05/10/22 05:43 AM EDT

RADI 1Q22 RESULTS | TIMING IMPACT DRAG; POTENTIAL DEAL ALL THAT MATTERS | 5.10.22 | (RADI)

Rob Simone, CFA

@HedgeyeREITs

Takeaway: All that matters for the stock is the potential strategic alternatives process

Hedgeye Cartoon of the Day: The Fourth Circle (Turning)

Ticker: RADI

Subsector: Towers / Infrastructure

Headline: All that matters is a potential sale

Best Idea Long RADI last night reported 1Q22E Adj. EBITDA of $8.7mm, which was -$2.3mm vs. Hedgeye on +$4.2mm of higher G&A. Of this delta, roughly +$3mm came in the form of higher origination G&A expenses despite closed acquisition activity that was ~$45mm lower than our model inclusive of committed installment payments. Other offsetting deltas included +$281k of higher GCF and +$1mm of higher other income. We think our model is doing a good job of forecasting core YieldCo GCF, given the relatively small deltas between modeled vs. actual net organic growth and acquisition impact.
On the higher origination SG&A expense, it appears that the expense may have been "front-loaded" somewhat and that closing of certain transactions had slipped into 2Q22. Management reiterated its outlook for at least ~$400 million of closed acquisition activity this year. We would, therefore, expect some residual benefit in 2Q22 as the timing headwind last quarter becomes a tailwind. We had been modeling origination G&A at ~10% of purchase price on average, which jumped to ~20% in 1Q on timing of close versus ~9.6% for all of FY21. We had been modeling ~$450 million of closed acquisitions for FY22.
Pro forma for the debt refinancing completed in April, RADI now stands with just under ~$850 million of cash ready to be deployed toward property interest acquisitions and has effectively front-loaded the balance sheet with capital to deploy. This also leaves leverage optically high for a time as a byproduct, with no corresponding GCF yet hitting the P&L.
While we do not expect management to say much on the call regarding a potential sale, given that the news broke in the form of a Bloomberg story versus an official company release, the likelihood or lack thereof of a sale is all that will matter for the stock price over TRADE and TREND durations. We gave our thoughts HERE, and expect management to say something to the effect of "we will do what is right by our shareholders...," or "we take our fiduciary duty seriously..." etc. We think that taking the company private with a more efficient cost of equity capital / escaping the inefficient public company "wrapper" that could exist for some time is very consistent with those statements. The reality is that RADI is an excellent "flywheel" business with very accretive economics both today and over time as it rolls up the space, has an effective and experienced management team and requisite infrastructure, but just suffers from all the wrong style factors right now as a stock which kneecaps its ability to raise equity to grow. We see upside to ~$20-21/share under a sale scenario.