Radius Global Infrastructure, Inc. (NASDAQ:RADI) Q3 2022 Earnings Conference Call November 9, 2022 10:30 AM ET
Jason Harbes - SVP, IR
William Berkman - CEO & Co-Chairman
Glenn Breisinger - CFO & Treasurer
Conference Call Participants
Richard Prentiss - Raymond James
Ahmed Badri - Crédit Suisse
Walter Piecyk - LightShed Partners
Jonathan Petersen - Jefferies
Simon Flannery - Morgan Stanley
Greetings, and welcome to Radius Global Infrastructure Third Quarter 2022 Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Harbes, Head of Investor Relations. Thank you. You may begin.
Thank you, operator. And welcome, everyone, to the Radius Global Infrastructure Third Quarter 2022 Earnings Call. In a moment, Bill Berkman, our CEO and Co-Chairman, will provide an overview of our third quarter 2022 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 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 yesterday's earnings release and the supplemental financial information available on our website at www.radiusglobal.com. Bill?
Thanks, Jason. Thank you all for joining us today for our third quarter 2022 earnings conference call. Even amidst the current global economic and political environment, I am pleased to report the continued resiliency and stability of our business, as we continue to deliver what we believe to be attractive risk-adjusted returns.
This is evidenced by strong growth in the third quarter where our assets generated record quarterly GAAP revenue of $35.3 million up 29% year-over-year, which is net of the impact of recent volatile foreign exchange rates. We now own over 8,800 lease streams on over 6,700 digital infrastructure sites in over 20 countries.
Our large, well-diversified portfolio of high-quality triple net rents underlying mission-critical digital infrastructure assets enjoy the benefit of predominantly uncapped inflation-adjusted escalators, and this quarter's results show continued growth from these valuable lease provisions. As you will hear shortly, our rent portfolio had net organic annualized growth of approximately 4.3% in the third quarter, which includes both inflation escalators and other organic growth up from 3.7% in the second quarter and up from 2.7% in the third quarter of 2021.
As noted in our supplemental disclosures as of the end of September, approximately 76% of our portfolio escalates annually, 5% escalates every 3 years and 17% escalates every 5 years. The rate of growth from escalators on our existing rents grew 4.8% in the quarter, and we expect the rate of growth to continue, as inflation-based escalators continue to phase in. We would like to again note that we have quarterly variability in the amount of capital deployed.
During this quarter, we invested approximately $70 million to acquire $5 million in additional annualized rent, increasing our total annualized in-place rents to a run rate of approximately $134 million, representing a 21% year-over-year increase.
On a constant currency basis using exchange rates as of the third quarter of 2021, our portfolio would have grown 38% to approximately $152 million. The difference between what we reported and what we would have reported on a constant currency basis is attributable to the U.S. dollar appreciation during the past year, most notably against euros and British pounds, which depreciated by 15% and 17%, respectively.
Please note that our levered rent significantly mute FX impacts because we borrow and collect rent and deploy capital locally, all of which acts as a natural hedge. Our total acquisition CapEx of $324 million for the first 3 quarters of 2022 keeps us on a trajectory to exceed our original guidance where we expect to deploy $400 million plus of acquisition CapEx for the current calendar year.
Our pace of acquisition CapEx has also been impacted by a strengthening U.S. dollar. On a constant currency basis, we would have deployed $378 million in the first 3 quarters, as compared to the $324 million we did deploy. The difference between what we reported and what we would have reported on a constant currency basis is again due to U.S. dollar appreciation during the past year, again most notably to the euro since the majority of the rents we've acquired this year have been denominated in euros.
Please note that we have benefited from the ability to buy international assets at a lower price when we have deployed cash held in U.S. dollars due to the strengthening of the U.S. dollar against other currencies. After making these investments, we now have nearly $500 million on the balance sheet available for incremental value-accretive acquisitions raised from previously drawn debt facilities that are 100% fixed rate or CAP with a blended cash coupon of approximately 3.6%, interest only with our first maturity of $75 million out of $1.5 billion of debt due in 2024.
I'm extremely proud of our global team for continuing to produce strong results, meeting our high underwriting standards and target returns, especially in this macroeconomic environment. With the pace of capital investment into global digital infrastructure, supporting communication networks and data storage, data processing and data delivery continuing to grow to keep up with demand, our addressable market of potential acquisition continues to grow, and our range of asset types continues to broaden, which, of course, provides our team of originators with a total addressable market of 1 million plus potential properties to acquire in the current jurisdictions where we presently operate where most of these addressable assets continue to be owned by a highly fragmented set of landlords.
We are highly mindful of recent volatility in the macroeconomic environment and capital allocation is always a key area for us, which we are always seeking to optimize real time. In addition to constantly reviewing our underwriting criteria, we are updating targeted unlevered returns to factor in local jurisdictions, market conditions against the backdrop of future financing costs with the objective of deploying capital to achieve the best long-term risk-adjusted return.
A couple of other updates. In the past, our treasury function has delivered nominal interest income. With recent interest rate increases, we expect to generate more attractive near-term interest income on our cash on hand until it is deployed into higher return opportunities. We are also reviewing our SG&A cost structure to identify potential areas of cost reduction and greater financial and operational efficiencies. Lastly, we are also testing new structured finance offers to digital infrastructure property owners to optimize our returns.
Glenn Breisinger, our CFO, will now provide an overview of our current holdings and financial results in more detail. Glenn?
Thanks, Bill. We continue to grow the portfolio in the third quarter, taking advantage of investment opportunities across our expanding global footprint to deploy capital. As of the end of September, as Bill previously mentioned, we own real property interest in over 6,700 sites with over 8,800 lease streams represented by a tenant base comprised of 39% tower companies and 61% mobile network operators, the majority of which are investment grade.
With respect to our $133.6 million of annualized in-place rents as of September 30, 49% are denominated in euros, 14% in British pounds, 16% in U.S. dollars, 3% in Australian dollars, 1% in Canadian dollars and the remaining 16% in other global currencies. Approximately 84% of our rents are located in developed markets with the remainder predominantly based in Brazil, Chile and Mexico.
Importantly, nearly 80% of our portfolio has contractual uncapped escalators whether either directly or indirectly linked to local inflation indices, which provides us with meaningful protection against the impact of rising inflation, while also muting the impact of rising interest rates. The other 20% of our portfolio has contractual escalators that are generally fixed at annually. Geographically, these fixed escalator rents are primarily located in the U.S., Canada and Australia. Revenues were up 29% year-over-year to $35.3 million in the quarter and gross profit what we refer to as growing cash flow rose 25% to $33.6 million, resulting in a gross profit margin of approximately 95%.
Our ground cash flow margin has been impacted by expenses associated with fee simple interest acquired primarily for property taxes. We deployed $70.1 million for acquisition CapEx in the third quarter, which represents a 45% decrease from the $126.5 million we deployed in the third quarter of 2021. This lower pace of investment resulted in $4.9 million of additional annual rent across 317 new lease streams.
We anticipate that these new lease streams will generate a fully burdened initial cash yield of approximately 5.8% on a total growth spend basis, which includes approximately $14.2 million of origination SG&A that we spent in the quarter.
Please note that this 5.8% reflects onetime expenses and foreign currency exchange impacts and when compared to previous years, does not reflect the same-store sales. At each quarter, we are acquiring assets from a different mix of countries that have different acquisition cap rates due to many factors that vary by jurisdiction.
In the third quarter, our existing portfolio of rents on a constant currency basis, excluding rents we acquired in the quarter, generated 5.3% revenue growth from the combination of our contractual escalators and organic revenue enhancements, which was partially offset by approximately 1% of gross churn, resulting in net organic revenue growth of 4.3% on a year-over-year basis. This compares to 2.7% net organic revenue growth in the third quarter of 2021. This increase was primarily due to our contractual inflation-based escalators, which are beginning to reflect the significant increase in inflation across all of our jurisdictions.
Turning to our balance sheet and liquidity, Radius now has approximately $1.5 billion of total gross debt outstanding and net debt of $982 million as of the end of the third quarter. Again, all of our outstanding debt is interest-only fixed rate or capped with a weighted average cash coupon of 3.6% and a weighted average remaining maturity of 5.7 years.
The company had approximately $570 million of liquidity, $493 million of which is available for incremental investment as of September 30. Radius also had $1.2 billion of available uncommitted borrowing capacity under various debt facilities in addition to the ability to access the worldwide credit and capital markets, subject to market conditions, in order to issue additional debt or equity if needed or desired. Please refer to the supplemental materials posted to our website yesterday after market close for additional details.
Thanks, Glenn. Operator, please open the call for questions. Thank you.
[Operator Instructions]. Our first question comes from the line of Ric Prentiss with Raymond James.
A couple of quick questions. First, glad to see CPI escalator starting to continue to move up through the quarter. How should we think about -- I know you mentioned 76% of the leases update annually, how far through the process of updating those ROE? Is there some way for us from the external side to get a sense of where these could be headed as you think about where inflation is in all the different markets you're working in?
No, it's a good question. Glenn, do you want to take Ric through the sort of weighted average expectation, do you have it handy?
Yes, sure. So I think if you look at how we have called out the rents by jurisdiction, our annualized in-place rents and think about the inflation in all those various jurisdictions factor out where you are in North America versus Australia and Canada, the fixed components, you're probably running on a present run rate basis today of -- in the 5% range. And if you look at that compared to the stated inflation in those marketplaces, you're probably at about 60% on a trailing basis, is probably the best way to think about that.
And in terms of when it catches up, Ric, it kicks in -- I mean sort of -- you got to just do on weighted averages, but I would expect within the next 12 months is our expectation that it will approach where inflation is today because we're always lagging. So even if inflation went higher, we'll lag; if inflation went lower, we'll still lag it and still be higher if that makes sense.
Second question, on the acquisition front, obviously, been covering the space a long time with towers and other digital infrastructure. There was a saying in tower land that sometimes the best asset you can buy is yourself when you consider what other assets are going for or what your asset is trading at. Do you guys have any flexibility or desire to look at using any of your cash or liquidity sources to buy back stock?
Yes, I think we would -- the answer is absolutely, we do. We probably have upwards of around $300 million of flexibility to buyback our stock, should we -- our board decide to do that. So we look at both the buybacks of our stock. We look at the buyback of our convert, whichever one we think, at a given time, offers a better return than what we're doing elsewhere in the market.
I think from our perspective it has to be a really, really -- I guess, I may say it this way, the comparison between what we can buy out there versus buying back our stock, we always feel that when we're buying our assets, it's not just about buying inflation. It's not just about buying an asset that we know is going to stand the test of time.
But as we put in our supplemental deck today, it's not just a spread business for us. We always think we can get more organic growth. As an example, a rooftop. It isn't just a rooftop. It's actually a tower because there's incremental space that we can add incremental tenants and roughly 30% of our assets are rooftops.
So when we think about a long-term investment perspective, it's not that we wouldn't use stock buyback selectively. And we talk about it at every board and if you know our heritage, being partners with Malone, he's been the master of making buybacks. So it's definitely on our radar. I think for right now the way we view it, it's kind of attention with roughly $500 million of cash that you could call it borrowed at 3.6%.
You want to capture that spread as fast as you can because it's got 5.7 years on a weighted average maturity to be used. So then you say to yourself, if I want to capture what's the fastest and best way to do that, you say we've got buybacks. We've got new assets. And then you ask yourself, don't you want to optimize returns, but it may take you 6 months to get to complete optimization returns, which, of course, act circularly to undermine you're using that spread right away.
Long-winded way of saying that every single day, we wake up more asset allocators and buybacks are just 1 thing that we focus on. I think for right now, practically speaking, if we announced it, we're just not sure we could buy that much. We certainly would influence the price very substantially, at least in our expectation in our view.
And so when we think about that rather getting into the cycle of saying that we're buying back every quarter, we still think the returns are out there that justify what we're doing, of course, especially with the spread that we have, so to speak, on the cash. And then when we combine that with, of course, the organic growth that we think we can drive on top of it. I think it's just business as usual on a very steady asset. Sorry for the long-winded answer.
No, no, it's thoughtful. That's what we want to see and hear because sometimes you can also like you point out, just send the message to the market about where you think it's that because at some point, Glenn touched on his remarks, there's debt raise, but at some point, there's equity raises, too. So you want your equity to reflect the value that you're seeing that you're producing.
No, absolutely. When we think about the equity raise, we'll just touch on it because I have a hunch you're going to ask me anyway. Equity for us comes episodically when we think we need it to, of course, match against the originations. In a perfect world, you really want to release just-in-time equity, just when you need it, but nothing is ever perfect. So whether or not we do it as we've done in the past, where you're issuing equity or you decide you want to issue equity on a subsidiary level or frankly, take the approach that some of the triple-net traditional REITs have done where they selectively sell assets every year, use the cash and then reinvest.
So can you sell at a much higher multiple than what you're going to reinvest the cash at. We typically haven't liked to do that. We like to hold our assets for a long time because we think that if we can stay invested, it's sort of the best use of our cash without any of the friction. Now that being said, the buy and sell approach worked for the original pioneers of people buying land for a long time. So it's something we watch is just another tool in the capital formation toolbox.
Last 1 for me. I appreciate that is we obviously saw Vodafone Vantage Tower portfolio get finally announced where there was of that.
There is a lot of money out there in the private space. Have you been approached? Would you engage approach with private equity saying, we've got a lot of money, we're looking to put it to work in digital infrastructure and you guys could be a platform?
I guess I can say to you is, a, number one, we don't really comment on any specific rumors. It's just sort of the policy of the company and what our Board has set out. Look, everybody is talking to everybody all the time. There is a substantial amount of capital that's out there in different types of funds. And I don't think we lose a wink of sleep over our ability to form capital when we should need it.
The question then is I always like to think of things not just from pure finance, but also what else can we do with anybody as we're thinking about our future. And there's no right or wrong answer, but I guess, we're really flexible. We always are willing to listen to anybody. And I think that's what I would say.
[Operator Instructions]. Our next question comes from the line of Sami Badri with Credit Suisse.
I think you made a comment earlier on your prepared remarks regarding targeted returns of invested capital. Could you maybe just expand on that comment? I didn't really hear a percentage or something else that you were kind of framing. Could you just give us more color and expand on that comment, please?
Sure. No, I think it's a great question. I mean first and foremost, and I know you've heard me say this before, every single 1 of our jurisdiction demands, commands a different threshold IRR. And we start from the ground up saying to ourselves the classic sort of finance theory, what's the equity risk premium when we compare it to the U.S. and other countries? So that's why we say it's -- we're not reporting same-store sales because if the mix of countries differs the actual "first year yield" will also different. What you would expect to achieve in Brazil as a first year yield is going to be very different than what you're going to expect to achieve in France, just as an example.
So there is no 1 set overall holistic return criteria. What I would say is that we then go into the process of saying we've got 3.6% money and clearly, we want to be above that to earn whatever the return is, but that's only the first portion. Just to hit it home again, we don't see ourselves just as a spread business, we think we can and we have driven organic growth, and we expect to do more organic growth on top of just the spread.
I think the third thing is that when we look at our first year yield and this is where it's hard to explain to investors, but the accountants, the GAAP accounting rules make us expense the origination SG&A, which distorts our EBITDA, when in our mind, it's part and parcel of buying assets, and we view it really as just CapEx. Now on the positive side, we get a deduction for it. So when we think about the first year deals, since the IRS is letting us deduct what is really 10% of the purchase price, we think about that in the context of the yields.
And then the other thing, when we look at yields that it doesn't show, which is very obvious, is the prevailing inflation that we think is going to happen in the next year, 2 years, 3 years. And then, of course, what we think we can grow the asset from organic growth, whether that's because the rents are below market and at least renewal, we can bring them up to market or it's a rooftop where we think we can add another tenant.
So yield is a measure, but it's not store measure. And going back to your question on returns, each jurisdiction is different. But suffice to say, if you're our shareholder, you're betting on our ability to capital allocate, our ability as an investment committee, so to speak, as underwriters. And I think that's just something we've spent a huge amount of time rethinking, rethinking the rules that we set out there.
Got it. Just so I'm sure I'm clear. I think your explanation was pretty good, right. So timing could be a factor, moving parts could be a factor and then just region origination. These are factors for why yields could come down a little bit in the medium term before they finally stabilize after some of these kind of transitory effects start to kind of be ironed out. Is that the right way to interpret it? And I have 1 another follow up.
No, I wouldn't say that. I would say, and I hate to do this because everybody wants it to be 1 size fits all, I guess we would too. But every country's yields were going to be different based on what's happening in that given jurisdiction at that moment in time. That's the first thing to think about.
I think the second thing is we don't know yet because it will probably likely be a lag, whether or not and for when all of the current macro environment forces trickle down to individual landowners who all of a sudden have a greater need to sell because they've got a greater need for capital or they're just afraid of the current environment.
At the moment, we're still seeing pricing relatively stable that's out there. When I think about other real estate classes, I've read in some of the triple net traditional investor presentations, they see 12 to 18 months before the market adjusts for a private seller. I don't know if that will be the case for us. But I do think there's a lag. I'm optimistic that we'll see prices begin to adjust to the overall market, which, of course, should inure to our benefit. I also think that with more volatility, probably people will need more capital.
But again, we're in early days. We haven't seen that yet in any material form. So that would go against what you're saying about yields going lower. I don't have a crystal ball. I just would say right now, I'm expecting them to sort of remain stable for the moment with, I guess, the hopeful expectation that yields will go up that we have to purchase.
Got it. Got it. Okay. I apologize. I actually have 2 follow-ups. So first 1 would be a quick one. Your adjusted EBITDA margin came in higher than what we've been typically modeling. And it sounds like you guys structurally are doing things a little bit different going forward just from like a cost and just business management perspective, is it safe to assume that adjusted EBITDA margins would hover around the range you guys just reported for at least the next couple of quarters, maybe even 2023. So that's question one.
Question 2 is we're just trying to think about the economic forces here and the way that Radius is positioned. Does economic turbulence, including rising rates globally, create more motivated sellers and thereby, gives you better deals, better opportunities or is it that are we in a situation here where the economic dynamics are creating a situation where there's a lot more weighting and seeing both on the Radius side and the seller side, just because so many pieces are moving around and in most cases, unfavorable from a seller's perspective. So ...
Let me answer your second 1 first, and I'll let Glenn answer the EBITDA margin question. The second 1 I was trying to address before when I was giving you how we think about returns and yields, and I wasn't probably clear enough. We're trying to see when and if, of course, it will spark all this volatility, more potential property owners to want to sell their property. At the moment, we haven't really seen it in a giant material way. I'm sure it will be country by country. Our expectation is it takes a little while, just as I mentioned before, in the triple net traditional guys experience to see that flow through to individual property owners.
I would expect it to happen. I just don't know when. I would expect we'd have more volume. I don't know when that will kick in because typically people need capital again when markets are the way they are. I hope that answers your question. On the economic forces, I guess, the way we view our business is -- and I hope this is really clear. On a gross debt basis, we're probably levered at 11.5 plus time of our rent. And I said that's gross because that's not net of cash, to be clear. But at 11.5x borrowing in the local currency, you have 11.5x that you are hedged in FX.
So if as an example, the euro weakens, that means the amount of debt we owe back is a lower amount. That means the amount of interest we have to pay is a lower amount. So that's why even at a giant movement unlevered, we are muted in what happens in the impact to us on a levered basis. I hope that makes sense. That would be an economic force. And the other thing I would say on the economic forces is -- and it's funny because you want to look at the forward curve all the time, but -- as we've all probably noticed, it's changing up and down as volatile as the existing interest rate itself.
So for us, probably the most important thing will be incremental cost of cash when we go to borrow. Academically, we really like to think about it, as a separate cost and does it get the returns we want. But you can be lazy and say, we'll blend it with the 3.6% because we know we still have a spread if we wanted to do it that way.
I think the second thing, which is most important to all of our shareholders and us is what do we think the cost of borrowing will be when we have to refi our weighted average maturity of 5.7 years. That's 5.7 years from now. And our crystal ball is as good as everybody else's crystal ball, which means it's not very good.
And so those are the things that I think, weigh on us as we think about our world. And while there's mark-to-market volatility, we just believe by owning these assets long term, applying steady leverage such that as we delever with natural escalators, as we delever by acquiring more rents, we want to increase our borrowings for 2 purposes. One is it does give us excess liquidity; two, we think we can have good organic growth in addition to the spread; and then three, we do get a pretty terrific tax shield when we get to borrow from an interest deduction.
And it's really powerful as evidenced by, I want to say approximately $240 million of NOLs that we currently have as of the end of Q3. I hope that helped you. On the EBITDA margin, Glenn, do you want to address that?
Yes, sure. Sami, we don't give guidance on projecting forward, but your instincts are right. You've consistently seen and we would expect to see -- continue to see scale in the operations on the cost relative to the revenues and the gross margin. So yes, we would expect this to directionally continue to see the gross -- the adjusted EBITDA margin improve over time.
Our next question comes from the line of Walter Piecyk with LightShed.
Walt, I think we were over the 11 minutes, so we didn't make your hall of fame in quarterly earnings. I want to point that out.
At least over 40.
Well, we're trying.
This is probably a dumb question, just given the nature of your business. But is there anything to think about in terms of churn? You guys only give 1 decimal, so like you actually got up to the 0.3, maybe it's just like 0.2557. But aside from what's happening in the current quarter, is there -- if you think about maybe global economic issues as a possibility, not a likelihood, should there be anything that could elevate churn even the slightest bit as we go into next year?
I don't -- right now in terms of sort of our crystal ball, I think we've been really steady for 10-plus years at around 1%, which is, I think, kudos to all of our underwriting and that team, which I'm not actually part of day-to-day, so I give them all the credit. Going forward, we don't see anything that's going to cause that because we tried really hard to make sure we're buying sites that we think will stand the test of time and being mission-critical. But then again, I didn't predict the Ukraine war. So what can I tell you? Anything is possible, but I do think it probably runs around 1% roughly...
There's been stuff in the news recently about maybe Telecom Italia purchased by the government. Is there any chance that, that has any impact on you guys?
It again comes down to underwriting. What we love about Italy is that it is part of the EU. They're now collectively barring together. So I don't want to make the case just for Italy. But you've got a mission-critical service from the incumbent Telco and what's most important for us when we're buying either ground under their towers, rooftops or some of their switching stations is making sure we pick the right ones in great locations, which just can't be replicated.
And that comes down to a lot of hard work on the ground and, frankly, really good diligence. And we just feel like we are effectively buying a secured piece of credit on Telecom Italia that no matter what happens to its capital structure, they don't have a choice but to pay us because we're just mission-critical for them.
In addition, we tried to maintain and I think we're getting even closer to them to see what other things we can provide them in addition to just being a capital provider on a sale-leaseback basis. When I say sale leaseback, they shed a lot of these a long time ago, so we're buying them from another third party. But I think having a great relationship with our tenants is really important.
And the question, Bill, was less about the financing risk as more into -- I remember a year or 2 ago, when you were first kind of coming out, there's some issue in the U.K. about whether the government in some ways could regulate the rents on ground leases or -- I forget what the exact noise was. My point is like if the state owns the telco, do you think -- and it's a country like Italy, should we think about any potential risk of them using that ownership to regulate what they're paying for ground leases underneath their towers?
Look, anything is possible, but I would tell you that we have a contract, I think contractual law in these countries, especially the EU, if they want to just override it like that. It's sending a strong message between international countries as to how they view property. And I think that's just really hard to do. That's a long, long haul even for Italy. So imagine the U.S. coming in and saying, well, yes, you're taking your property, we're not paying you anything, you have real recourse because it's not just you they are saying...
Everybody in the real estate business is going to say, what are you doing to me? That being said, we have to make sure we do a good job. We have to make sure we're being well diversified. And that's my point about going back and having a good relationship with your tenant because we've been exploring various energy-related options with them, which could be pretty powerful.
More to come on that, but that's why I like to think of ourselves not just as a spread business. So again, I didn't predict the Ukraine war, who knows it's going to happen in this world.
Never say never, but just...
Elon Musk may come and buy Telecom Italia, he bought everything.
So if the obviously executed on for this year, maybe if I missed this in the prepared remarks, I apologize. But when you think about next year, without setting a number, and given the kind of financing environment, would you anticipate having a higher -- what do we call this acquisition CapEx number in 2023 than 2022? Or is it a year to kind of take pause and then to wait to see how kind of rates shake out?
Well, first of all, I don't think we would necessarily take pause to wait until rates shake out because, as I mentioned earlier, we've got $500 million of investable cash roughly, at a 3.6% sort of cost of that debt. So I think we're in good shape no matter what's going to happen with rates. That being said, you should ask me that question at the end of our fourth quarter call because I think that's when we'll probably give the next year's guidance.
And by the way, the stuff is moving as quickly, and I was more worried now about rigs, but what's going to happen with our Congress today. That can have as big an impact on the world as anything else.
Our next question comes from the line of Jon Petersen with Jefferies.
So I know this has probably been tackled from a few different angles. But I guess I'm just thinking about your rising escalators due to inflation. Obviously, that's a good thing, but then the rising cost of capital and how we should kind of think about going in yields on acquisitions. So I'm just curious from an underwriting perspective, how you balance those 2 things? Because I would imagine going in acquisition yields aren't going up 1 for 1 with your rising cost of debt. But like how do you factor inflation expectations in short underwriting?
So actually, we don't. We typically still keep our projections at around 3% fixed across the whole world. It just lets us kind of have an apples-to-apples comparison. So we -- it's an extra benefit if inflation is running higher. I think the place on our real underwriting, we spend a lot of time on, of course, besides the [indiscernible] is not necessarily the yield on which we're paying. But as I mentioned earlier, if we think the rents that we're buying are really below market for whatever historical reason, when the contract is up, we just want to bring them to market. That would say, "Oh, you've paid a high -- excuse me, a lower yield or cap rate but yet we know there's more value to come."
Or as another example, for whatever reason, the tenant never paid the person or the property owner that we're buying, the right amount of rent for the last 5 years. If we see that, we're going to go collect it. That's going to influence, of course, what we're going to pay. And we do think about our world less on a cap rate or yield even though everybody likes that from just an ease of either multiples or tools like that. We really think about it on an IRR basis.
So in that IRR is not just is it below market? Is there rent we collect? But then is it a rooftop, do we think -- when we look at sort of the RF planning across a given city, do we think we can add another half a tenant, therefore, that's lease up. Do we think that on certain sites they have generators and they don't have generators for energy as battery backup. If they need a generator, they need extra space. So things like that going to our underwriting calculus as much as just finance and spread. And so that's why I think you'll hear us say we don't think we're just a spread-only business.
Got you. And then I guess, 1 other question on acquisitions. Just from the seller side, to the extent that there is potentially a recession around the corner, how should we think about the kind of opportunities that might create for you guys from individual site owners wanting to generate liquidity. I mean should we think about that as a potential good thing for you guys? Or do you kind of expect we'll just see lower acquisition volume and that isn't much of an offset?
Well, I'm optimistic that we can maybe remain at sort of the pace we've been. I'm optimistic. I guess the normal theory would be that you would think there'd be more origination volume because people are going to need more money because they're going to get more aware of what's happening in the economic forces in the world because some of them are very educated and thoughtful and some just don't pay any attention.
So all that being said, I think we're hopeful that we'll see both an uptick in volume and perhaps a re-rating a price where yields will go up for us. But I can't promise that. And if it does happen, we don't know whether it's 12 months from now or 18 months from now, or if it ever comes.
And so I think we keep our head down, we want to put our capital to work that is at such a low locked-in cost, which we feel both lucky and I guess, ratified that we knew raising capital, you're supposed to do it when you can, not when you need it, right?
And so that's what we've tried to do. And I just feel optimistic of what our -- what we can do out there. I am hopeful that with volatility, we may notice other areas in the mission-critical space that perhaps we can mine. And so we're always watching for that.
Our next question comes from the line of Simon Flannery with Morgan Stanley.
So just getting to this topic about the activity levels and the acquisition CapEx, I know FX is part of it. But can you just give us a little bit of color about what was going on this quarter with your deal flow? What was it that fewer -- there were fewer opportunities that you surfaced? Was it fewer than cleared your hurdles? And how is that sort of over the last...
It's funny. We've always put this line in that there's just variability quarter-to-quarter. And some of the variability and I'm sure you can appreciate this is just when we can close. We don't try to close desperately to make it for the quarter, which is why we give more of an annual guidance than we do quarterly because we just can't predict timing.
These are -- we like to think of this as the social M&A game. These are human beings on the other side, and deals take a life of their own and sometimes you can close really fast and easy and sometimes for whatever reason, it lags. So I wouldn't read anything into the number at all. To me...
It was pretty much business as usual.
Pretty much business as usual, correct. One quarter we'll have a much bigger quarter, another quarter could be lower, but the end of the year, what did we actually achieve? And then when we look at it, it's what was the IRR? When we're really studying it country by country, even though we try to groom it up for you because it is in same-store sales.
Great. And then I think you talked about examining your cost structure. And I think in the past, you've said a lot of your below going -- or the SG&A, et cetera, is variable, not fixed, but perhaps just give us a little bit more color on what we should expect there?
Yes. I mean, I don't think we can give you any hard expectation. I just think that this environment, just, of course, always says to us and to our entire team worldwide you got to pay attention to what our efficiency is and where can we wring out things we just, a, didn't notice before because we've been running so hard to acquire so much. So I'm not making any promises, but I think it's a place that we can definitely dig in, and I'm hopeful we can wring out something. Now that being said, we're such tax nuts that every time when we think about some of the expenses, we do think that it just adds to our NOL as well. So of course, it's better to reduce them. But if we don't, [indiscernible] sharing some of the burden, so to speak.
Okay. And then just last 1 for me. The -- I think you hinted a couple of times about potentially broadening your asset types. Is there anything significantly new in your approach in the last quarter or ...
I wouldn't say there's anything new. We're still just to remind everybody property triple-net under towers, rooftop easements where we have antennas, indoor DAS rents, so it's like an indoor power we're owning the wall, so to speak, that we get the lease out. We've got data centers where we own the property underneath them. Oftentimes, the actual building and structure and just triple net or double net it out. And then, of course, some of the switching centers, mostly in Europe, same type of thing. And oftentimes, the switching center, actually; a lot of the time, there is a sell side as well.
So that's right now what we've been doing. We do dabble in some tower development when we think we can win a particular build-to-suit contract with a good tenant in a good location. We've got a couple of hundred towers coming out of the ground. It's not really super material, but it has a place, given all the different teams we have out there. I'm hopeful that we can keep growing that business because the returns, as you probably know better than I do, they're really good.
And in some of these places, even because they're such a difficult sites that we're trying to win is actually difficult sites to build, we often get paid for all that extra headache a higher return, and we kind of like just rolling our sleeves up and doing the work.
There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.
Thanks, everybody, for joining us. Of course, we are always available should any of our shareholders or analysts want to reach out to us to talk to us about anything and everything. I wish everybody well. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.