11/09/22 08:31 AM EST

RADI 3Q22 RESULTS | 11.9.22

Rob Simone, CFA

Hedgeye Cartoon of the Day: Consensus Graveyard

It is 11.9.22, and Active Short MPW is overvalued by approximately... whatever the current share price is (so that I don't have to keep updating this number).

Ticker: RADI

Company Name: Active Long Radis Global Infrastructure

Subsector: Towers (Ground / Property Rights)

Headline: We see a better-than-expected 3Q22 print, albeit with some FX noise and lower acquisition volume

First, apologies for the delay... traveling for Hedgeye Dallas Regional so just getting to this.
3Q22 Adj. EBITDA at $14.1 million was +$1 million vs. Hedgeye, driven primarily by higher than expected Ground Cash Flow (GCF) and other income, partially offset by higher G&A expenses net of transaction costs.

GCF: +$845k, or +$0.01/share; net organic growth came in at +4.3% for the quarter vs. our +4% estimate, driven by higher contractual escalators +4.8% vs. our +4.5%. Just a reminder that we expect escalations to continue to accelerate given CPI/inflation linkage but just on a lag.
G&A Expenses: -$2.8 million net of ~$3.1 million of transaction-related costs. There could be some pull-forward/timing impact here, given the origination platform.
The balance of the deltas vs. our model came from other income and non-cash FX adjustments.
Currency in general moved against RADI to a larger degree than we modeled, which means (1) underlying GCF actually performed better than we expected on a CC basis, and (2) higher G&A expenses may have performed slightly "worse." We would focus in on the net organic growth number for obvious reasons and to get under the hood, but then also external growth considerations discussed below.

Pace of acquisition deployment at ~$70.1 million in the quarter trailed us by about ~$40 million, meaning that RADI could be falling slightly behind its external capital deployment outlook, which makes sense given the current capital and deal markets environment. Unlevered yields on the stated acquisition price basically hit our mark at ~7%, while the "all-in" yield inclusive of origination G&A at ~5.8% for the quarter was about -50bps below our assumption. There are lots of timing impacts related to RADI's origination platform, and theoretically the origination G&A could be "shut off" and investors be left with the "YieldCo" should the deal markets shut down or become non-economic. Our take is that the trailing 3-quarters "all-in" yield at ~6.3% including the origination team is very much consistent with deal activity coming into 2022 as well as our own expectations. And in the end, as this is a TAIL long play, the most important thing here is that RADI pre-sourced its capital to deploy on acquisitions; the quarter-to-quarter variability in acquisition volume really does not matter as much.
Just a reminder that RADI remains one of our favorite TAIL longs ideas, but as we have spoken about previously the company has many of the wrong style factors for a deepening Quad 4 (leverage, size, non-dollar FX, etc.)