in the kind of low to mid-6 range, you think more in the 7 range.
It's funny. It's hard to just give you any that precisely for 2 reasons. One is we do -- we have seen some FX variability, specifically with the U.K., most recently because the pound has weakened more than anybody's expected. The second thing is that I'd rather just keep us in, I guess, worst case 6 -- not a worst case, but 6 to 7 is a good range. Rick, you just can't predict it because our mix country to country is different, and each country has its own different sort of weighted average yield that we're buying at. Believe it or not, Germany is different than Spain. Spain is different than France. France is certainly different than Brazil. You hear what I'm saying. And so when we look at our overall weightings, it's hard to have a same-store sales yield because it really depends on where we're mining in a particular quarter, mining, meaning acquiring the assets.
And probably which asset category they're into, not just the country. Okay. Other question for me -- or 2 other questions quickly for me. We're hearing more and more from different tower companies that they're putting ROFRs, Right of First Refusals into some of their land leases. How is that affecting you guys when ROFRs are coming in?
Well, I think that -- you are last one I say this, I'm trying to thread the needle, so I don't say too much to our competitors. I think there's a lot of different approaches, structured finance, such that we believe that they -- let me say it this way, we are hopeful that they won't be a problem for us.
Okay. I understand.
But if I say too much more than, then of course, my competitor will try to figure out and change around that, too. But I would say to you, Rick, one other thing. We are always experimenting with new offers, and those new offers can take many forms. And let's just say that when you focus only on what we do every day versus a tower company focusing on being and operating this deal with their tenants, we think we can stay ahead of the curve and be -- I'd like to think more creative in how we offer -- make offers to our customers, our tenants, our landlords.
And 1 more final one for me if I could. On the organic side of things, the base business, not the acquisition flywheel, but the base business, escalators have been trending -- or lease-up -- sorry, lease-up has been trending down the last couple of quarters. I think 1Q was 1%, 1.0% then 0.9% then 0.6% this quarter. Obviously, there's some decimal places in there, too. But how should we think about what's causing that to kind of tail down? And what is a good run rate going forward? Were there any one-timers in some of these periods? Just help us understand that trend line on the lease-up path?
I'm going to let Glenn give you the more detail. My guess is it's a yes.
Well, Rick, it's a good question. There is a bit of variability in that. And it's -- look, it's country-by-country and asset by asset specific. And behind the scenes, you have a significant portion of these lease streams escalate annually versus on a term. So there's all kind of things behind it, but our general thought process, an expectation of 0.5% to 1.5% over time has been pretty consistent. So that's the [Indiscernible].
Specifically to the organic, Rick. Again, I think a little more of it's FX. I wouldn't read into it that there's a trend line down. I don't think that's the case at all. If anything, we hope to do better because we dedicate more people to the effort. And at the end of the day, when we look back 3 or 4 years ago, we didn't dedicate enough people, and we saw what happened. We made the investment to effectively increase lease-up.
Our next question comes from the line of Simon Flannery with Morgan Stanley.
Bill, thanks for the guide on your investment next year and the pipeline. So has something changed, it gives you more confidence in the outlook for the longer period of time? Maybe just characterize that? Or is it more that as we kind of approach year-end, you felt like it was something that you wanted to share with us, but your -- the visibility has been similar to what it was. And then on the countries, you probably don't want to name them, but perhaps just -- and you talked about some more coming. Just take us through your kind of screening process and then what you're looking for? And is this going to be material to the kind of opportunity pool? Or are these more kind of tuck-in type additions?
No, both are really good questions. Let's start with the countries first. Rule of law is just critical to us, making sure that we can enforce our rights within a court system. So that's absolutely one of our first tests. I think the second test is where are the big tower companies, which have what we view to be terrific credit. It's not that we don't love the underlying credit of the MNO, we like that as well. But when you have the towers, there's just 1 more layer because there's sort of a sandwich in between us and the MNO. So that's another big threshold test for us. Macroeconomics of a country, also a big threshold test, which currency they're in, it's really easy for us to add a country that is already in euro so that you would imagine, is attractive to us to do. And then -- I think what else is -- have the actual MNO market already either consolidated, where they spun off their towers or 4 carriers merge to 3. We take that into consideration. I think those would be the basic attributes. We've got 2 -- we -- I don't like to look at any country. It's just a little single. I always feel like if we're going to go in, we should be able to really do our job. And actually, it's not like going into Luxembourg, where there's very few sites. We try to go to a place and make the investment where it's meaningful enough for a good return on the start-up investment required to get in the country open. Our hope is to get even a bunch more there. We haven't really hit Asia. It's not the easiest nut to crack, but that is certainly an opportunity for us. Now of course, I forgot your first question. Remind me.
It was on the pipeline and what's changed to give the visibility or to give them? Yes.
Well, I think our team basically persuaded me that, okay, we should get a little more quarters of guidance because I'm always under promise, over deliver. And it's -- you get into a rhythm there. You're going to expect 4 quarters going into the future. But as they said to me, we've had our sea legs in place long enough, and now we can actually walk properly. And we do have visibility, and we felt comfortable with it to actually put that down in writing and stand behind it. Of course, if we don't meet it, then I am the one that gets black and blue, but so be it, but no we are really optimistic and a lot of it's just because we really do have the pipeline, and we can actually see it, and we're in the glide path, hopefully, for closing over the next 4 quarters, 5 quarters.
Our next question comes from the line of John Peterson with Jefferies.
Sorry if I missed this, but on the acquisitions you did this quarter, I mean, have you broken out how much of that was tower land, DASs and fiber aggregation sites? Can you just give us a sense of what the mix is?
No. We really have it. And I think the purposeful reason, and I've said this on past calls is that we truly think of these as -- there's just no different in the asset class. And rather than people saying, "Oh, they only bought this much of this asset class, that of this -- of the other class," we just view it as and the same thing. And so I'd say the only real difference between the construct would be that, typically, it's a longer property right when we buy, whether it's an aggregation point, that's fiber aggregation point or a distributed antenna system rent. So long-winded way of saying, we just don't break it out.
And then --
And I think it is simpler, too.
Do you have the -- I think the majority of your rents are indexed to inflation, I think about 2/3 or some form of it. I mean, are there any caps there? I mean, if we are seeing inflation of 5%, 6%, 7%, like does it cap out at 4% or something, anything like that, you need to be aware of?
No. Actually, that's one of the things we always like the most, which is I think it's around 77%, if you look at our supplemental materials is linked to inflation. And there are no caps unlike if you look at CellMax or some of the tower companies, I'd say, a big piece of their contracts are inflation linked, but are capped. Sometimes they're capped at 3, sometimes it's 4, sometimes it 2 correct.
And just to clarify, right, so it's some form of inflation. In the U.K., it's the RPI, right? In a lot of countries, it's whatever they're using for CPI in Brazil, it's the IGPM and the INPC. So it depends on what the country is, but it's generally their guide on inflation and to confirm what Bill said is there is -- there are no caps.
Is there a lag on that? Like could we go through like a year of really high inflation and then it would be like the next year that it kicks in? Or is it more --
That's a good question. And this is a good observation, right? And I think you're going to see this with all businesses in the space because the majority of the rent streams are paid in advance, right? And you have a high percentage that escalate on a term, right, probably 70% escalate annually. The remaining escalate on some form of a turn, a 3-year or a 5-year escalator. So depending on where you are in that cycle, there will be a little bit of a lag with respect to the inflation.
They're also -- we do escalate with a smaller proportion quarterly and otherwise. So as you can imagine, there's no one size fits all for the lease in the way it's done and implemented globally.
Our next question comes from the line of David Barden with Bank of America.
So I guess I have a similar question to Simon's question on countries, but this is with respect to kind of asset portfolios of targets, you kind of highlighted that you're diversifying into the DAS systems and the fiber aggregation points. I'm interested if, for instance, data centers and other types of kind of just generic digital infrastructure is kind of in your crosshairs? And if so, how would you evaluate that and when?
And then I think the second question would be, congrats on the $265 million financing. You did it in a kind of interesting structure with the cap call hedge on the conversion price. A couple of questions on that. One, could you tell me what you think the all-in cost of funds for that transaction was, why you did it the way you did it? And is the hedge duration matched with the 2025 maturity?
Right. I'll take that one, Glenn. We did it because, first and foremost, it could be done really quickly, where it wouldn't have that much management distraction. We want to be the first one out of the gate immediately after Labor Day, and we were, and I think execution between Morgan Stanley and Goldman they did a terrific job for us.
Specifically on the capped call, just to remind you, we are effectively buying back any dilution that the convert otherwise would have had on us. So I won't go through all the mechanics, but suffice to say that we do take dilution above $34 a share. That was what we bought with having the capped call. The actual all-in cost can be looked at in different ways because one has to value the actual option. And volatility is just a hard measure to come up with, as you well know. I think from our mind, this is not a science. If the coupon is 2.5%, we figured because of the capped call that we're buying back that dilution, we were getting to probably -- and this is an approximate, please don't hold me to it -- probably around 4% in that neighborhood, all in. And the way we look at that is there's also, if the cap call never gets exercised, we get effectively a nice tax reduction benefit. And as you get to know us, we're pretty tax nutty. And we always think about what is our after tax return. The good news is even approaching 4% on the cost, we have really no covenants. This is unsecured debt at the Radius whole Co level, and we thought that flexibility was pretty terrific.
Your last question on the timing of it, the cap call co-terminus with the debt. So we're protected for the entire duration. You should also know that not only do we sell the cap call if we ever wanted to depending on where volatility is, it should ever really spike, but we also can prepay, I forget the timing, maybe it's after 2 years we could prepay the convert should we want to.
Yes. After 3 under certain conditions, obviously, liquidity is one of them. And it is all matched up. That's on the cap calls to run to the end of the period.
David, on the data center question, the answer is yes. We already -- we do buy data centers. We haven't broken them out. We've tried to sort of say that they're fiber optic aggregation points. As you well know, when we buy a fiber aggregation point, it oftentimes or many times can have a cell site on the roof, sometimes, it can also be used as a data center. So we've tried hard to frame it as one thing as if we start slicing and dicing, this one does that, we thought it would just get too complicated. So we've made sort of this blanketed fiber aggregation point label. But yes, we do buy data centers and we'll continue. And look, if we can find larger opportunities that we think are -- don't have much operational responsibility, of course, long-term contracts where we get to own the property, the structure, that's right in our sweet spot of what we think our mission should be, which is sort of triple net or double net.
Our last question comes from the line of Walter Piecyk with LightShed.
So you've been doing on CapEx, like $120 million, whatever, $130 million on the kind of acquisition CapEx. So the $400 million is down from that. Are you just kind of setting the bar and there's opportunity for upside? Or why would that be -- why should that be lower than the --
I said $400 million plus. I tried to emphasize.
So that's like -- who is the Sprint CFO is like something or more like with their EBITDA? Yes. Okay. Got you. Oh. And then the second --
The thing is that -- I just was -- I want to under promise. We want to under-promise and over deliver. So -- okay. What can I say?
And then just a second question on that, which kind of goes the opposite way, which is if you look at -- if you forecast that out, then if you use, I think you got $165 million left on the facility, you'd probably have to come back to the capital markets in the fourth quarter of next year, assuming that the 100 or higher continues to pace at that. I mean, some people would look at inflation data and get concerned about the 10-year and say like, okay, why not lock in more capital now rather than take that risk and deal with it next year. And then just getting back to Barden's question, when you look at future financings, should we think about it in terms of what you just did and convert type things? Or is it more debt? Just kind of just interested in your thought process around timing and structure of future financings as you progress through?
Yes. I think, look, you should be on our team because you're raising all the good points, and I'm happy to say that everything you discussed is really in motion. We expect to do a slew of debt financings. Some will probably close by year-end. If we're lucky, others will be first or second quarter of next year. But you'll be very happy when you see both the proceeds, you're always mindful not having to raise equity, but we are an acquisition machine, but we think we're going to have good execution. And the execution piece should be different depending on where in the world we're borrowing same what you saw on the convert. I think in the convert, we were willing to have it be slightly higher because of just the extraordinary flexibility of it from a covenant and it being unsecured. But yes, you're right on the money, and we hope to deliver what I think you would like to see.
Can I just -- I just have to clarify, Walt. I thought you were suggesting the availability on our capital structure. With respect to our combined AP wireless debt structure as of today between the DAC and the APW working capital debt facility the availability uncommitting of course, and we're not paying a commitment fee, is $950 million, is the availability under those platforms today. And we did specifically say with respect to -- in our earnings script that the first scheduled maturity is $75 million in '23. So I think you can imply that [Indiscernible] structure.
Yes. Actually, I was less concerned about the maturities, more of just kind of lining up. Maybe we missed some other stuff you can draw down upon. So it sounds like you got --
So you know what happened -- I was going to say, the rents are naturally deleveraging because of the escalator and organic growth. So we try to then refinance and bring it back up to 8x, 8.25x internationally, and we can go as high as 10x for the U.S. So when you factor in a refinance of the U.S., a tack on to -- Glenn refers as a the DAC, that is really our international facility. And then you have another facility that we're working on that we will disclose more when we get it done, it gives us a fair amount of powder. That's just the timing of when we get them finished, but we're really optimistic on them.
Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Bill Berkman for closing remarks.
Thanks, operator, and thanks, everybody, for joining us today. Look, we're really proud of the results and continue to be excited about the opportunity in front of us, both in all of our different asset classes that you've asked questions about today as well as doing our job, trying to peer around corners to find new asset classes or new variants of what we're doing that have long-term durable cash flows from terrific credit quality tenants. So hope everybody has a good day. We look forward to catching up with a lot of you individually. Thanks, operator.
Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.