NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands, except share and per share amounts and unless otherwise disclosed)
Radius Global Infrastructure, Inc. (together with its subsidiaries, “Radius” or the “Company”) is a holding company that, as of March 31, 2023, owned approximately 97% of APW OpCo LLC (“APW OpCo”), which is the parent of AP WIP Investments Holdings, LP (“AP Wireless”), one of the largest international aggregators of rental streams underlying wireless and other essential communications infrastructure sites through the acquisition of telecom real property interests and contractual rights. The Company typically purchases, primarily for a lump sum, the right to receive future rental payments generated pursuant to an existing lease (and any subsequent lease or extension or amendment thereof) between a property owner and an owner of a wireless tower, antennae or other communications infrastructure (each such lease, a “Tenant Lease”). Typically, the Company acquires the rental stream by way of a purchase of a real property interest in the land underlying the wireless tower antennae or other real property-related communications infrastructure. These are most commonly easements, usufructs, leasehold and sub-leasehold interests, or fee simple interests, each of which provides the Company the right to receive the rents from the Tenant Lease. In addition, the Company purchases contractual interests, such as an assignment of rents, either in conjunction with the property interest or as a stand-alone right.
Pending Acquisition by EQT and PSP
On March 1, 2023, the Company and APW OpCo entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Chord Parent, Inc., a Delaware corporation (“Parent”), Chord Merger Sub I, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub I”), and Chord Merger Sub II, LLC, a Delaware limited liability company and a wholly owned subsidiary of Merger Sub I (“Merger Sub II” and, together with Parent and Merger Sub I, the “Parent Parties”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, (a) Merger Sub II will be merged with and into APW OpCo (the “OpCo Merger”), with APW OpCo surviving the OpCo Merger as a subsidiary of Parent and the Company (the “Surviving LLC”), and (b) Merger Sub I will be merged with and into the Company, (the “Company Merger” and, together with the OpCo Merger, the “Mergers”), with the Company surviving the Company Merger as a subsidiary of Parent.
Parent will be a controlled affiliate of EQT and PSP upon consummation of the Mergers. The parties expect the Mergers to close in the third quarter of 2023, subject to the conditions set forth in the Merger Agreement, although there can be no assurance that the Mergers will occur by that date.
If the Merger Agreement is terminated under certain specified circumstances, the Company or Parent will be required to pay a termination fee. The Company will be required to pay Parent a termination fee of $52 million under specified circumstances, including if the Company terminates the Merger Agreement to enter into a Superior Proposal (as defined in the Merger Agreement) or Parent terminates the Merger Agreement because the Company’s Board of Directors (the "Board") has made an Adverse Recommendation Change (as defined in the Merger Agreement). Parent will be required to pay the Company a termination fee of $103 million under specified circumstances, including termination of the Merger Agreement by the Company as a result of Parent’s material breach of the Merger Agreement or Parent’s failure to close the Mergers by the later of (a) five business days after all closing conditions have been satisfied and (b) five business days following the Company’s delivery of a written notice to Parent that all of Parent’s closing conditions have been satisfied or waived and the Company is ready, willing and able to consummate the Mergers.
Under the Merger Agreement, the consummation of the Mergers is conditioned on, among other things, the Company having available a minimum unrestricted cash balance of $210 million and the Company and its subsidiaries having an additional $30 million, in each case as of the closing. Compliance with this minimum cash condition may limit the growth of the Company’s business, depending on the availability to the Company of other sources of capital that are permitted under the terms of the Merger Agreement.
7
2.Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its majority-owned or controlled subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and the rules and regulations of Securities and Exchange Commission for interim reporting. The financial information included herein is unaudited. However, the Company believes that all adjustments, which are of a normal and recurring nature, considered necessary for a fair presentation of its financial position and results of operations for such periods have been included herein. The condensed consolidated financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”). The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the entire year.
Use of Estimates
The preparation of the condensed consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant Accounting Policies
The Company’s significant accounting policies are described in detail in Note 2 to the Company’s consolidated financial statements included in the Annual Report. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2023.
3.Cash and Short-term Investments
Cash and Cash Equivalents and Restricted Cash
The Company is required to maintain cash collateral at certain financial institutions. These include amounts that are required to be held in escrow accounts, which, subject to certain conditions, are available to the Company under certain of its long-term debt agreements. Accordingly, these balances contain restrictions as to their availability and usage and are classified as restricted cash in the condensed consolidated balance sheets. The reconciliation of cash and cash equivalents and restricted cash reported in the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2023 |
|
|
December 31,
2022 |
|
Cash and cash equivalents |
|
$ |
197,879 |
|
|
$ |
224,258 |
|
Restricted cash |
|
|
2,417 |
|
|
|
1,971 |
|
Restricted cash, long term |
|
|
61,595 |
|
|
|
88,054 |
|
Total cash and cash equivalents and restricted cash |
|
$ |
261,891 |
|
|
$ |
314,283 |
|
Short-term Investments
Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. As of March 31, 2023 and December 31, 2022, short-term investments consisted of United States Treasury Bills that had maturities of greater than three months at their respective purchase dates. Short-term investments are classified as trading securities and, accordingly, are stated at fair value as determined by the most recently traded price of each security at the balance sheet date. Realized and unrealized gains and losses are reported in other income (expense), net in the condensed consolidated statements of operations. For the three months ended March 31, 2023, the Company recorded an unrealized gain associated with its short-term investments of $365. The Company used quoted market prices, which are directly observable Level 1 fair value hierarchy inputs in accordance with Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements, to measure and record its short-term investments at fair value in the condensed consolidated balance sheets.
8
4.Real Property Interests
Real property interests, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2023 |
|
|
December 31,
2022 |
|
Right-of-use assets - finance leases |
|
$ |
451,998 |
|
|
$ |
410,171 |
|
Telecom real property interests |
|
|
1,740,688 |
|
|
|
1,708,322 |
|
|
|
|
2,192,686 |
|
|
|
2,118,493 |
|
Less accumulated amortization: |
|
|
|
|
|
|
Right-of-use assets - finance leases |
|
|
(36,017 |
) |
|
|
(31,119 |
) |
Telecom real property interests |
|
|
(158,524 |
) |
|
|
(138,646 |
) |
Real property interests, net |
|
$ |
1,998,145 |
|
|
$ |
1,948,728 |
|
The Company’s real property interests typically consist of leasehold interests or fee simple interests, acquired either through an upfront payment or on an installment basis from property owners who have leased their property to companies that own telecommunications infrastructure assets. The agreements that provide for leasehold interests typically are easement agreements or similar arrangements, which provide the Company with certain beneficial rights, but not obligations, with respect to the underlying Tenant Leases. The beneficial rights acquired principally include the right to receive the rental income related to the lease with the in-place tenant, and in certain circumstances, additional rents. In most cases, the stated term of the leasehold interest is longer than the remaining term of the in-place Tenant Lease, which provides the Company with the right and opportunity for renewals and extensions. In cases in which the Company acquires a leasehold interest, the Company is both a lessor and a lessee. Although the Company has the rights under the acquired leasehold interests over the duration of the entire term, the underlying tenant, in most cases, can terminate their lease acquired by the Company within a short time frame (30 to 180 day notice) without penalty. Similarly, when the Company acquires a fee simple interest, the beneficial rights associated with the in-place Tenant Leases are acquired and the Company owns the property underlying or containing the telecommunication infrastructure assets.
The costs of acquiring a real property interest are recorded either as a right-of-use asset, if the arrangement is determined to be a lease at the inception of the agreement under ASC Topic 842, Leases (“ASC 842”), or as a telecom real property interest asset, if the acquisition meets the definition of an asset acquisition. Telecom real property interests and finance lease right-of-use assets are stated at cost less accumulated amortization, and amortization is computed using the straight-line method over their estimated useful lives. Finance lease right-of-use assets are amortized over the lesser of the lease term or the estimated useful life of the underlying asset associated with the leasing arrangement.
The Company often closes and funds its real property interest prepayment transactions through third‑party intermediaries that generally are the Company’s retained legal counsel in each jurisdiction. Funds for these transactions are typically deposited with the intermediary, which releases the funds once all closing conditions are satisfied. In other circumstances, the Company deposits monies with the owners of the assets in advance of consummating the acquisition of the real property interest, at which time all conditions are satisfied, the remaining payments are made and the balance of the deposit is included as part of the aggregate acquisition consideration paid for the asset and recorded in real property interest assets. Amounts held by others as deposits at March 31, 2023 and December 31, 2022 totaled $11,416 and $11,883, respectively, and were recorded as other long‑term assets in the Company’s condensed consolidated balance sheets.
Right-Of-Use Assets - Finance Leases and Related Liabilities
For a real property interest arrangement determined to be a lease, the Company records a right-of-use asset and a lease liability at the present value of the arrangement's future lease payments plus any upfront payment. The weighted-average remaining lease term for leases classified as finance leases was 43.1 years as of March 31, 2023 and December 31, 2022.
The Company recorded finance lease expense and interest expense associated with finance lease liabilities in the condensed consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
March 31,
2023 |
|
|
Three months
ended
March 31,
2022 |
|
Finance lease expense |
|
$ |
4,329 |
|
|
$ |
3,598 |
|
Interest expense - lease liability |
|
$ |
337 |
|
|
$ |
256 |
|
9
The Company’s lease agreements do not state an implicit borrowing rate; therefore, an internal incremental borrowing rate was determined based on information available at the lease commencement date for the purposes of determining the present value of lease payments. The incremental borrowing rate reflects the cost to borrow on a securitized basis in each geographical market. The weighted-average incremental borrowing rate associated with recorded finance lease liabilities was 8.5% and 8.2% as of March 31, 2023 and December 31, 2022, respectively.
Supplemental cash flow information related to finance leases for the respective periods was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
March 31,
2023 |
|
|
Three months
ended
March 31,
2022 |
|
Cash paid for amounts included in the measurement of finance lease liabilities: |
|
|
|
|
|
|
Operating cash flows from finance leases |
|
$ |
227 |
|
|
$ |
136 |
|
Financing cash flows from finance leases |
|
$ |
4,850 |
|
|
$ |
3,170 |
|
Finance lease liabilities arising from obtaining right-of-use assets |
|
$ |
3,916 |
|
|
$ |
3,565 |
|
Telecom Real Property Interests and Related Liabilities
For acquisitions of real property interests accounted for under the acquisition method of accounting, the recorded amount of the telecom real property interest asset represents the allocation of the purchase price based on the contractual cash flows associated with the Tenant Lease, including rights and opportunities for renewals thereof, as well as any acquired land for which an allocation of the purchase price is made. As of March 31, 2023 and December 31, 2022, telecom real property interest, net in the condensed consolidated balance sheets included amounts allocated to land of $59,204 and $58,110, respectively.
Under certain circumstances, the contractual payments for the acquired telecom real property interests are made to property owners on a noninterest-bearing basis over a specified period of time. Included in telecom real property interest liabilities in the condensed consolidated balance sheets, the liabilities associated with telecom real property interests were initially measured at the present value of the unpaid payments.
For telecom real property interests, amortization expense was $17,764 and $14,545 for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, amortization expense to be recognized for each of the succeeding five years was as follows:
|
|
|
|
|
Remainder of 2023 |
|
$ |
54,500 |
|
2024 |
|
|
73,555 |
|
2025 |
|
|
73,536 |
|
2026 |
|
|
73,536 |
|
2027 |
|
|
73,425 |
|
Thereafter |
|
|
1,174,408 |
|
|
|
|
|
Maturities of finance lease liabilities and telecom real property interest liabilities as of March 31, 2023 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Finance
Lease |
|
|
Telecom Real Property
Interest |
|
Remainder of 2023 |
|
$ |
12,010 |
|
|
$ |
3,742 |
|
2024 |
|
|
9,405 |
|
|
|
3,638 |
|
2025 |
|
|
7,015 |
|
|
|
524 |
|
2026 |
|
|
4,439 |
|
|
|
407 |
|
2027 |
|
|
3,306 |
|
|
|
402 |
|
Thereafter |
|
|
5,459 |
|
|
|
331 |
|
Total lease payments |
|
|
41,634 |
|
|
|
9,044 |
|
Less amounts representing future interest |
|
|
(5,474 |
) |
|
|
(404 |
) |
Total liability |
|
|
36,160 |
|
|
|
8,640 |
|
Less current portion |
|
|
(14,392 |
) |
|
|
(4,564 |
) |
Non-current liability |
|
$ |
21,768 |
|
|
$ |
4,076 |
|
10
As of March 31, 2023, the weighted-average remaining contractual payment term for finance leases was 3.7 years.
Intangible assets subject to amortization consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2023 |
|
|
December 31,
2022 |
|
In-place lease intangible asset |
|
|
|
|
|
|
Gross carrying amount |
|
$ |
16,359 |
|
|
$ |
15,800 |
|
Less accumulated amortization: |
|
|
(4,548 |
) |
|
|
(3,679 |
) |
Intangible assets, net |
|
$ |
11,811 |
|
|
$ |
12,121 |
|
Amortization expense was $791 and $355 for the three months ended March 31, 2023 and 2022, respectively. The Company reviewed the portfolio of real property interests and intangible assets for impairment, in which the Company identified wireless communication sites for which impairment charges were recorded in Impairment - decommissions in the condensed consolidated statements of operations.
As of March 31, 2023, the intangible asset amortization expense to be recognized for each of the succeeding five years was as follows:
|
|
|
|
|
Remainder of 2023 |
|
$ |
1,320 |
|
2024 |
|
|
1,506 |
|
2025 |
|
|
1,311 |
|
2026 |
|
|
1,191 |
|
2027 |
|
|
1,046 |
|
Thereafter |
|
|
5,437 |
|
|
|
$ |
11,811 |
|
6.Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2023 |
|
|
December 31,
2022 |
|
Interest payable |
|
$ |
9,595 |
|
|
$ |
10,853 |
|
Accrued liabilities |
|
|
2,404 |
|
|
|
1,894 |
|
Taxes payable |
|
|
10,890 |
|
|
|
10,065 |
|
Payroll and related withholdings |
|
|
4,356 |
|
|
|
10,612 |
|
Accounts payable |
|
|
2,670 |
|
|
|
3,318 |
|
Professional fees accrued |
|
|
11,569 |
|
|
|
9,578 |
|
Current portion of operating lease liabilities |
|
|
962 |
|
|
|
977 |
|
Other |
|
|
1,675 |
|
|
|
1,470 |
|
Total accounts payable and accrued expenses |
|
$ |
44,121 |
|
|
$ |
48,767 |
|
11
Long-term debt, net of unamortized debt discount and deferred financing costs, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2023 |
|
|
December 31,
2022 |
|
DWIP Subscription Agreement |
|
$ |
165,000 |
|
|
$ |
165,000 |
|
ArcCo Subscription Agreement |
|
|
244,627 |
|
|
|
241,477 |
|
Facility Agreement |
|
|
638,549 |
|
|
|
627,871 |
|
Subscription Agreement |
|
|
165,495 |
|
|
|
162,587 |
|
Convertible Notes |
|
|
264,500 |
|
|
|
264,500 |
|
DWIP II Loan Agreement |
|
|
75,000 |
|
|
|
75,000 |
|
Less: unamortized debt discount and financing fees |
|
|
(31,369 |
) |
|
|
(33,083 |
) |
Debt, carrying amount |
|
$ |
1,521,802 |
|
|
$ |
1,503,352 |
|
ArcCo Subscription Agreement
In December 2021, AP WIP ArcCo Investments, LLC (“ArcCo Investments”), a subsidiary of AP Wireless, entered into a subscription agreement (the “ArcCo Subscription Agreement”) providing for loans of up to €750,000. The ArcCo Subscription Agreement provides for uncommitted funding to ArcCo Investments, the sole borrower thereunder, in the form of promissory certificates consisting of tranches in Euros, Pound Sterling, and U.S. Dollars.
The ArcCo Subscription Agreement contains certain financial condition and testing covenants (such as interest coverage and leverage limits) as well as restrictive and operating covenants relating to, among others, future indebtedness and liens and other material activities of ArcCo Investments and its affiliates. Obligations under the Subscription Agreement are guaranteed by AP WIP Investments, LLC (“AP WIP Investments”), a subsidiary of AP Wireless, and secured by a debt service reserve account and escrow cash account of ArcCo Investments available for making of incremental asset acquisitions, as well as secured by direct equity interests and bank accounts of ArcCo Investments and certain other subsidiaries.
In January 2022, ArcCo Investments borrowed €225,000 ($257,490 USD equivalent) of the amount available under the ArcCo Subscription Agreement. Net of an issue discount of approximately $1,287, the funded amount of the borrowing under the ArcCo Subscription Agreement was approximately $256,203. In connection with this borrowing, $5,000 was funded to the debt service reserve account. The initial borrowing accrues interest at a fixed annual rate of approximately 3.2%, which will be payable quarterly and is scheduled to mature in January 2030.
Convertible Notes
In September 2021, the Company issued convertible notes (the “Convertible Notes”) in an aggregate principal amount totaling $264,500. The Convertible Notes are unsecured and bear interest at a fixed rate of 2.5% per year, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2022. The Convertible Notes are convertible into cash, shares of the Company’s Class A Common Stock, or a combination thereof, at the Company’s election, and may be settled as described below. The Convertible Notes will mature on September 15, 2026 (the “Maturity Date”), unless earlier repurchased, redeemed or converted in accordance with their terms.
Prior to the close of business on the business day immediately preceding March 15, 2026, the Convertible Notes will be convertible at the option of the holders only under certain conditions and during certain periods. On or after March 15, 2026, until the close of business on the second scheduled trading day immediately preceding the Maturity Date, holders may convert their Convertible Notes, at their option, at the conversion rate then in effect, irrespective of these conditions. At the date of issuance, the conversion rate for the Convertible Notes was 44.2087 shares of Class A Common Stock per one thousand dollars principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $22.62 per share of Class A Common Stock).
DWIP Subscription Agreement & DWIP Loan Agreement Repayment
In April 2022, a subsidiary of the Company, AP WIP Holdings, LLC (“DWIP”) entered into a subscription agreement (the “DWIP Subscription Agreement”) providing for the issuance of promissory certificates of up to $165,000. The monthly fixed coupon rate under the DWIP Subscription Agreement is approximately 3.6% per annum.
12
Borrowings under the DWIP Subscription Agreement totaled $165,000 and are scheduled to mature in April 2027. Under the DWIP Subscription Agreement, escrow and collection account balances are required to be maintained and each are included in restricted cash in the condensed consolidated balance sheets.
Facility Agreement (up to £1,000,000)
A subsidiary of the Company, AP WIP International Holdings, LLC (“IWIP”), is the sole borrower under a facility agreement (the “Facility Agreement”) that provides for up to £1,000,000 of borrowings with an initial 10-year term. The Facility Agreement is uncommitted and has the objective of issuing notes that may be denominated in U.S. Dollars, Pound Sterling, Euros, Australian Dollars, or Canadian Dollars. Under the Facility Agreement, debt service reserve and escrow cash account balances are required to be maintained and each are included in restricted cash in the condensed consolidated balance sheets.
Through March 31, 2023, cumulative IWIP borrowings under the Facility Agreement consisted of €327,150 and £228,700 that accrue interest at annual fixed rates ranging from 2.8% to 4.5%. Outstanding principal amounts due under the Facility Agreement as of March 31, 2023 totaling $341,676, $149,568 and $147,305 are scheduled to mature in October 2027, August 2030 and October 2031, respectively. Principal balances under the Facility Agreement may be prepaid in whole on any date, subject to the payment of any make-whole provision (as defined in the Facility Agreement).
DWIP II Loan Agreement
AP WIP Domestic Investment II, LLC (“DWIP II”), a wholly owned subsidiary of AP WIP Investments, is the sole borrower under a junior loan agreement (the “DWIP II Loan Agreement”), the borrowings under which bear interest at 6.0% and mature in April 2024.
Subscription Agreement (up to £250,000)
AP WIP Investments Borrower, LLC, a subsidiary of AP WIP Investments, is the borrower under a subscription agreement (the “Subscription Agreement”) that provides for uncommitted funding up to £250,000 in the form of nine-year term junior loans consisting of tranches available in Euros, Pound Sterling and U.S. Dollars, and requires a portion of the funding to be held in a debt service reserve account, which is presented in restricted cash in the condensed consolidated balance sheets.
Through March 31, 2023, cumulative borrowings under the Subscription Agreement consisted of fixed and variable rate interest-only notes totaling €105,000 and €40,000, respectively. As of March 31, 2023, fixed rate borrowings under the Subscription Agreement accrued cash pay interest at rates ranging from 4.0% to 4.25% and interest on the variable rate borrowing was based on the three-month Euro Interbank Offered Rate (“EURIBOR”) plus 3.75%. All borrowings under the Subscription Agreement bear payment-in-kind interest ranging from 1.75% to 2.0%, which was recorded in the carrying amount of long-term debt in the condensed consolidated balance sheets and are scheduled to mature in November 2028. Interest payable in cash is paid quarterly, whereas payment-in-kind interest accrues to the principal balance and is payable upon repayment of principal. Principal balances under the Subscription Agreement may be prepaid in whole on any date, subject to the payment of any applicable prepayment fee.
Interest Rate Cap Agreement
The Company is a party to an interest rate cap agreement ("interest rate cap"), which has a notional amount of €40,000 and terminates in March 2026. The interest rate cap is intended to limit the exposure to increasing interest rates on the variable rate borrowing under the Subscription Agreement in the event that the three-month EURIBOR exceeds 0.25%. Through December 31, 2022, the interest rate cap was a derivative financial instrument that was not designated as an effective hedge under ASC Topic 815, Derivatives and Hedging ("ASC 815"). Accordingly, changes in the fair value of the interest rate cap were recognized in Other income (expense), net in the condensed consolidated statement of operations, which was a gain of $1,074 for the three months ended March 31, 2022. As of December 31, 2022, the fair value of the interest rate cap was $3,857 and was recorded as a derivative asset in other long-term assets in the condensed consolidated balance sheet.
Effective January 1, 2023, the Company has elected to designate the interest rate cap as a hedge of its exposure to potential variability in its remaining future cash flows that may result from its variable rate borrowing under the Subscription Agreement. As the interest rate cap has been designated and qualifies as an effective cash flow hedge under ASC 815, any gains or losses associated with the changes in the fair value of the interest rate cap determined in periods
13
after December 31, 2022 are recorded in stockholders' equity as a component of accumulated other comprehensive income, net of applicable income taxes. Reclassifications of the gains and losses on the interest rate cap are reclassified out of accumulated other comprehensive income and are recorded as part of interest expense in the condensed consolidated statements of operations in the period in which the variable rate interest payments under the Subscription Agreement impact interest expense.
For the three months ended March 31, 2023, the amount of loss associated with the change in the fair value of the interest rate cap recorded in other comprehensive income was $289 and the amount reclassified out of accumulated other comprehensive income and included in interest expense in the condensed consolidated statements of operations, which totaled $17,671, was $209. The following table presents the fair value of the interest rate cap as well as its classification in the condensed consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet location of derivative assets: |
|
March 31,
2023 |
|
|
December 31,
2022 |
|
Interest rate cap designated as cash flow hedge: |
|
|
|
|
|
|
Prepaid and other current assets |
|
$ |
1,328 |
|
|
$ |
— |
|
Other long-term assets |
|
|
2,314 |
|
|
|
— |
|
Interest rate cap not designated as cash flow hedge: |
|
|
|
|
|
|
Other long-term assets |
|
|
— |
|
|
|
3,857 |
|
Total derivative assets |
|
$ |
3,642 |
|
|
$ |
3,857 |
|
The fair value of the interest rate cap was determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the cap and incorporated credit valuation adjustments to appropriately reflect the risk of non-performance. The variable interest rates used in the calculation of projected receipts on the cap were based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The primary inputs to the valuation technique used to measure fair value were ranked, according to their market price observability under the fair value hierarchy, as Level 2 inputs.
Debt Discount and Financing Costs
Amortization of debt discount and deferred financing costs, included in interest expense in the condensed consolidated statements of operations, was $1,715 and $1,106 for the three months ended March 31, 2023 and 2022, respectively.
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective bases for income tax purposes. The Company reduces the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized.
Income tax expense (benefit) was a benefit of $(1,584) and $(3,166) for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2023, the Company’s recorded income tax benefit in relation to its pre-tax loss was lower than an amount that would result from applying the applicable statutory tax rates to such loss, primarily due to limitations on the recognition of tax benefits as a result of full valuation allowances maintained in several taxing jurisdictions.
Common Stock
Each holder of Class A Common Stock is entitled to one vote per share on all matters and is entitled to ratably receive dividends and other distributions in cash, stock or property of the Company when, as and if declared thereon by the Company’s Board from time to time out of assets or funds of the Company legally available. Each holder of the Company’s Class B Common Stock is entitled to one vote per share together as a single class with Class A Common Stock. Shares of Class B Common Stock are deemed to be non-economic interests.
Series A Founder Preferred Stock
As of March 31, 2023, all shares of the Company’s Series A Founder Preferred Stock were held by certain of its founders. Each holder of Series A Founder Preferred Stock is entitled to a number of votes equal to the number of shares
14
of Class A Common Stock into which each share of Series A Founder Preferred Stock could then be converted, on all matters on which stockholders are generally entitled to vote.
Series B Founder Preferred Stock
As of March 31, 2023, all shares of the Company’s Series B Founder Preferred Stock were held by certain executive officers and such shares were issued in tandem with LTIP Units (as defined in Note 10). Each holder of Series B Founder Preferred Stock is entitled to a number of votes equal to the number of shares of the Company’s Class A Common Stock and Class B Common Stock, respectively, into which each share of Series B Founder Preferred Stock could then be converted, on all matters on which stockholders are generally entitled to vote.
Noncontrolling Interest
As of March 31, 2023, noncontrolling interest consisted of limited liability company units of APW OpCo not owned by Radius, comprising each unit of limited liability company interests of APW OpCo designated as “Class B Common Units” under the Second Amended and Restated Limited Liability Company Agreement of APW OpCo, dated as of July 21, 2020 (the “OpCo LLC Agreement”), each unit of APW OpCo designated as a “Series A Rollover Profit Unit” under the OpCo LLC Agreement and each unit of APW OpCo designated as a “Series B Rollover Profit Unit” (each, a “Series B Rollover Profit Unit”) under the OpCo LLC Agreement. As of March 31, 2023, the portion of APW OpCo not owned by Radius was approximately 3%, which represented the Company's noncontrolling interest. During the three months ended March 31, 2023, certain unitholders initiated redemptions of their interests in APW OpCo, thereby effectively exchanging their Class B Common Units, Series B Rollover Profit Units and the associated tandem shares of Class B Common Stock for 2,367,228 shares of Class A Common Stock. This redemption and exchange resulted in an increase in additional paid-in capital of $17,500 and a corresponding reduction in noncontrolling interest, based on the carrying amounts of the associated Class B Common Units and Series B Rollover Units being exchanged.
10.Share-Based Compensation
Under the Company's 2022 Equity Incentive Plan (the "Equity Plan"), the Compensation Committee of the Board is authorized to grant awards of stock options, stock appreciation rights, restricted stock, stock units, other equity-based awards and cash incentive awards that may be subject to a combination of time and performance-based vesting conditions. In accordance with ASC Topic 718, Compensation – Stock Compensation, the Company recognizes share-based compensation expense over the requisite service period of the awards (usually the vesting period) based on the grant date fair value of the awards. For share-based compensation awards with performance-based milestones, the expense is recorded over the service period after the achievement of the milestone is probable or the performance condition is achieved.
Subject to adjustment, the maximum number of shares of Company stock that may be issued or paid under or with respect to all awards granted under the Equity Plan is 25,000,000, in the aggregate. Generally, awards will deliver shares of Class A Common Stock, Class B Common Stock or Series B Founder Preferred Stock. As of March 31, 2023, there were 10,151,638 share-based awards collectively available for grant under the Equity Plan.
Long-Term Incentive Plan Units (LTIP Units)
In February 2020, the executive officers of the Company received initial awards (each, an “Initial Award”) of Series A LTIP Units and Series B LTIP Units (together with the Series C LTIP Units, the “LTIP Units”) and, in tandem with such LTIP Units, an equal number of shares of Class B Common Stock and/or shares of Series B Founder Preferred Stock, respectively. In connection with evaluations of the Company's executive officers' performance in 2022 and 2021, in February 2023 and February 2022, respectively, the Compensation Committee of the Board granted the executive officers awards of LTIP Units (each, a "2023 LTIP Award" or “2022 LTIP Award”), consisting of Series C LTIP Units and, in tandem with such LTIP Units, an equal number of shares of Class B Common Stock.
The Initial Awards consisted of (i) 3,376,076 time-vesting Series A LTIP Units that either vest over a three-year or five-year service period following the grant date, (ii) 2,023,924 performance-based Series A LTIP Units that are subject to both time and performance vesting conditions, the latter condition based on the attainment of certain common share price hurdles over seven years, and (iii) Series B LTIP Units that contain only a performance-based vesting condition based on the attainment of certain common share price hurdles over nine years. During the three months ended March 31, 2023, Series A LTIP Units totaling 1,077,149 units were redeemed and exchanged for an equal number of shares of Class A Common Stock.
The 2023 LTIP Awards and the 2022 LTIP Awards each consisted of (i) time-vesting Series C LTIP Units that vest over a three-year service period following the grant date, and (ii) performance-based Series C LTIP Units that are subject to both time and two equally weighted performance vesting conditions, the latter conditions based on the attainment of
15
the following conditions over the three-year period beginning on January 1 of the year in which the award was granted. These conditions are a) certain Company common share price returns relative to equity returns of certain peer publicly traded companies and a specified equity index (the “Market Condition”); and b) certain growth targets in the Company’s annualized in-place rents metric (the “AIPR Growth Condition”). Vesting of the performance-based Series C LTIP Units also is contingent on the recipient’s completion of service over a three-year period beginning on the grant date. Time vesting Series C LTIP Units granted pursuant to the 2023 LTIP Awards and 2022 LTIP Awards totaled 256,753 and 276,481, respectively, and performance-based Series C LTIP Units granted pursuant to the 2023 LTIP Awards and 2022 LTIP Awards totaled 770,257 and 829,439, respectively.
A summary of the changes in the LTIP Units for the three months ended March 31, 2023 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A LTIP Units |
|
|
Series B LTIP Units |
|
|
Series C LTIP Units |
|
Outstanding at December 31, 2022 |
|
|
5,340,000 |
|
|
|
1,386,033 |
|
|
|
1,105,920 |
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
1,027,010 |
|
Exercised |
|
|
(1,077,149 |
) |
|
|
— |
|
|
|
— |
|
Outstanding at March 31, 2023 |
|
|
4,262,851 |
|
|
|
1,386,033 |
|
|
|
2,132,930 |
|
Vested at March 31, 2023 |
|
|
2,441,321 |
|
|
|
856,693 |
|
|
|
92,160 |
|
As of March 31, 2023, all awards of Series C LTIP Units are expected to vest. With respect to the 2023 LTIP Awards, the fair value of each time-vesting Series C LTIP Unit and each Series C LTIP Unit vesting on the attainment of the AIPR Growth Condition was based on the grant date per share fair value of the Company’s Class A Common Stock, which was $13.63 per share. For each Market Condition Series C LTIP Unit granted pursuant to the 2023 LTIP Awards, fair value was measured as of its grant date using a Monte Carlo method, which took into consideration different stock price paths and utilized the following assumptions in its determination:
|
|
|
|
|
|
|
Market Condition
Series C
LTIP Units |
|
Weighted-average grant date fair value |
|
$ |
9.47 |
|
Expected term |
|
3.0 years |
|
Expected volatility |
|
|
45.4 |
% |
Risk-free interest rate |
|
|
4.5 |
% |
For the three months ended March 31, 2023 and 2022, the Company recognized share-based compensation expense of $3,908 and $3,685, respectively, in the aggregate for all grants of LTIP Units. As of March 31, 2023, there was $31,362 of total unrecognized compensation cost related to the LTIP Units granted, which is expected to be recognized over a weighted-average period of 2.4 years.
Restricted Stock
Restricted stock awards granted under the Equity Plan generally are non-transferable until vesting of each award is complete. Each restricted stock award granted under the Equity Plan grants the recipient one share of Class A Common Stock at no cost to the recipient, subject to the terms and conditions of the Equity Plan and associated award agreement. Except for performance-vesting restricted stock awards granted in February 2023 and 2022 (each a “2023 Performance RSA” or "2022 Performance RSA"), vesting of restricted stock awards granted under the Equity Plan is contingent upon the recipient’s completion of service, which ranges from one to five years beginning on the grant date.
The 2023 Performance RSAs consisted of (i) 116,912 shares of Class A Common Stock that are subject to both time and two equally weighted performance vesting conditions, the latter conditions based on the attainment of the Market Condition and AIPR Growth Condition over the three-year period beginning on January 1 of the year in which the award was granted and (ii) 100,000 shares of Class A Common Stock that are subject to both time and performance vesting conditions, the latter condition based solely on the attainment of growth in certain annualized in-place rents of the Company over the five-year period beginning on January 1 of the year in which the award was granted. Vesting of the Performance RSAs also is contingent on the recipient’s completion of service over a period of three or five years beginning on the grant date. Awards pursuant to the 2022 Performance RSAs also are subject to time and performance vesting provisions that also included conditions regarding the attainment of Company common share price returns; and growth targets in the Company’s annualized in-place rents metric.
16
A summary of the changes in the Company’s nonvested restricted stock awards for the three months ended March 31, 2023 is presented below:
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Weighted-
Average
Grant-
Date Fair
Value |
|
Nonvested at December 31, 2022 |
|
|
593,194 |
|
|
$ |
12.28 |
|
Granted |
|
|
784,384 |
|
|
$ |
11.37 |
|
Vested |
|
|
(150,902 |
) |
|
$ |
(12.71 |
) |
Forfeited |
|
|
— |
|
|
|
— |
|
Nonvested at March 31, 2023 |
|
|
1,226,676 |
|
|
$ |
11.64 |
|
As of March 31, 2023, all 2023 Performance RSAs and 2022 Performance RSAs are expected to vest. The fair value of each 2023 Performance RSA vesting on the attainment of annualized in-place rent criteria was based on the grant date per share fair value of the Company’s Class A Common Stock, which was $13.63 per share. For each 2023 Performance RSA subject to the Market Condition, fair value was measured as of its grant date using a Monte Carlo method, which took into consideration different stock price paths and utilized the following assumptions in its determination:
|
|
|
|
|
|
|
Market Condition Restricted Stock Awards |
|
Weighted-average grant date fair value |
|
$ |
9.47 |
|
Expected term |
|
3.0 years |
|
Expected volatility |
|
|
45.4 |
% |
Risk-free interest rate |
|
|
4.5 |
% |
For the three months ended March 31, 2023 and 2022, the Company recognized share-based compensation expense for restricted stock awards of $724 and $367, respectively. As of March 31, 2023, there was $16,400 of total unrecognized compensation cost related to restricted stock awards granted as of March 31, 2023. The total cost is expected to be recognized over a weighted-average period of 4.0 years.
Stock Options
The following table summarizes the changes in the number of common shares underlying options for the three months ended March 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Weighted-
Average
Exercise
Price |
|
Outstanding at December 31, 2022 |
|
|
4,392,415 |
|
|
$ |
10.53 |
|
Granted |
|
|
— |
|
|
$ |
- |
|
Exercised |
|
|
(29,200 |
) |
|
$ |
8.03 |
|
Forfeited |
|
|
(58,300 |
) |
|
$ |
14.67 |
|
Outstanding at March 31, 2023 |
|
|
4,304,915 |
|
|
$ |
10.49 |
|
Exercisable at March 31, 2023 |
|
|
1,923,915 |
|
|
$ |
9.30 |
|
Expiring on the tenth anniversary following the grant date, each employee option award vests upon the completion of five years of service. For the three months ended March 31, 2023 and 2022, the Company recognized share-based compensation expense of $552 and $540, respectively, for stock options granted to employees. As of March 31, 2023, there was $6,921 of total unrecognized compensation cost, which is expected to be recognized over a weighted-average period of 3.3 years.
17
11.Basic and Diluted Income (Loss) per Common Share
Diluted income (loss) per common share is calculated by dividing the net income (loss) allocable to common stockholders of Radius by the weighted average number of common shares outstanding, adjusted for the effects of potentially dilutive common stock. For all periods presented with a net loss, the effects of any incremental potential common shares have been excluded from the calculation of loss per common share because their effect would be anti-dilutive. Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per common share were the same for periods with a net loss attributable to common stockholders of Radius. The following table sets forth the computation of basic and diluted net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
March 31,
2023 |
|
|
Three months
ended
March 31,
2022 |
|
Numerator: |
|
|
|
|
|
|
Net loss attributable to stockholders |
|
$ |
(45,585 |
) |
|
$ |
(4,437 |
) |
Stock dividend payment to holders of Series A Founder Preferred Stock |
|
|
— |
|
|
|
— |
|
Net loss attributable to common stockholders |
|
$ |
(45,585 |
) |
|
$ |
(4,437 |
) |
Denominator: |
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted |
|
|
95,821,985 |
|
|
|
92,104,971 |
|
|
|
|
|
|
|
|
Basic and diluted loss per common share |
|
$ |
(0.48 |
) |
|
$ |
(0.05 |
) |
The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares outstanding as the shares associated with each of these would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
March 31,
2023 |
|
|
Three months
ended
March 31,
2022 |
|
Shares of Series A Founder Preferred Stock |
|
|
1,600,000 |
|
|
|
1,600,000 |
|
Stock options |
|
|
4,304,915 |
|
|
|
4,290,615 |
|
Restricted stock |
|
|
1,226,676 |
|
|
|
593,194 |
|
LTIP Units |
|
|
7,781,814 |
|
|
|
7,831,953 |
|
Convertible Notes |
|
|
11,693,192 |
|
|
|
11,693,192 |
|
18
12.Commitments and Contingencies
The Company periodically becomes involved in various claims, lawsuits and proceedings that are incidental to its business. In the opinion of management, after consultation with counsel, the ultimate disposition of such incidental matters, both asserted and unasserted, will not have a material adverse impact on the Company’s condensed consolidated financial position, results of operations or liquidity.
Apart from such incidental matters, the following lawsuits and demand letters have been filed or submitted relating to the Mergers:
On April 4, 2023, the Company received a demand letter from Norfolk County Retirement System, a purported holder of shares of Class A Common Stock, requesting access to certain books and records of the Company to investigate purported breaches of fiduciary duty, director independence and disinterestedness and/or other corporate wrongdoing in connection with the Mergers and related transaction documents. On April 14, 2023, the Company responded to this demand letter by denying the allegations contained therein and objecting to such purported stockholder’s scope of requests but indicating a proper inspection of books and records would be permitted, subject to negotiation of an appropriate scope of production and execution of a standard confidentiality agreement.
Between April 7, 2023 and May 1, 2023, three complaints were filed in connection with the Mergers. On April 7, 2023, a complaint, captioned Ryan O’Dell v. Radius Global Infrastructure, Inc. et al., 23-cv-2956 (S.D.N.Y.), was filed in the United States District Court for the Southern District of New York by a purported holder of shares of Class A Common Stock; on April 12, 2023, a complaint, captioned Elaine Wang v. Radius Global Infrastructure, Inc. et al., 23-cv-3068 (S.D.N.Y.), was filed in the United States District Court for the Southern District of New York by a purported holder of shares of Class A Common Stock; and on May 1, 2023, a complaint, captioned Shannon Jenkins v. Radius Global Infrastructure, Inc. et al., 23-cv-3657 (S.D.N.Y.), was filed in the United States District Court for the Southern District of New York by a purported holder of shares of Class A Common Stock; all three cases named as defendants the Company and members of the Board. The complaints allege, among other things, that the defendants caused to be filed with the SEC a materially incomplete and misleading preliminary proxy statement relating to the Mergers in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. Among other remedies, the complaints seek: an order enjoining the defendants from proceeding with the Mergers unless and until the defendants disclose certain allegedly material information that was allegedly omitted from the preliminary proxy statement; rescinding the Merger Agreement or any of the terms thereof to the extent already implemented or granting rescissory damages; awarding the plaintiffs the costs and disbursements of their actions, including reasonable attorneys’ and expert fees and expenses; and granting such other and further relief as the court may deem just and proper. The Company has not yet formally responded to these complaints, but believes that the allegations contained therein are without merit.
On April 17, 2023, the Company received two demand letters from purported holders of shares of Class A Common Stock and, on April 19, 2023, the Company received a third demand letter from a purported holder of shares of Class A Common Stock, and on May 8, 2023, the Company received a fourth demand letter from a purported holder of shares of Class A Common Stock; all three four letters alleged disclosure deficiencies in the preliminary proxy statement and demanded issuance of corrective disclosures. The Company has not yet formally responded to these demand letters, but believes that the allegations contained therein are without merit.
As of May 9, 2023, the Company was not aware of the filing of other lawsuits or the submission of other demand letters challenging the Mergers and/or alleging deficiencies with respect to the preliminary proxy statement; however, such lawsuits or demand letters may be filed or submitted, respectively, in the future.
19
