RADIUS GLOBAL INFRASTRUCTURE, INC. AND SUBSIDIARIES
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” and/or the “Company”), formerly known as Landscape Acquisition Holdings Limited (“Landscape”) and Digital Landscape Group, Inc., is a holding company that, as of June 30, 2021, owned approximately 93% of the parent of AP WIP Investments Holdings, LP (“AP Wireless”), which is one of the largest international aggregators of rental streams underlying wireless and other digital 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 or antennae, or other digital 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 digital 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.
The Company was incorporated with limited liability under the laws of the British Virgin Islands under the BVI Business Companies Act, 2004, as amended, on November 1, 2017. The Company was originally formed to undertake an acquisition of a target company or business.
On February 10, 2020 (the “Closing Date”), the Company completed its acquisition by purchasing AP Wireless, a Delaware limited partnership and the direct parent of AP WIP Investments, LLC (“AP WIP Investments”), pursuant to a merger agreement entered into on November 19, 2019. The acquisition, together with the other transactions contemplated by the merger agreement are referred to herein as the “Transaction” and/or “APW Acquisition”. In connection with the closing of the Transaction, Landscape changed its name to Digital Landscape Group, Inc.
Upon completion of the Transaction, on the Closing Date, the Company acquired a controlling interest in APW OpCo LLC (“APW OpCo”), the parent of AP Wireless and the indirect parent of AP WIP Investments. The Transaction was completed through a merger of a newly created subsidiary of Landscape with and into APW OpCo, with APW OpCo surviving such merger as a majority owned subsidiary of Landscape. Following the Transaction, the Company owned 91.8% of APW OpCo. The remaining interest in APW OpCo was owned by certain Radius executive officers and former partners of Associated Partners, L.P. (“Associated Partners”), the selling party in the Transaction. Such partners of Associated Partners were members of APW OpCo immediately prior to the Closing Date and elected to roll over their investment in AP Wireless in connection with the APW Acquisition (collectively, the “Continuing OpCo Members”). As a result, the AP Wireless business was and continues to be 100% owned by the Company and the Continuing OpCo Members.
On October 2, 2020, the Company effected a discontinuance under Section 184 of the BVI Business Companies Act, 2004, as amended, and a domestication under Section 388 of the General Corporation Law of the State of Delaware, pursuant to which the Company’s jurisdiction of incorporation was changed from the British Virgin Islands to the State of Delaware (the “Domestication”). Effective upon the Domestication, the Company was renamed “Radius Global Infrastructure, Inc.”
On October 2, 2020, in connection with the Domestication, the Company delisted its ordinary shares (the “Ordinary Shares”) and warrants (the “Warrants”) from trading on the London Stock Exchange. The Ordinary Shares automatically converted by operation of law into shares (“Class A Shares”) of the Company’s Class A common stock, par value $0.0001 per share (“Class A Common Stock”), and on October 5, 2020, the Class A Common Stock began trading on the Nasdaq Global Market under the symbol “RADI”. Accordingly, for disclosures of historical transactions involving the Company’s common equity pertaining to periods prior to October 2, 2020 (the date of the Domestication), references are made in the notes to the condensed consolidated financial statements to “Ordinary Shares”, the legal form of the Company’s common equity prior to October 2, 2020.
On May 11, 2021, the Company entered into an agreement to issue and sell an aggregate of 14,336,918 Class A Shares to certain institutional investors at a purchase price of $13.95 per Class A Share, for aggregate gross proceeds of $200.0 million. Total net offering proceeds to the Company were approximately $191.5 million after deducting placement agent fees and offering expenses. Additionally, the Company issued 120,670 Class A Shares on June 3, 2021 at a per share price of $15.59 in connection with an acquisition of a company, which had in-place Tenant Leases associated with owned wireless infrastructure assets that, upon their acquisition, were recorded in real property interests, net and intangible assets, net in the condensed consolidated balance sheet.
8
2.
|
Basis of Presentation and Summary of Significant Accounting Policies
|
Basis of Presentation and Principles of Consolidation
Unless the context otherwise requires, the “Company” refers, for periods prior to the completion of the Transaction, to AP WIP Investments and its subsidiaries and, for periods after the completion of the Transaction, to Radius Global Infrastructure, Inc. and its subsidiaries, including AP WIP Investments and its subsidiaries.
As a result of the Transaction, for accounting purposes, the Company was the acquirer and AP WIP Investments was the acquiree and accounting predecessor to Radius, as Landscape had no operations prior to the Transaction. Accordingly, the financial statement presentation includes the condensed consolidated financial statements of AP WIP Investments as “Predecessor” for periods prior to the Closing Date and Radius as “Successor” for periods including and after the Closing Date, including the consolidation of AP WIP Investments and its subsidiaries. As more fully described in Note 3, the Transaction was accounted for as a business combination under the scope of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, (“ASC 805”).
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. For the Successor period from February 10, 2020 to June 30, 2020 and all periods thereafter, Radius consolidated the financial position and results of operations of AP WIP Investments and its subsidiaries. For the Predecessor period, the condensed consolidated financial statements include the accounts of AP WIP Investments and its subsidiaries, as well as a variable interest entity.
The condensed consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“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, 2020 (the “Annual Report”). The results of operations for the three and six months ended June 30, 2021 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.
Cash and Cash Equivalents
Cash includes cash on hand and demand deposits. The Company maintains its deposits at high quality financial institutions and monitors the credit ratings of those institutions. The Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. While cash held by financial institutions may at times exceed federally insured limits, the Company believes that no material credit or market risk exposure exists due to the high quality of the institutions. The Company has not experienced any losses on such accounts.
9
Restricted Cash
The Company is required to maintain cash collateral at certain financial institutions. Additionally, amounts that are required to be held in an escrow account, which, subject to certain conditions, are available to the Company under certain of its loan 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 within the applicable balance sheet that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows is as follows:
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
February 9,
2020
|
|
Cash and cash equivalents
|
|
$
|
281,809
|
|
|
$
|
99,896
|
|
|
|
$
|
33,333
|
|
Restricted cash
|
|
|
1,848
|
|
|
|
1,614
|
|
|
|
|
2,642
|
|
Restricted cash, long term
|
|
|
53,151
|
|
|
|
113,938
|
|
|
|
|
12,384
|
|
Total cash and cash equivalents and restricted cash
|
|
$
|
336,808
|
|
|
$
|
215,448
|
|
|
|
$
|
48,359
|
|
Fair Value Measurements
The Company applies ASC Topic 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, restricted cash, trade receivables, prepaid expenses and other current assets, accounts payable and accrued expenses, and rent received in advance approximate fair value due to their short‑term nature. As of June 30, 2021 and December 31, 2020, the carrying amounts of the Company’s debt and lease and other leasehold interest liabilities approximated their fair value, as these obligations bear interest at rates currently available for debt with similar maturities and collateral requirements.
Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.
Trade Receivables, Net
Trade receivables are recorded at the invoiced amount and are generally unsecured as they are uncollateralized. The Company provides an allowance for doubtful accounts to reduce receivables to their estimated net realizable value. Judgement is exercised in establishing allowances and estimates are based on the tenant’s payment history and liquidity. Any amounts that were previously recognized as revenue and subsequently determined to be uncollectible are charged to bad debt expense included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations. The allowance for doubtful accounts was $810 and $837 at June 30, 2021 and December 31, 2020, respectively.
10
Real Property Interests
The Company’s core business is to contract for the purchase of telecom real property interests and contractual rights, typically as leasehold interests or fee simple interests, either through an up-front payment or on an installment basis from property owners who have leased their property to companies that own digital telecommunications 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 an intangible asset in Telecom real property interests, net in the condensed consolidated balance sheet, if the acquisition meets the definition of an asset acquisition. Telecom real property interests are stated at cost less accumulated amortization, and amortization is computed using the straight-line method over the estimated useful lives of these real property interests, which is estimated as the lesser of the useful life of the underlying digital infrastructure asset or the term of the arrangement.
On January 1, 2019, the Predecessor adopted the guidance in ASC 842 using the modified retrospective method applied to lease arrangements that were in place on the transition date. The Predecessor elected certain available practical expedients, which permit the adopter to not reassess certain items upon adoption, including: (i) whether any existing contracts are or contain leases, (ii) the classification of existing leases, (iii) initial direct costs for existing leases and (iv) short-term leases, which permits an adopter to not apply the lease standard to leases with a remaining maturity of one year or less and applied the new lease accounting standard to all leases, including short-term leases. The Predecessor also elected the practical expedient related to easements, which permits carryforward accounting treatment for land easements (included in Telecom real property interests, net in the condensed consolidated balance sheets) on existing agreements.
Under ASC 842, the Company determines if an arrangement, including leasehold interest arrangements, is a lease at the inception of the agreement. The Company considers an arrangement to be a lease if it conveys the right to control the use of the asset for a specific period of time in exchange for consideration. ASC 842 requires the Company to recognize a right-of-use asset and a lease liability arising from a lease arrangement, which also must be classified as either a financing or an operating lease. This classification determines whether the lease expense associated with future lease payments is recognized based on an effective interest method or on a straight-line basis over the term of the lease.
For each arrangement determined to be a lease, the Company records a lease liability at the present value of the arrangement’s remaining contractually required payments and a right-of-use asset in the same amount plus any upfront payments made under the arrangement and any initial direct costs. Each leasing arrangement is classified as either a finance or operating lease. 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, which is estimated to be twenty-five years, and the finance lease expense resulting from the amortization of the finance lease right-of-use assets is recognized in amortization and depreciation in the condensed consolidated statements of operations. To determine the lease term, the Company considers all renewal periods that are reasonably certain to be exercised, taking into consideration all economic factors, including the wireless or digital infrastructure asset’s estimated economic life.
Operating Leases
Rights and obligations are primarily related to operating leases for office space. At lease commencement, the Company records a liability and a corresponding right-of-use asset for each operating lease, measured at the present value of the unpaid lease payments, plus any initial direct costs incurred and less any lease incentives received. Leases with an initial term of twelve months or less are not recorded in the condensed consolidated balance sheet. The Company records lease expense for operating leases on a straight-line basis over the lease term.
11
Long-Lived Assets, Including Definite-Lived Intangible Assets
The Company’s primary long-lived assets include real property interests and intangible assets. Intangible assets recorded for in-place Tenant Leases are stated at cost less accumulated amortization and are amortized on a straight-line basis over the remaining lease term with the in-place tenant, including lease renewal periods. The carrying amount of any long-lived asset group is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. If the carrying amount of the long-lived asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. 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.
Goodwill
Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost in a transaction accounted for as a business combination in accordance with ASC 805. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value based test. The Company is organized in one reporting unit and evaluates the goodwill for the Company as a whole. Goodwill is assessed for impairment on an annual basis as of November 30th of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired. Under the authoritative guidance issued by the FASB, the Company has the option to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the goodwill impairment test is performed. The goodwill impairment test requires the Company to estimate the fair value of the reporting unit and to compare the fair value of the reporting unit with its carrying amount. If the fair value exceeds the carrying amount, then no impairment is recognized. If the carrying amount recorded exceeds the fair value calculated, then an impairment charge is recognized for the difference. There was no impairment of goodwill for the six months ended June 30, 2021.
Revenue Recognition
The Company receives rental payments from in‑place tenants of wireless communication sites under operating lease agreements. Revenue is recorded as earned over the period in which the lessee is given control over the use of the wireless communication sites and recorded over the term of the lease, not including renewal terms, since the operating lease arrangements generally are cancellable by the tenant.
Rent received in advance is recorded when the Company receives advance rental payments from the in‑place tenants. Contractually owed lease prepayments are typically paid one month to one year in advance. At June 30, 2021 and December 31, 2020, the Company’s rent received in advance was $23,855 and $19,587, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method. 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 tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
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. The need to establish valuation allowances for deferred tax assets is assessed quarterly. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard for all periods, the Company considers all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, and tax planning alternatives. A history of cumulative losses is a significant piece of negative evidence used in the assessment. If a history of cumulative losses is incurred for a tax jurisdiction, forecasts of future profitability are not used as positive evidence related to the realization of the deferred tax assets in the assessment.
12
For periods after the consummation of the Transaction, the Company is subject to U.S. federal and state income taxes. Additionally, AP WIP Investments files income tax returns in the various state and foreign jurisdictions in which it operates. AP WIP Investments’ tax returns are subject to tax examinations by foreign tax authorities until the expiration of the respective statutes of limitation. AP WIP Investments currently has no tax years under examination.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefit obligations and penalties as a component of income tax expense in the accompanying condensed consolidated statements of operations.
Share-based compensation
The Company expenses share-based compensation over the requisite service period of the awards (usually the vesting period) based on the grant date fair value of 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. An offsetting increase to stockholders’ equity is recognized equal to the amount of the compensation expense charge. The Company recognizes forfeitures as they occur as a reduction of share-based compensation expense in the condensed consolidated statement of operations.
Basic and Diluted Earnings (Loss) per Common Share
Basic earnings (loss) per common share excludes dilution and is computed by dividing net income (loss) attributable to common shares by the weighted average number of common shares outstanding during the period. The Company has determined that its Series A Founder Preferred Stock (as defined in Note 11) are participating securities as the Series A Founder Preferred Stock participate in undistributed earnings on an as-if-converted basis. Accordingly, the Company uses the two-class method of computing earnings per share, for common shares and Series A Founder Preferred Stock according to participation rights in undistributed earnings. Under this method, net income applicable to holders of common shares is allocated on a pro rata basis to the holders of common shares and Series A Founder Preferred Stock to the extent that each class may share in the Company’s income for the period; whereas undistributed net loss is allocated only to common shares because Series A Founder Preferred Stock are not contractually obligated to share in the Company’s losses.
Diluted earnings per common share reflects the potential dilution that would occur if securities were exercised or converted into common shares. To calculate the number of shares for diluted earnings per common share, the effect of the participating preferred stock is computed using the as-if-converted method, and effects of the Warrants, stock options, LTIP Units (as defined in Note 12) and restricted shares are computed using the treasury stock method. 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 are the same for periods with a net loss attributable to common shareholders of Radius.
Segment Reporting
The Company operates in one reportable segment which focuses on aggregating rental streams underlying wireless and other digital infrastructure sites through the acquisition of telecom real property interests and contractual rights. The Company’s business offerings have similar economic and other characteristics, including the types of customers, distribution methods and regulatory environment. The chief operating decision maker of the Company reviews investment specific data to make resource allocation decisions and assesses performance by review of profit and loss information on a consolidated basis. The condensed consolidated financial statements reflect the financial results of the Company’s one reportable segment.
13
Foreign Currency
The Company’s reporting currency is the U.S. dollar. Typically, the functional currency of each of the Company’s foreign operating subsidiaries is the respective local currency. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the reporting currency using the exchange rate prevailing at the balance sheet date, while revenue and expenses are translated at the average exchange rates during the period. Foreign exchange gains and losses arising from translation are included in accumulated other comprehensive income (loss) in the condensed consolidated balance sheet.
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for goodwill and allocating taxes to members of a consolidated group. The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted. The Company adopted the new standard on January 1, 2021, and the adoption did not have an impact on its condensed consolidated financial statements.
On February 10, 2020, the Company completed the APW Acquisition, acquiring AP Wireless in a business combination. The acquisition was completed through a merger of a newly created Landscape subsidiary with and into APW OpCo, with APW OpCo surviving the merger as a majority-owned subsidiary of Radius. Following completion of the Transaction on the Closing Date, Radius owned 91.8% of APW OpCo, and the Continuing OpCo Members owned the remaining 8.2%. The APW Acquisition was accounted for as a business combination using the acquisition method with Radius as the accounting acquirer in accordance with ASC 805. The interest in APW OpCo not owned by the Company was recognized as a noncontrolling interest in the condensed consolidated financial statements.
The aggregate acquisition consideration transferred in the APW Acquisition was $390,857, which consisted of cash consideration of $325,424 and equity consideration of $65,433. The cash component of the consideration was funded through the liquidation of cash equivalents owned by Landscape. The equity component of the consideration represented the fair value of the limited liability company units in APW OpCo issued to the Continuing OpCo Members, and includes units designated as “Class B Common Units” (the “Class B Common Units”) pursuant to the Second Amended and Restated Limited Liability Company Agreement of APW OpCo, dated as of July 31, 2020, by and between its Members (as defined therein) and the Company (the “APW OpCo LLC Agreement”), the units designated as “Series A Rollover Profits Units” pursuant to the APW OpCo LLC Agreement (the “Series A Rollover Profits Units”) and the units designated as “Series B Rollover Profits Units” pursuant to the APW OpCo LLC Agreement (the “Series B Rollover Profits Units”) (collectively, the “Consideration Units”). The Company determined that the components of the Consideration Units were not freestanding instruments and the economic characteristics of the embedded features of the Consideration Units were considered clearly and closely related to the equity-like host of the Consideration Units, as the value of the embedded features fluctuate with the price of the underlying equity in the Consideration Units. Accordingly, the Consideration Units represented and were then accounted for as a single, hybrid financial instrument, classified as permanent equity and presented as noncontrolling interests in the condensed consolidated balance sheet of the Company. The estimated fair value of the Consideration Units was calculated using a Monte Carlo simulation model, which used the following weighted-average assumptions: 21.1% expected volatility, a risk-free interest rate of 1.5%, estimated term of 9.2 years and a fair value of the Ordinary Shares of $10.00 per share.
14
The Company recorded an allocation of the acquisition consideration to the acquiree’s identified tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the Closing Date. The excess of the acquisition consideration over the fair value of the assets acquired and liabilities assumed was recorded as goodwill. The following is a summary of the estimated fair values of the assets acquired and liabilities assumed:
Cash and restricted cash
|
|
$
|
48,359
|
|
Trade receivables
|
|
|
8,077
|
|
Prepaid expenses and other assets
|
|
|
34,970
|
|
Real property interests
|
|
|
901,290
|
|
Intangible assets
|
|
|
5,400
|
|
Accounts payable and other liabilities
|
|
|
(22,654
|
)
|
Rent received in advance
|
|
|
(15,837
|
)
|
Real property interest liabilities
|
|
|
(33,398
|
)
|
Deferred income tax liability
|
|
|
(45,100
|
)
|
Long-term debt
|
|
|
(570,759
|
)
|
Net identifiable assets acquired
|
|
|
310,348
|
|
Goodwill
|
|
|
80,509
|
|
Total acquisition consideration
|
|
$
|
390,857
|
|
The Company allocated the purchase price for the transaction based upon the estimated fair value of net assets acquired and liabilities assumed at the date of acquisition. The fair value of the real property interests, which consisted of right-of-use assets under finance leases and telecom real property interests, was estimated under an income approach based upon management’s projections of monthly cash flows for the beneficial rights to the respective real property interests. With consideration given to the specified term of each real property interest arrangement, which ranged from 23 to 99 years as of the Closing Date, the monthly cash flow streams were discounted to present value using an appropriate pre-tax discount rate for the geographic region of each arrangement, with the discount rate for each region determined based on a base pre-tax discount rate for the United States with a premium to account for additional risk associated with the respective region. Discount rates used in the determination of the fair value of real property interests ranged from 8.2% to 18.5%.
The identified intangible assets included the in-place Tenant Leases. The fair value of the in-place lease intangible assets was estimated under a replacement cost method. This approach measures the value of an asset by the cost to reconstruct or replace it with another of like utility. The in-place lease intangible asset represents the avoided cost of originating the acquired lease with the in-place tenant. Based on industry experience, the Company estimated one month as a reasonable amount of time to allot for origination of a Tenant Lease. Accordingly, the fair value of the in-place lease intangible asset approximated the cash flows associated with one-month’s net cash flows for each in-place Tenant Lease.
The purchase price allocation also reflected the recognition of deferred income taxes related to the fair value of assets acquired and liabilities assumed of the AP Wireless foreign subsidiaries over their respective historical tax bases as of the Closing Date.
The following unaudited pro forma combined financial information presents the Company’s results as though the Transaction had occurred at January 1, 2019. The unaudited pro forma consolidated financial information has been prepared using the acquisition method of accounting in accordance with GAAP (unaudited):
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Revenue
|
|
$
|
16,181
|
|
|
$
|
31,772
|
|
Net loss
|
|
$
|
(27,751
|
)
|
|
$
|
(34,947
|
)
|
15
4.
|
Real Property Interests
|
Real property interests, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Right-of-use assets – finance leases (1)
|
|
$
|
289,410
|
|
|
$
|
244,885
|
|
Telecom real property interests (2)
|
|
|
1,065,623
|
|
|
|
886,679
|
|
|
|
|
1,355,033
|
|
|
|
1,131,564
|
|
Less accumulated amortization:
|
|
|
|
|
|
|
|
|
Right-of-use assets - finance leases
|
|
|
(12,033
|
)
|
|
|
(7,023
|
)
|
Telecom real property interests
|
|
|
(61,335
|
)
|
|
|
(35,150
|
)
|
Real property interests, net
|
|
$
|
1,281,665
|
|
|
$
|
1,089,391
|
|
|
(1)
|
Effective with the adoption of ASC 842, telecom real property interests qualifying as leases are recorded as finance leases.
|
|
(2)
|
Includes telecom real property interests acquired prior to the adoption of ASC 842 and fee simple interest arrangements.
|
The Company’s real property interests primarily consist of leasehold interests, acquired either through an up‑front 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 the leasehold interests typically are easement agreements, which have stated terms up to 99 years and provide the Company with certain beneficial rights, but not obligations, with respect to the underlying Tenant Leases. The beneficial rights acquired include, principally, 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 lease with the in‑place tenant, which provides the Company with the right and opportunity for renewals and extensions. Although the Company has the rights under the acquired leasehold interests over the duration of the entire term, typically, the underlying tenant can terminate their lease acquired by the Company within a short time frame (30‑ to 180‑day notice) without penalty. Under certain circumstances, the Company acquires the fee simple interest ownership, rather than acquiring a leasehold interest. In the instance in which a fee simple interest in the land is acquired, the Company is also assigned the existing lease with the in-place tenant.
16
Right-Of-Use Assets – Finance Leases and Related Liabilities
Commencing with the adoption of ASC 842 on January 1, 2019, the Company determines if a real property interest arrangement is a lease at the inception of the agreement. The Company considers an arrangement to be a lease if it conveys the right to control the use of the wireless or other digital infrastructure site for a period of time in exchange for consideration. In cases in which the Company acquires a leasehold interest, the Company is both a lessor and a lessee. The weighted-average remaining lease term for finance leases was 39.6 years and 38.2 years as of June 30, 2021 and December 31, 2020, respectively. The Company recorded finance lease expense and interest expense associated with the lease liability in the condensed consolidated statements of operations as follows:
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three months
ended
June 30,
2021
|
|
|
Six months
ended
June 30,
2021
|
|
|
Three months
ended
June 30,
2020
|
|
|
Period from
February 10,
2020 to
June 30,
2020
|
|
|
|
Period from
January 1,
2020 to
February 9,
2020
|
|
Finance lease expense
|
|
$
|
2,852
|
|
|
$
|
5,243
|
|
|
$
|
1,649
|
|
|
$
|
2,424
|
|
|
|
$
|
425
|
|
Interest expense – lease liability
|
|
$
|
240
|
|
|
$
|
425
|
|
|
$
|
152
|
|
|
$
|
278
|
|
|
|
$
|
95
|
|
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 was 3.9% and 2.8% as of June 30, 2021 and December 31, 2020, respectively.
Supplemental cash flow information related to finance leases for the respective periods was as follows:
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Six months
ended
June 30,
2021
|
|
|
Period from
February 10,
2020 to
June 30,
2020
|
|
|
|
Period from
January 1,
2020 to
February 9,
2020
|
|
Cash paid for amounts included in the measurement of finance lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from finance leases
|
|
$
|
149
|
|
|
$
|
82
|
|
|
|
$
|
37
|
|
Financing cash flows from finance leases
|
|
$
|
4,769
|
|
|
$
|
3,588
|
|
|
|
$
|
845
|
|
Finance lease liabilities arising from obtaining right-of-use assets
|
|
$
|
6,770
|
|
|
$
|
7,838
|
|
|
|
$
|
1,346
|
|
Telecom Real Property Interests and Related Liabilities
For real property interests that are not accounted for under ASC 842, the Company applies the acquisition method of accounting, recording an intangible asset in telecom real property interests, net in the condensed consolidated balance sheet. The recorded amount of the real property interest represents the allocation of purchase price to the contractual cash flows acquired from the in-place tenant, as well as the right and opportunity for renewals.
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, generally ranging from two to seven years. The Company is contractually obligated to fulfill such payments. 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.
17
For telecom real property interests, amortization expense was $12,216 and $23,415 for the three and six months ended June 30, 2021, respectively, $9,636 for the three months ended June 30, 2020, $15,756 for the period from February 10 to June 30, 2020 (Successor), and $2,031 for the period from January 1 to February 9, 2020 (Predecessor). As of June 30, 2021, amortization expense to be recognized for each of the succeeding five years was as follows:
Remainder of 2021
|
|
$
|
25,635
|
|
2022
|
|
|
51,091
|
|
2023
|
|
|
51,021
|
|
2024
|
|
|
51,021
|
|
2025
|
|
|
51,001
|
|
Thereafter
|
|
|
774,519
|
|
|
|
$
|
1,004,288
|
|
Maturities of finance lease liabilities and telecom real property interest liabilities as of June 30, 2021 were as follows:
|
|
Finance
Lease
|
|
|
Telecom Real Property
Interest
|
|
Remainder of 2021
|
|
$
|
6,188
|
|
|
$
|
3,185
|
|
2022
|
|
|
8,979
|
|
|
|
3,208
|
|
2023
|
|
|
9,488
|
|
|
|
8,306
|
|
2024
|
|
|
4,963
|
|
|
|
3,767
|
|
2025
|
|
|
3,152
|
|
|
|
301
|
|
Thereafter
|
|
|
4,678
|
|
|
|
595
|
|
Total lease payments
|
|
|
37,448
|
|
|
|
19,362
|
|
Less amounts representing future interest
|
|
|
(2,292
|
)
|
|
|
(818
|
)
|
Total liability
|
|
|
35,156
|
|
|
|
18,544
|
|
Less current portion
|
|
|
(10,661
|
)
|
|
|
(4,902
|
)
|
Non-current liability
|
|
$
|
24,495
|
|
|
$
|
13,642
|
|
As of June 30, 2021 and December 31, 2020, the weighted average remaining contractual payment term for finance leases was 3.5 years.
5.
|
Tenant Lease Rental Payments
|
The Company receives rental payments from in‑place tenants of wireless communication sites under operating lease agreements. Generally, the Company’s leases with the in‑place tenants provide for annual escalations and multiple renewal periods at the in‑place tenant’s option. As of June 30, 2021, the future minimum amounts due from tenants under leases, including cancellable leases in which the tenant is economically compelled to extend the lease term, were as follows:
Remainder of 2021
|
|
$
|
48,637
|
|
2022
|
|
|
93,890
|
|
2023
|
|
|
83,404
|
|
2024
|
|
|
80,076
|
|
2025
|
|
|
75,975
|
|
18
6.
|
Goodwill and Intangible Assets
|
Goodwill at June 30, 2021 was based on the purchase price allocation pursuant to the Transaction, which was based on a valuation performed to determine the fair value of the acquired assets as of the acquisition date. Goodwill recorded in APW Acquisition was $80,509 and no changes in the carrying amount of goodwill were recognized in the three and six months ended June 30, 2021.
Intangible assets subject to amortization consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
In-place lease intangible asset
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
8,799
|
|
|
$
|
7,092
|
|
Less accumulated amortization:
|
|
|
(1,825
|
)
|
|
|
(1,212
|
)
|
Intangible assets, net
|
|
$
|
6,974
|
|
|
$
|
5,880
|
|
Amortization expense was $306 and $615 for the three and six months ended June 30, 2021, respectively, $317 for the three months ended June 30, 2020, $475 for the period from February 10 to June 30, 2020 (Successor), and $77 for the period from January 1 to February 9, 2020 (Predecessor).
As of June 30, 2021, the intangible asset amortization expense to be recognized for each of the succeeding five years was as follows:
Remainder of 2021
|
|
$
|
648
|
|
2022
|
|
|
1,030
|
|
2023
|
|
|
879
|
|
2024
|
|
|
746
|
|
2025
|
|
|
628
|
|
Thereafter
|
|
|
3,043
|
|
|
|
$
|
6,974
|
|
The Company is a lessee under noncancelable lease agreements, primarily for office space, over periods ranging from one to ten years. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties and equipment. Amounts included in other long-term assets in the condensed consolidated balance sheets representing operating lease right-of-use assets as of June 30, 2021 and December 31, 2020 totaled $3,794 and $4,183, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $820 for the six months ended June 30, 2021, $476 for the period from February 10 to June 30, 2020 (Successor), and $136 for the period from January 1 to February 9, 2020 (Predecessor).
Included in selling, general and administrative expenses in the condensed consolidated statements of operations were operating lease expenses associated with right-of-use assets under operating leases of $402 and $762 for the three and six months ended June 30, 2021, respectively, $348 for the three months ended June 30, 2020, $533 for the period from February 10 to June 30, 2020 (Successor), and $107 for the period from January 1 to February 9, 2020 (Predecessor).
19
The current and noncurrent portions of operating lease liabilities are included in accounts and accrued liabilities and other long-term liabilities, respectively, in the condensed consolidated balance sheets. Maturities of operating lease liabilities as of June 30, 2021 were as follows:
|
|
Operating
Leases
|
|
Remainder of 2021
|
|
$
|
809
|
|
2022
|
|
|
1,086
|
|
2023
|
|
|
853
|
|
2024
|
|
|
824
|
|
2025
|
|
|
598
|
|
Thereafter
|
|
|
93
|
|
Total lease payments
|
|
|
4,263
|
|
Less amounts representing future interest
|
|
|
(418
|
)
|
Total liability
|
|
|
3,845
|
|
Less current portion
|
|
|
(1,265
|
)
|
Non-current liability
|
|
$
|
2,580
|
|
The weighted-average remaining lease term for operating leases was 3.8 years and 4.0 years and the weighted-average incremental borrowing rate was 5.5% and 5.4% as of June 30, 2021 and December 31, 2020, respectively.
8.
|
Accounts Payable and Accrued Expenses
|
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Interest payable
|
|
$
|
7,677
|
|
|
$
|
4,887
|
|
Accrued liabilities
|
|
|
3,459
|
|
|
|
4,799
|
|
Taxes payable
|
|
|
9,161
|
|
|
|
7,799
|
|
Payroll and related withholdings
|
|
|
6,052
|
|
|
|
7,043
|
|
Accounts payable
|
|
|
1,828
|
|
|
|
718
|
|
Professional fees accrued
|
|
|
2,668
|
|
|
|
3,234
|
|
Current portion of operating lease liabilities
|
|
|
1,265
|
|
|
|
1,354
|
|
Other
|
|
|
1,052
|
|
|
|
1,020
|
|
Total accounts payable and accrued expenses
|
|
$
|
33,162
|
|
|
$
|
30,854
|
|
Long-term debt, net of unamortized debt discount and deferred financing costs, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
DWIP Loan Agreement
|
|
$
|
102,600
|
|
|
$
|
102,600
|
|
Facility Agreement
|
|
|
541,810
|
|
|
|
547,677
|
|
DWIP II Loan Agreement
|
|
|
75,000
|
|
|
|
—
|
|
Subscription Agreement
|
|
|
174,517
|
|
|
|
85,112
|
|
Other debt
|
|
|
2,798
|
|
|
|
2,960
|
|
Less: unamortized debt discount and financing fees
|
|
|
(13,215
|
)
|
|
|
(9,876
|
)
|
Debt, carrying amount
|
|
$
|
883,510
|
|
|
$
|
728,473
|
|
20
DWIP Loan Agreement
A subsidiary of the Company, AP WIP Holdings, LLC (“DWIP”), is the sole borrower under a loan agreement (the “DWIP Loan Agreement”) that provided funding for the Company’s U.S. operations in U.S. Dollars. The outstanding principal balance matures on October 16, 2023, though a portion or all of the principal balance can be repaid in an amount that also would include a prepayment premium of up to 2%. Borrowing under the DWIP Loan Agreement bear interest at a fixed rate of 4.25%. Under the DWIP Loan 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)
In October 2017, a subsidiary of the Company, AP WIP International Holdings, LLC (“IWIP”), entered into a facility agreement (the “Facility Agreement”) for up to £1,000,000 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 terms of the Facility Agreement, IWIP is the sole borrower. AP WIP Investments, which controls IWIP, is a guarantor of the loan and the loan is secured by the direct equity interests in IWIP. The loan is also secured by a debt service reserve account and escrow cash account of IWIP, which are included in restricted cash in the condensed consolidated balance sheets. The loan is senior in right of payment to all other debt of IWIP.
Through June 30, 2021, cumulative IWIP borrowings under the Facility Agreement consisted of €230,000 and £195,000, including borrowings of €75,000 and £55,000 made in August 2020 ($160,475 equivalent) that accrue interest at annual rates ranging from 2.97% to 3.74% and mature in August 2030. All other borrowings under the Facility Agreement were made in 2017 and 2018, accrue interest at annual rates ranging from 3.44% to 4.61% and mature in October 2027. 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
In 2015, AP WIP Domestic Investment II, LLC (“DWIP II”), a wholly owned subsidiary of AP WIP Investments, entered into a loan agreement, which was later amended and restated (the “A&R Mezzanine Loan Agreement”). In April 2020, APW OpCo acquired all of the rights to the loans and obligations under the A&R Mezzanine Loan Agreement from the lenders thereunder for $47,775, thereby settling this obligation and resulting in the recognition of a gain on the extinguishment of this obligation of $1,264 in the condensed consolidated statements of operations for the three months ended June 30, 2020.
On April 15, 2021, APW OpCo and DWIP II amended and restated the A&R Mezzanine Loan Agreement (the “DWIP II Loan Agreement”) to increase the borrowings thereunder to $75,000 and to modify the interest rate and the maturity date. Contemporaneously with entering into the DWIP II Loan Agreement and additional borrowing, APW OpCo transferred all of the rights to the loans and obligations under the DWIP II Loan Agreement to unrelated third-party lenders for an aggregate consideration of $75,000. Borrowings under the DWIP II Loan Agreement bear interest at 6% and shall be repaid in April 2023.
Subscription Agreement (up to £250,000)
In November 2019, AP WIP Investments Borrower, LLC, a subsidiary of AP WIP Investments (“AP WIP Investments Borrower”), entered into a subscription agreement (the “Subscription Agreement”) to borrow funds for working capital and other corporate purposes. AP WIP Investments is the guarantor of the loan, which is secured by AP Wireless’s direct equity interests in AP WIP Investments. The loan is senior in right of payment to all other debt of AP WIP Investments Borrower. The Subscription Agreement provides for funding up to £250,000 in the form of nine-year term 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 June 30, 2021, cumulative borrowings under the Subscription Agreement consisted of €145,000, including borrowings of €77,000 made in February 2021 ($94,000 equivalent) of interest-only notes that have a blended cash pay interest rate of 3.9% plus 1.75% payment-in-kind interest and mature in November 2028. All other borrowings under the Subscription Agreement were made in 2019, bear interest at 4.25% plus 2.0% payment-in-kind interest and mature
21
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.
Commitment Letter
On May 4, 2021, the Company entered into a commitment letter (the “Commitment Letter”) with Centerbridge Partners Real Estate Fund, LP., Centerbridge Partners Real Estate Fund SBS, LP. and Centerbridge Special Credit (collectively, the “Centerbridge Entities”) pursuant to which the Centerbridge Entities agreed, subject to the negotiation and execution of definitive documentation and the terms of the Commitment Letter, to purchase from the Company up to $50,000 of senior unsecured convertible notes. As consideration for the commitment and the Centerbridge Entities’ services in structuring the convertible notes, the Company agreed to pay the Centerbridge Entities a non-refundable fee of $1,500 payable upon the terms set forth in the Commitment Letter. The Commitment Letter did not obligate the Company to issue any convertible notes and automatically terminated on August 2, 2021, the end of the commitment period, with no convertible notes issued thereunder. For the three months ended June 30, 2021, the Company amortized the proportionate amount of the commitment fee in interest expense, net in the condensed consolidated statements of operations, totaling $950.
Debt Discount and Financing Costs
In connection with the borrowings made under the Subscription Agreement in February 2021 and the DWIP II Loan Agreement in April 2021, deferred financing fees were incurred, totaling $1,780 and $2,072, respectively. Amortization of debt discount and deferred financing costs, included in interest expense, net in the condensed consolidated statements of operations, was $379 and $514 for the three and six months ended June 30, 2021, respectively, $18 for the three months ended June 30, 2020, $28 for the period from February 10 to June 30, 2020 (Successor), and $281 for the period from January 1 to February 9, 2020 (Predecessor).
Income tax expense was $6,144 and $5,422 for the three and six months ended June 30, 2021, respectively, $442 for the three months ended June 20, 2020, $1,429 for the period from February 10 to June 30, 2020 (Successor), and $767 for the period from January 1 to February 9, 2020 (Predecessor). For the six months ended June 30, 2021, the effective tax rate was (13.5)%, compared to (1.4)% for the period February 10 through June 30, 2020 (Successor) and 11.0% for the period January 1 through February 9, 2020 (Predecessor). The Company’s recorded income tax expense in relation to its pre-tax income or loss was lower than an amount that would result from applying the applicable statutory tax rates to such income or loss in each period, primarily due to limitations on the recognition of tax benefits as a result of full valuation allowances maintained in several taxing jurisdictions.
As of December 31, 2020, the Company had federal net operating loss carryforwards of $43,365, which can be carried forward indefinitely, and foreign tax loss carryforwards of $58,170, of which $31,754 can be carried forward indefinitely, $333 will expire in 2021 and the remainder is scheduled to expire between 2022 and 2040.
Founder Preferred Stock
The “Founder Preferred Stock” consists of Series A Founder Preferred Stock and Series B Founder Preferred Stock.
Series A Founder Preferred Stock
In connection with Landscape raising approximately $500.0 million before expenses through its initial placement of Ordinary Shares and Warrants in November 2017, the Company issued a total of 1,600,000 shares of Series A Founder Preferred Stock, no par value, to certain founders of Landscape, which were converted into 1,600,000 shares of Series A Founder Preferred Stock, par value $0.0001 per share (“Series A Founder Preferred Stock”) in connection with the Domestication. Each holder of Series A Founder Preferred Stock is entitled to a number of votes equal to the number of Class A Shares 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. There is no restriction on the repurchase or redemption by the Company of the Series A Founder Preferred Stock. In the event of any liquidation, dissolution or winding up (either
22
voluntary or involuntary) of the Company, the holders of the Series A Founder Preferred Stock shall have the right to a pro rata share (together with holders of Class A Common Stock) in the distribution of the surplus assets of the Company.
In addition to providing long-term capital, the Series A Founder Preferred Stock was issued to have the effect of incentivizing the holders to achieve the Company’s objectives. As described below, they are structured to provide a return based on the future appreciation of the market value of the Class A Shares.
Upon the closing of the Transaction and if the average price per Class A Share for any ten consecutive trading days is at least $11.50, a holder of Series A Founder Preferred Stock will be entitled to receive, when, as and if declared by the Company’s Board of Directors (the “Board”), and payable in preference and priority to the declaration or payment of any dividends on the Class A Shares or any other junior stock, a cumulative annual dividend. Such dividend will be payable in Class A Shares or cash, in the sole discretion of the Board. In the first year in which such dividend becomes payable, such dividend will be equal in value to (i) 20% of the increase in the market value of one Class A Share, being the difference between $10.00 per share and the average price per share, multiplied by (ii) such number of outstanding Class A Shares immediately following the Transaction, which totaled 58,425,000 shares (“Preferred Share Dividend Equivalent”). Thereafter, the dividend will become payable only if the average price during any subsequent year is greater than the highest average price in any preceding year in which a dividend was paid in respect of the Series A Founder Preferred Stock. Such dividend will be equal in value to 20% of the increase in the average price over the highest average price in any preceding year multiplied by the Preferred Share Dividend Equivalent. In addition, the Series A Founder Preferred Stock will also participate in any dividends on the Class A Shares on an as-converted to Class A Shares basis. In addition, commencing on and after the closing of the Transaction, where the Company pays a dividend on its Class A Shares, the Series A Founder Preferred Stock will also receive an amount equal to 20% of the dividend which would be distributable on such number of Class A Shares equal to the Preferred Share Dividend Equivalent. All such dividends on the Series A Founder Preferred Stock will be paid contemporaneously with the dividends on the Class A Shares.
On the last day of the seventh full financial year of the Company after the closing of the Transaction, the Series A Founder Preferred Stock will automatically convert into Class A Shares on a one-for-one basis. Prior to the automatic conversion, a holder of Series A Founder Preferred Stock may require some or all of such holder’s Series A Founder Preferred Stock to be converted into an equal number of Class A Shares, as adjusted. Also, in connection with the Transaction, the holders of Series A Founder Preferred Stock entered into the Shareholder Agreement (as defined below), pursuant to which they agreed, among other things, not to make or solicit any transfer of their Series A Founder Preferred Stock prior to December 31, 2027, subject to certain exceptions.
In accordance with ASC 718, the annual dividend amount, based on the market price of the Ordinary Shares, resulted in the dividend feature to be deemed compensatory to the Landscape founders receiving the shares and classified as a market condition award settled in shares. As the right to the annual dividend amount was triggered only upon an acquisition event, which was not considered probable until an acquisition had been consummated, the fair value of the annual dividend amount measured on the date of issuance of the Founder Preferred Stock was then recognized upon the consummation of the Transaction. The fair value of the Series A Founder Preferred Stock, $85.5 million, was measured as of its issuance date using a Monte Carlo method which took into consideration different stock price paths. Of the $85.5 million fair value of the Series A Founder Preferred Stock, approximately $69.5 million was attributed to the fair value of the annual dividend amount, which represented the excess of the fair value of the Series A Founder Preferred Stock over the price paid by the founders for these shares and was recorded as share-based compensation expense in the accompanying condensed consolidated statement of operations in the Successor period.
23
The following assumptions were used when calculating the issuance date fair value:
Number of securities issued
|
|
|
1,600,000
|
|
Ordinary Share price upon initial public offering
|
|
$
|
10.00
|
|
Founder Preferred Share price
|
|
$
|
10.00
|
|
Probability of winding-up
|
|
|
16.7
|
%
|
Probability of an acquisition
|
|
|
83.3
|
%
|
Time to an acquisition
|
|
1.5 years
|
|
Volatility (post-acquisition)
|
|
|
38.68
|
%
|
Risk free interest rate
|
|
|
2.26
|
%
|
Stock Dividend on Series A Founder Preferred Stock
On February 1, 2021, the Board declared a stock dividend payment of 2,474,421 Class A Shares that was paid on February 4, 2021 to the sole holder of record of all the issued and outstanding shares of Series A Founder Preferred Stock as of the close of business on February 1, 2021. Pursuant to the terms of the Series A Founder Preferred Stock, the holders became entitled to receive an annual dividend upon the Board’s declaration of such dividend and after the volume weighted average price of the Class A Common Stock was at or above $11.50 for ten consecutive trading days in 2020. The annual dividend amount, which totaled $31,391, was computed based on 20% of the increase in the market value of one Class A Share, being the difference between the average of the volume weighted average Class A Share prices of the last ten trading days of 2020 of approximately $12.69 and $10.00 per share, multiplied by the number of Class A Shares outstanding immediately following the Transaction.
Series B Founder Preferred Stock
In connection with the Transaction, the Company issued a total of 1,386,033 Series B Founder Preferred Stock, par value $0.0001 per share (“Series B Founder Preferred Stock”), to certain executive officers and were issued in tandem with LTIP Units (as defined in Note 12). Each holder of Series B Founder Preferred Stock is entitled to a number of votes equal to the number of Class A Shares and shares (“Class B Shares”) of the Company’s Class B common stock, par value $0.0001 per share (“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.
The Series B Founder Preferred Stock does not confer upon the holder thereof any right to dividends or distributions at any time, including upon the Company’s liquidation.
On the last day of the seventh full financial year of the Company after the Closing Date, i.e., December 31, 2027 (or if any such date is not a trading day, the first trading day immediately following such date), the Series B Founder Preferred Stock will automatically convert into Class B Shares on a one-for-one basis, as adjusted. A holder of Series B Founder Preferred Stock may require some or all of his Series B Founder Preferred Stock to be converted into an equal number of Class B Shares, as adjusted.
Founder Preferred Stock – Voting
For so long as TOMS Acquisition II LLC and Imperial Landscape Sponsor LLC and William Berkman, their affiliates and their permitted transferees under a shareholder agreement entered into in connection with the Transaction (the “Shareholder Agreement”) in aggregate hold 20% or more of the issued and outstanding Series A Founder Preferred Stock and Series B Founder Preferred Stock, the holders of a majority in voting power of the outstanding Founder Preferred Stock, voting or consenting together as a single class, will be entitled, at any meeting of the holders of the outstanding Founder Preferred Stock held for the election of directors or by consent in lieu of a meeting of the holders of the outstanding Founder Preferred Stock, to:
|
•
|
elect four members of the Board of Directors (the “Founder Directors”);
|
|
•
|
remove from office, with or without cause, any Founder Director; and
|
|
•
|
fill any vacancy caused by the death, resignation, disqualification, removal or other cause of any Founder Director.
|
24
Pursuant to the Shareholder Agreement, two of the Founder Directors will be appointed by holders of the Series A Founder Preferred Stock and two of the Founder Directors will be appointed by holders of the Series B Founder Preferred Stock. Additionally, the holders of the Series B Founder Preferred Stock have the right to appoint the majority of the members of the nominating and governance committee of the Board.
Class A Common Stock
Each holder of Class A Common Stock is entitled to one vote per share on all matters before the holders of Class A Shares. Holders of Class A Shares are entitled to ratably receive dividends and other distributions in cash, stock or property of the Company when, as and if declared thereon by the Board from time to time out of assets or funds of the Company legally available. In the event of any liquidation, dissolution or winding up (either voluntary or involuntary) of the Company, the holders of Class A Shares will be entitled to receive the assets and funds of the Company available for distribution to stockholders of the Company, subject to applicable law and the rights, if any, of the holders of any outstanding series of preferred stock.
Class B Common Stock
The Class B Shares were issued to (i) the Continuing OpCo Members on the Closing Date pursuant to the Transaction and (ii) certain officers of the Company pursuant to the Company’s Long-Term Incentive Plan. Each holder is entitled to one vote per share together as a single class with Class A Common Stock. Class B Shares are deemed to be non-economic interests. The holders of Class B Common Stock will not be entitled to receive any dividends (including cash, stock or property) in respect of their Class B Shares. In the event of any liquidation, dissolution or winding up (either voluntary or involuntary) of the Company, the holders of Class B Common Stock will not be entitled to receive any assets or funds of the Company available for distribution to stockholders of the Company, subject to applicable law and the rights, if any, of the holders of any outstanding series of Founder Preferred Stock (or other series or class of Preferred Stock of the Company that may be outstanding at such time). Class B Shares are not convertible or exchangeable for any other class of series of shares of the Company.
Concurrently with the Company’s declaration and payment of the stock dividend to the sole holder of record of all the issued and outstanding shares of Series A Founder Preferred Stock in February 2021, a rollover distribution of 197,739 Class B Common Units (described below), which are held in tandem with Class B Shares, was made to the holders of the Series A Rollover Profits Units (described below). Accordingly, the stock dividend resulted in the issuance of 197,739 shares of Class B Common Stock to these holders concurrently with the stock dividend on Series A Founder Preferred Stock.
Warrants
In connection with Landscape’s initial placement of Ordinary Shares, the Company issued 50,025,000 Warrants to the purchasers of both Ordinary Shares and Founder Preferred Stock (including the 25,000 Warrants that were issued to non-founder directors of Landscape for their fees). Each Warrant has a term of 3 years following the Transaction and now entitles a holder of a Warrant to purchase for cash one-third of a Class A Share upon exercise. Warrants are exercisable in multiples of three for one Class A Share at a price of $11.50 per whole Class A Share. The Warrants are mandatorily redeemable by the Company at a price of $0.01 should the average market price of a Class A Share exceed $18.00 for 10 consecutive trading days (subject to any prior adjustment in accordance with the terms of the Warrant). The Company considers the mandatory redemption provision of the Warrant to be a cancellation of the instrument given the nominal value to be paid out upon redemption. As of June 30, 2021, the total number of Warrants outstanding was 50,022,202 in respect of 16,674,068 Class A Shares.
Noncontrolling Interest
Noncontrolling interests consist of limited liability company units of APW OpCo not owned by Radius and includes the following units issued by APW OpCo and further described below: Class B Common Units, Series A Rollover Profits Units and Series B Rollover Profits Units. As of June 30, 2021, the portion of APW OpCo not owned by Radius was approximately 6.7%, representing the noncontrolling interest.
25
Class B Common Units
The Class B Common Units are held in tandem with Class B Shares. A member of APW OpCo may redeem the Class B Common Units for cash or Class A Shares, at the option of the Company, subject to certain terms and conditions, including the surrender (for no consideration) by the redeeming holder of the Class B Shares held in tandem with the Class B Common Units being redeemed.
Series A Rollover Profits Units
The Series A Rollover Profits Units serve to provide anti-dilution protection to Class B Common Units from dividends issued to holders of Series A Founder Preferred Stock. Concurrently with any dividend to holders of Series A Founder Preferred Stock, APW OpCo is required to distribute to holders of Series A Rollover Profits Units corresponding distributions, which shall be made in either cash or Class B Common Units to the same extent as the distribution was made to the holders of the Series A Founder Preferred Stock. The Series A Rollover Profits Units are forfeited, subject to certain exceptions and limitations, upon the earlier of (i) the date of the conversion of all of the Series A Founder Preferred Stock into Class A Shares, and (ii) the date on which there are no Series A Founder Preferred Stock outstanding. The Company’s payment of the stock dividend on the Series A Founder Preferred Stock in February 2021 resulted in a rollover distribution of 197,739 Class B Common Units to the holders of the Series A Rollover Profits Units.
Series B Rollover Profits Units
Series B Rollover Profits Units became equitized when such holders’ capital accounts maintained for federal income tax purposes exceeded a predetermined threshold. Once equitized, a Series B Rollover Profits Unit is treated for all purposes as one Class B Common Unit, subject to meeting vesting conditions.
12.
|
Share-Based Compensation
|
The Company’s 2020 Equity Incentive Plan (the “Equity Plan”) is administered by the Compensation Committee of the Board (the “Compensation Committee”). Awards granted under the Equity Plan as noted herein are subject to ASC 718. Under the Equity Plan, the Compensation Committee is authorized to grant stock options, stock appreciation rights, restricted stock, stock units, other equity-based awards and cash incentive awards. Awards may be subject to a combination of time and performance-based vesting conditions, as may be determined by the Compensation Committee. Except for certain limited situations, all awards granted under the Equity Plan are subject to a minimum vesting period of one year.
Subject to adjustment, the maximum number of shares of Company stock (either Class A Common Stock, Class B Common Stock, or Series B Founder Preferred Stock) that may be issued or paid under or with respect to all awards granted under the Equity Plan is 13,500,000, in the aggregate. Generally, awards will deliver Class A Shares, Class B Shares or Series B Founder Preferred Stock. Each Class B Share available under the Equity Plan may be granted only in tandem with units designated as “Series A LTIP Units” pursuant to the APW OpCo LLC Agreement or upon conversion of the Series B Founder Preferred Stock, and each share of Series B Founder Preferred Stock available under the Equity Plan may be granted only in tandem with units designated as “Series B LTIP Units” pursuant to the APW OpCo LLC Agreement. As of June 30, 2021, there were approximately 3,119,646 share-based awards collectively available for grant under the Equity Plan.
The Equity Plan will remain in effect until February 10, 2030, unless terminated earlier by the Board, and is subject to amendments as the Compensation Committee considers appropriate, subject to the consent of participants if such changes adversely affect the participant’s outstanding rights. Shareholder approval is required to increase the permitted dilution limits and change eligibility requirements.
Long-Term Incentive Plan
On February 10, 2020, the Company granted each executive officer of the Company an initial award (each, an “Initial Award”) of Series A LTIP Units and/or Series B LTIP Units (the “LTIP Units”) and, in tandem with LTIP Units, an equal number of Class B Shares and/or shares of Series B Founder Preferred Stock (collectively, the “Tandem Shares”), subject to the terms and conditions of the Equity Plan.
26
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) 1,386,033 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. The Tandem Shares are subject to the same vesting and forfeiture condition as the related LTIP Units.
A summary of the changes in the LTIP Units for the three months ended June 30, 2021 is presented below:
|
|
Series A LTIP Units
|
|
|
Series B LTIP Units
|
|
Outstanding at December 31, 2020
|
|
|
5,400,000
|
|
|
|
1,386,033
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Outstanding at June 30, 2021
|
|
|
5,400,000
|
|
|
|
1,386,033
|
|
Exercisable at June 30, 2021
|
|
|
855,504
|
|
|
|
372,358
|
|
The fair value of each LTIP Unit was measured as of its grant date using a Monte Carlo method which took into consideration different stock price paths. The weighted-average grant date fair values for each LTIP unit and the assumptions used in the determinations thereof were as follows:
|
|
Series A
LTIP
Units
|
|
|
Series B
LTIP
Units
|
|
Weighted-average grant date fair value
|
|
$
|
8.32
|
|
|
$
|
6.17
|
|
Expected term
|
|
7.9 years
|
|
|
9.9 years
|
|
Expected volatility
|
|
|
18.4
|
%
|
|
|
19.7
|
%
|
Risk-free interest rate
|
|
|
1.5
|
%
|
|
|
1.6
|
%
|
For the three and six months ended June 30, 2021, for the three months ended June 30, 2020, and for the period from February 10 to June 30, 2020 (Successor), the Company recognized share-based compensation expense of $3,313, $6,626, $3,313 and $4,777, respectively, for LTIP Units. As of June 30, 2021, there was $35,460 of total unrecognized compensation cost related to the LTIP Units granted, which is expected to be recognized over a weighted-average period of 3.1 years.
Restricted Stock
The Equity Plan permits the Compensation Committee to grant restricted stock awards to eligible recipients as detailed in the Equity Plan. Restricted stock awards are subject to the conditions in the Equity Plan as well as an individual award agreement further detailing the conditions of each award.
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 Class A Share at no cost to the recipient, subject to the terms and conditions of the Equity Plan and associated award agreement. Generally, 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.
27
A summary of the changes in the Company’s nonvested restricted stock awards for the six months ended June 30, 2021 is presented below:
|
|
Shares
|
|
|
Weighted-
Average
Grant-
Date Fair
Value
|
|
Nonvested at December 31, 2020
|
|
|
261,429
|
|
|
$
|
8.92
|
|
Granted
|
|
|
48,492
|
|
|
$
|
13.92
|
|
Vested
|
|
|
(214,629
|
)
|
|
$
|
(9.16
|
)
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Nonvested at June 30, 2021
|
|
|
95,292
|
|
|
$
|
10.93
|
|
For the three and six months ended June 30, 2021, for the three months ended June 30, 2020, and for the period from February 10 to June 30, 2020 (Successor), the Company recognized share-based compensation expense of $196, $692, $356 and $405, respectively, for restricted stock awards. As of June 30, 2021, there was $739 of total unrecognized compensation cost related to restricted stock awards granted as of June 30, 2021. The total cost is expected to be recognized over a weighted-average period of 1.7 years.
Stock Options
In November 2017, Landscape issued its non-founder directors 125,000 stock options, which have an exercise price of $11.50 per share and expire on the fifth anniversary following the Transaction. The fair value of each stock option was estimated at $2.90 on the grant date using the Black-Scholes option pricing model, which used the following assumptions: expected term – 5 years; expected volatility – 34.8%; and risk-free interest rate – 2.1%. As vesting was contingent upon the consummation of an acquisition transaction, the fair value of the awards, totaling $363, was recognized in share-based compensation expense in the Successor’s condensed consolidated statement of operations and as an increase of additional paid-in capital upon consummation of the Transaction.
During the six months ended June 30, 2021, 646,500 stock options were granted to employees of the Company at a weighted-average exercise price of $13.61 per share. Expiring on the tenth anniversary following the grant date, each employee option award vests upon the completion of five years of service. The weighted-average fair value of the stock options granted was $3.88 on the grant date using the Black-Scholes option pricing model, which used the following weighted-average assumptions: expected term – 6.5 years; expected volatility – 26.2%; and risk-free interest rate – 0.9%.
For the three and six months ended June 30, 2021 and for the three months ended June 30, 2020, the Company recognized share-based compensation expense of $333, $626, and $70, respectively, for stock options granted to employees. As of June 30, 2021, there was $5,589 of total unrecognized compensation cost, which is expected to be recognized over a weighted-average period of 4.2 years.
The following table summarizes the changes in the number of common shares underlying options for the six months ended June 30, 2021:
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
Outstanding at December 31, 2020
|
|
|
2,813,000
|
|
|
$
|
7.84
|
|
Granted
|
|
|
646,500
|
|
|
$
|
13.61
|
|
Exercised
|
|
|
(17,000
|
)
|
|
$
|
7.63
|
|
Forfeited
|
|
|
(50,100
|
)
|
|
$
|
8.41
|
|
Outstanding at June 30, 2021
|
|
|
3,392,400
|
|
|
$
|
8.94
|
|
Exercisable at June 30, 2021
|
|
|
607,200
|
|
|
$
|
8.44
|
|
28
13.
|
Basic and Diluted Income (Loss) per Common Share
|
Net income (loss) is allocated between the common shares and other participating securities based on their participation rights. The Series A Founder Preferred Stock represent participating securities. Net loss attributable to common shares is not adjusted for the Series A Founder Preferred Stock’s right to earnings, because these shares are not contractually obligated to share in losses of the Company. Additionally, the Company excluded the outstanding Warrants, stock options, restricted shares, LTIP Units and Series A Founder Preferred Stock because the securities’ effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted net loss per common share using the two-class method:
|
|
Successor
|
|
|
|
Three months
ended
June 30,
2021
|
|
|
Six months
ended
June 30,
2021
|
|
|
Three months
ended
June 30,
2020
|
|
|
Period from
February 10,
2020 to
June 30,
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to stockholders
|
|
$
|
(34,522
|
)
|
|
$
|
(42,101
|
)
|
|
$
|
(25,548
|
)
|
|
$
|
(103,858
|
)
|
Stock dividend payment to holders of Series A Founder Preferred Stock
|
|
|
—
|
|
|
|
(31,391
|
)
|
|
|
—
|
|
|
|
—
|
|
Net loss attributable to common stockholders
|
|
$
|
(34,522
|
)
|
|
$
|
(73,492
|
)
|
|
$
|
(25,548
|
)
|
|
$
|
(103,858
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted
|
|
|
68,724,275
|
|
|
|
64,127,528
|
|
|
|
58,425,000
|
|
|
|
58,425,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
$
|
(0.50
|
)
|
|
$
|
(1.15
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(1.78
|
)
|
The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as they would be anti-dilutive:
|
|
Successor
|
|
|
|
Three months
ended
June 30,
2021
|
|
|
Six months
ended
June 30,
2021
|
|
|
Three months
ended
June 30,
2020
|
|
|
Period from
February 10,
2020 to
June 30,
2020
|
|
Shares of Series A Founder Preferred Stock
|
|
|
1,600,000
|
|
|
|
1,600,000
|
|
|
|
1,600,000
|
|
|
|
1,600,000
|
|
Warrants
|
|
|
16,674,068
|
|
|
|
16,674,068
|
|
|
|
16,675,000
|
|
|
|
16,675,000
|
|
Stock options
|
|
|
3,392,400
|
|
|
|
3,392,400
|
|
|
|
2,647,000
|
|
|
|
2,647,000
|
|
Restricted stock
|
|
|
95,292
|
|
|
|
95,292
|
|
|
|
207,002
|
|
|
|
207,002
|
|
LTIP Units
|
|
|
6,786,033
|
|
|
|
6,786,033
|
|
|
|
6,786,033
|
|
|
|
6,786,033
|
|
14.
|
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 these 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.
29
The outbreak of COVID-19 has spread to many countries throughout the world, including each of the jurisdictions in which the Company operates, has had a negative impact on economic conditions globally and there are concerns for a prolonged deterioration of global financial conditions. Beginning in March 2020, the Company took measures to mitigate the broader public health risks associated with COVID-19 to its business and employees, including through office closures and self-isolation of employees where possible in line with the recommendations of relevant health authorities; however, the full extent of the COVID-19 outbreak and the adverse impact this may have on the Company's workforce and operations is unknown. In addition, as a result of the COVID-19 outbreak, there have been and may continue to be short-term impacts on the Company’s ability to acquire new rental streams. For example, leasing transactions in certain civil law jurisdictions, such as Brazil, Chile and Colombia, often require the notarization of legal documents in person as part of the closing procedure. Government-imposed restrictions on the opening of offices and/or self-isolation measures, particularly in Latin American countries, have had and may continue to have an adverse impact on the availability of notaries or other legal service providers from time to time. Accordingly, there can be no assurances that there will not be a material adverse effect on the Company’s results of operations and financial condition.
30