Q1 2020 Earnings Call
Good day and welcome to the innovative industrial properties Inc. Q1, 2020, <unk> earnings Conference call.
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After today's presentation there'll be an opportunity to ask questions.
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I would now like to turn the conference over to Brian. Please go ahead.
Thank you for joining the call presenting today are on gold.
Sure Chairman Paul Smith.
President and Chief Executive Officer.
Catherine Hastings, Chief Financial Officer.
<unk> Vice president of investments.
Before we begin I'd like to remind everyone that statements made during today's conference call maybe deemed forward looking statements within the meaning of the Safe Harbor, the private Securities Litigation Reform Act of 1995.
Actual results may differ materially due to a variety of risks uncertainties and other factors.
For a detailed discussion of some of the ongoing risks and uncertainties of the company's business I refer you to their news release issued yesterday in filed with the FCC on form 8-K, as well as the company's reports filed periodically with the FCC.
The company disclaims any intention or obligation to update or revise any forward looking statements.
Whether as a result of new information future events or otherwise.
I'll now hand, the call overtime.
Alan.
Thank you, Brian and welcome everyone to our 2021st quarter earnings call.
First and foremost they want to express our sincerest gratitude to all of our medical professionals caregivers and researchers who are there frontline fighting the Corona virus pandemic, we're experiencing across the globe.
There's been a trying time as we battled this health crisis and it is resulting in an extreme economic disruption.
Although we've had our last call just in March we have chosen to host a call today to share our financial results for the first quarter.
Provider updated perspective on the business and the industry in light of the rapidly changing environment, we're living through.
To recap briefly on our business and financial results. During the first four months of 2020, we acquired nine properties totaling over 1 million square feet in seven states and amended leases with our existing tenants for additional property improvements.
Luckily representing over $225 million of investments, which include both follow on transactions with our existing tenant partners to facilitate the continuous expansion and new tenant relationships.
Yeah, Ben Regan, our vice President of investments will discuss our recent acquisitions in more detail and our overall portfolio.
As of today, we own 55 properties and 15 states totaling 4.1 million square feet, which are over 99% leased on a long term basis to high quality license cannabis operators.
In addition, we paid a quarterly stock dividends of one dollar per share just stockholders on April 15th representing 822% increase over our first quarter 2019 dividends.
Driven by the property portfolio is operating performance and continued execution on our pipeline of acquisitions.
This dividend was also supported by our tremendous 200% plus growth year over year in rental revenue.
Net income and a F.F. out.
Which to know does not take into account at all the two acquisitions, we completed after quarter end.
Constituting 65 million of additional investments.
Catherine will also provide more detail regarding our financial results.
The medical use cannabis industry continues to experience tremendous growth in change.
And Paul will provide some detail on industry and regulatory trends in our call today, focusing on the impact of this current pandemic and how authorities in operators are adapting.
We're resolutely focused on continuing to be long term stewards of your investment in our company and navigating through the immense challenges posed by this health crisis and economic disruption.
Despite these challenges we have continued to be strong believers in the resilience and potential of this emerging industry.
And a key real estate capital provider to enable its continued strong growth for many years to come.
With that I'd like to turn the call over to Paul Paul.
Thanks, Alan for this call I plan to focus on the impact of the Cobot 19 pandemic on the regulated cannabis industry, including one the current regulatory environment for cannabis operators. During this crisis and to the dynamics of the industry. During this crisis and developments that we continue to monitor closely.
I'd like to also preface this discussion, noting that regulations in industry developments are evolving rapidly and while we want to provide you a general landscape as of now there can be no assurance that this landscape will not significantly change over the coming months weeks or even days.
First regarding the current regulatory environment as it pertains to the cobot 19 pandemic.
We've been in touch with each of our tenants. During this pandemic and we continue to monitor our state and local developments, where our tenants operate.
In the vast majority of situations medical use and adult use cannabis has been determined either formerly or by implication to be an essential business that can continue to operate as an exception to general state and local shutdown orders.
Central designation has generally been applied throughout the supply chain, including cultivation processing packaging distribution and dispensing.
There have been certain exceptions, however, such as in Massachusetts, where the governor permitted medical use cannabis businesses to continue to operate but shut down adult use cannabis businesses as non essential.
While we are pleased to see state and local governments recognize the importance of medical use cannabis as an alternative treatment for patients suffering from serious medical conditions and categorizing. These businesses as essential many authorities and businesses have introduced social distancing and other restrictions that up significantly altered.
Patience and consumers purchasing habits.
These include online ordering home delivery and curbside pickup.
Certain operators have adapted more readily than others with technology and logistical enhancements, but in general the restrictions to implement social distancing have had a dampening effect on sales for many operators significantly limiting the number of patients and consumers. They can serve each day.
Over the long term, we see that clear nearly uniform designation of medical use cannabis businesses as essential during this crisis as a very positive point for the industry and offering further validation of the key importance of medical cannabis for patients in managing their medical conditions.
Well the pandemic may postpone certain additional state level initiatives to legalized medical use or adult use cannabis due to issues regarding petition drives during this time and state legislature shutdowns, we expect that the momentum for legalization of cannabis across states will continue if not increase once we are on the other side.
This health crisis.
From a state government prospective we also believe that this pandemic and associated economic fallout further illustrate the importance of supporting local businesses that have tremendous growth potential and can provide good jobs and local communities.
To that end, we believe it to be prudent for federal state and local authorities to focus on fostering growth of these businesses, which includes among other things taxation, a regulated Canada's products at reasonable levels sensible regulation and disciplined enforcement of the rules against illicit trafficking.
We hope it states like California, well look at the models that have worked well across the country and make definitive pivots to support this regulated industry and create the best outcome for the residents.
Further we would like to touch on the myriad of federal assistant programs that have been put in place to support businesses. During this pandemic.
Well federal assistance has been denied to regulated candidates operators due to the status of candidates as a schedule one controlled substance.
Bipartisan letter was issued on April 17 to the house of Representatives from 34 members of Congress and spearheaded by the congressional cannabis caucus.
This letter formally requested that the regulated cannabis industry being included in the next round of government thrown a virus relief funds quoting from the letter quote. The Kogut 19 outbreak is no time to permit federal policy to stand in the way of the reality that state legal cannabis businesses or source.
Because of economic growth and financial stability for thousands of workers and families and need our support and quote we couldn't agree more and are hopeful that Congress understands the importance of this industry and takes the steps necessary to protect the hundreds of thousands of workers that participate directly in this industry across 33 stage.
And in Washington DC.
Secondly regarding industry dynamics during this pandemic.
As has been noted in the media.
At the onset of this cobot 19 crisis regulated cannabis spending increased dramatically in March potentially as a result of patients and consumers pushing to stockpile supplies in response to the spread of the pandemic.
However, sales in most geographies have sense normalized or drop below expected pre crisis trend lines.
And in places like Massachusetts, as a result for the state closure of adult use cannabis operations. This sales drop has been more dramatic.
As we noted previously while most regulated cannabis operations have been designated essential businesses, social distancing measures and restrictions have reduced sales capacity.
We are seeing other industry dynamics play out here as well and what is really the first significant economic downturn experienced by the regulated cannabis industry.
We expect to see continued consolidation of the industry, which has been a theme for a number of months now and continued challenges in the capital markets for cannabis operators.
We also expect that strong brands and strong balance sheets will provide further differentiation in this environment in the months to come.
We are certainly living in unprecedented times and what is truly an unprecedented for this very young industry.
In light of this we've continued our strategy of focusing on developing and expanding our real estate partnerships with strong well positioned multi state operators as Ben will describe in some detail.
Well this is an extremely challenging time for our country and our world. We believed that the regulated cannabis industry will be one of them more resilient industries throughout this crisis and when we overcome this crisis through the collective ingenuity of our top medical professionals and researchers the regulated cannabis industry will continue to.
Right and be one of the top drivers of growth and good jobs across the country.
I'll now turn the call over to Ben will walk you through our recent acquisitions Ben.
Thanks, Paul as Alan noted since January Onest, we've acquired nine properties in seven states, representing a mix of expansion of our existing real estate partnerships with top operators and establishment of new tenant relationships as of today, we own 55 properties across 15 states, representing approximately 4.1 million square.
He including approximately 1.3 million square feet under development or redevelopment.
Playing to touch on each of our acquisitions by state and also provide some information about each tenant and our portfolio overall in the state.
Starting with Illinois, we acquired a 231000 square foot industrial property in a sale leaseback transaction with G. T <unk> with our total investment in the acquisition and tenant improvements at the properties expected to be $50 million in the aggregate.
Guys, a leading multistate, operator with 13 manufacturing facilities licenses for 96 retail locations and operations across 12 U.S. markets with 1600 employees. This transaction represented our third sale leaseback transaction with GCI following our sale leaseback transaction with GE I for their medical cannabis cultivation and.
Processing facility in Pennsylvania in November of last year, and their medical cannabis processing facility in Ohio in February, which I will touch on later.
As of today, we own six properties in Illinois, and our total investment including committed funding for future tenant improvements is $172.1 million, which does not include the additional 10.7 million, which may be requested by grassroots at our Litchfield property.
These six properties or at least to some of the top regulated cannabis operators in the United States, including a send wellness cresca lattes grassroots guy and Pharmakon.
As of today, Illinois has allowed both adult use in medical use cannabis businesses to remain open.
Illinois commenced adult you sales on January Onest under a regulatory framework of limited licenses with nearly $110 million and product sold during the first quarter alone.
Now to Massachusetts.
Last month, we acquired a 199000 square foot industrial property and entered into a long term lease with ascend wellness, but our total investment in the acquisition and tenant improvements at the property expected to be $49 million in the aggregate.
Sendas, a vertically integrated M.S., so with retail and cultivation operations in Massachusetts, Illinois, Ohio and Michigan.
Earlier this year ascend received its provisional license approval from the Massachusetts Cannabis control Commission for what is expected to be one of the largest dispensary is on the east coast in the heart of downtown Boston.
In late December send also announced the raising of over $28 million from several strategic investors, including U.S. cannabis sector funds and a large European base investment fund.
This transaction represented our third acquisition at least with us and having previously acquired and entered into long term leases with ascend for their candidates cultivation and processing facilities in Illinois and Michigan.
As of today, we own four properties in Massachusetts, and our total investment including committed funding for future tenant improvements is $113.9 million, which does not include the additional 23.8 million, which may be requested by true leave at our wholly owned property.
These four properties are also leads to some of the top regulated cannabis operators in the United States, including ascend holistic industries far Mccann and truly.
As Paul noted, Massachusetts determined to keep medical use cannabis businesses open and to close adult use cannabis stores during this pandemic.
This is severely impacted sales and it's also precipitated a very significant increase in medical cannabis applications, which we believe also reinforces the position that many adult use cannabis purchases are for medical use purposes, and as such adult use cannabis operator should be allowed to remain open. During these times we are.
Firm believers in any event in the enduring long term strength of the Massachusetts regulated cannabis market and our operators abilities to navigate through this crisis and positioned themselves for continued success.
On the Florida.
As you May recall, we originally entered the Florida market in October of last year purchasing a 120000 square foot cultivation facility in a sale leaseback transaction for $17 million with true.
In March we closed on our second property in Florida in a sale leaseback transaction with parallel for its 373000 square foot industrial and greenhouse facility with our total investment in the acquisition and tenant improvements at the property expected to be $43.5 million in the aggregate.
Parallel is one of the largest privately held multistate operators in the U.S. with over 1700 employees nationwide and has raised more than $300 million in capital today.
Apparel is led by chairman and CEO overhead, we junior who is the chairman and CEO of global gum, and Confectionary leader to William rig, we junior company until its sale to Mars in 2008 for $23 billion.
Florida Medical cannabis dispensers remain open as an essential service akin to retail pharmacies the piece of growth for the medical cannabis industry in Florida has continued as one of the largest medical cannabis markets in the country.
As of May 1st there were over 336000 qualified patients throughout the state with over 2500 qualified physicians.
Now for Michigan.
Last month, we acquired at 115000 square foot industrial property in a sale leaseback transaction with Cresca labs with our total investment in the acquisition and tenant improvements at the property expected to be $16 million in the aggregate.
Cresca was one of the largest vertically integrated cannabis companies in the United States with licensed operations in 11 states with its pending acquisitions Cresca has 15 licensed Canada's production facilities 25, retail cannabis licenses and 15 operational cannabis dispensary across nine states.
Sale leaseback transaction marks our fourth acquisition at least with Cresca with prior acquisitions and leases for three of Cresca license cannabis cultivation and processing facilities in Illinois and Ohio.
As of today, our total investment, including committed funding for future tenant improvements for the properties, we own and Michigan is $114.8 million.
As of today, Michigan has allowed both adult use and medical use cannabis businesses to remain open those limiting purchases to curbside pickup and delivery and it's not allowing in store purchases.
Now for Ohio.
In January we acquired a property in Ohio, comprising approximately 50000 square feet of industrial space and entered into a long term lease with Cresca labs.
Our total investment in the acquisition and tenant improvements at the property is expected to be approximately $12.5 million and also in January we acquired a property in Ohio and executed a long term lease with GCI with our total investment in the property, including reimbursement for tenant improvements expected to be $7.2 million.
As of today, we own four properties in Ohio, and our total investment in the market, including committed funding for future tenant improvements is over $43 million.
Medical use cannabis dispensers in Ohio made their first sales in 2019 and as of the end of March 94000 patients and over 10000 caregivers had been registered for the state's medical cannabis program.
Similar to other states Ohiohealth officials deemed medical cannabis as essential under the category of medicine and exempt from the stay at home orders.
Home delivery is not permitted Ohio regulatory authorities have taken steps similar to other states, including temporarily authorizing curbside pickup, allowing physicians to recommend medical cannabis by phone or video, allowing patients to preorder over the phone and increasing limits on purchases per patient.
In January we also marked our entry into the Virginia market with the acquisition of a property expected to comprise approximately 82000 square feet of industrial space upon completion of development.
Total investment in the property is expected to be 19.8 million, including funding for completion of development.
We executed a long term lease with green leaf medical and the property will be utilized for medical use cannabis cultivation processing and dispensing.
This is our second transaction with green leaf medical having executed a sale leaseback transaction in 2019 for their Pennsylvania cultivation and processing facility.
Together with our Pennsylvania property, our total expected investment in properties leased to Greenleaf $32.8 million.
Really folds one of five vertically integrated licenses to cultivate process and dispense medical cannabis in Virginia.
Well, if Virginia is in its very early stages, the Virginia Governor last month approved a built to decriminalize cannabis possession in the state marking continued progress on the state level.
Finally, we acquired two dispensary locations in Colorado in sale leaseback transactions with live well, marking our second and third transactions with live well after acquiring their Michigan cultivation and processing facility, our total expected investment, including reimbursements or tenant improvements is expected to be approximately 4.2 million.
Colorado generally has authorized medical use an adult use cannabis operators to remain open though as with other states. The industry is feeling the effects of the stay at home orders severe economic disruptions and job losses severe slowdowns in tourism in cancellation of events, including the events surrounding for 20.
Prior to the pandemic regulated Canada sales were over $1.7 billion statewide in 2019 a record high.
In terms of our overall pipeline, we continue to see very strong demand for our real estate capital solutions and our an active negotiations with a number of strong operators, both existing tenants and new ones and look forward to sharing additional transactions as we complete them in the months to come continuing to utilize the strength of our balance sheet.
With that I will turn it over to Catherine Catherine.
Thanks Ben.
I'd like to briefly summarize our results for the quarter and then provide some updates on subsequent decisions. We've made after speaking with each of our tenants and monitoring the impact of the current pandemic, an economic disruption on the industry.
Generated total revenues of approximately 21.1 million for the quarter.
210% increase from Q1 of last year.
Increase was driven primarily by the acquisition in leasing as new properties additional tenant improvement allowances provided to tenants at certain properties that resulted in base rent adjustments and contractual rent escalations at certain properties.
As noted in our press release total revenues also include the application in fall of the remaining security deposit for at least at our Los Angeles, California property, which is under receivership.
And in application as part of the security deposit that we have with vertical for properties leased to them in southern California from March rent.
As we've indicated in the past our Q1 revenue reflects only partial quarters of revenues from the acquisitions and leases executed during the quarter and no revenues of course, so the leases executed after the ended the quarter.
And our revenues for the quarter were also impacted by rented treatments or deferrals under certain leases that are expected to burn off in the next few months as we continue to account for Oliver leases on a cash basis.
For the three months ended March 31st 2020, we recorded net income of $11.5 million.
Funds from operations, which adds back property depreciation to net income was 16.4 million.
Adjusted funds from operations, which adds back noncash stock based compensation expense and noncash interest expense related to our exchangeable senior notes was 17.8 million.
For the three months ended March 31st 2020, adjusted funds from operations grew 236% from the prior year quarter.
On April 15th we paid our quarterly dividends at the dollar per share to common stockholders of record as of March 31st.
120, 20 common stock dividend reflects a 122% increase from the prior years first quarter.
Throughout March and April we've been in discussions that each of our tenants as we progressed through this unprecedented period of time.
In light of those discussions we've worked with three as were 21 tenant.
Provide temporary rent deferral generally structured to apply a portion of the security deposit we hold under each lease to pay April ranch info.
For rent for May and June info and provide the pro rata repayment of the security deposit and deferred rent over an 18 month time period, starting July 1st.
Pursuant to these amendments a total of $743000 that security deposits that we holding cash replied to the payment of rent for April.
And a total of 1.5 million and rent was deferred for May and June.
The total amount of 2.3 million from these amendments represents approximately 3% if our total revenues annualized as reported see line.
And with respect to financing activity.
In January we completed a follow on public offering of common stock raising net proceeds of about $240 million, including the exercise and full of our underwriters option to purchase additional shares.
Also in January we raised net proceeds of about $78 million under previously established at the market equity offering program, our ATM program.
There are truly grateful for all of our stakeholders continued support and focused on investing the proceeds from our recent equity raises with the best tenants and working closely with our tenants to navigate through these unprecedented times and cannot even stronger on the other end.
Finally, I'd like to note that we remain very conservatively leveraged with no secured debt and approximately 13% for total gross assets consisting of our exchangeable senior notes.
A leverage rate and balance sheet competition, that's truly unique among real estate company.
Does exchangeable notes have a fixed cash interest rate of 3.75% equating to approximately $5.4 million a total cash interest payments per year and do not mature until 2024.
Those exchangeable notes are the only that we have on the balance sheet totaling over $1 billion of assets as of quarter end.
And with that I'll turn it back to Alan Alan.
Thanks, Catherine as we continue to navigate this challenging time I want to highlight a few things in closing.
We are proud of everything that our tenants have accomplished and thank our tenants and their teams for continuing to operate to provide key access to medical use cannabis patients during these difficult times.
We are well capitalized with a tremendous balance sheet that puts us on a strong footing not only to whether these conditions, but to continue to support the industry and make real estate investments with best in class tenant operators.
We remain steadfast in our supported this industry and believe with the most conviction and it's very bright long term future.
I want to personally think our stockholders for your continued support and entrusting us as stewards of your investment we have and will continue do our very best in that role every day.
Now with that I'd like to open it up for questions. Operator could you. Please open the call up for questions.
Thank you we will now begin the question and answer session.
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At this time, we will pause momentarily to assemble or not.
Our first question comes from Tom Catherwood with BP I team. Please go ahead.
Thank you and good morning, everybody.
And Tom.
So in terms of.
Medical Canada sales data Paul I know you made the comment on it being mixed we've obviously seen it strong and some of the <unk> limited license state.
But it kind of more challenged in.
California, Colorado, Nevada, where there's more issue with local regulations dispensary closures and black market competition.
But when you think of the deferrals that you've given it is there a geographic concentration with those tenants on par with kind of that sales data or does it have to do with tenants that are in the early stages of their capex cycle for the other external factors that are driving the need for different.
So Tom this is Alan.
Well theres there there are multiple reasons for for each of our tenants having.
Having a or each of those tenants a three tenants, having some sort of an issue.
Weve gone from my California tenant to a Michigan tenant.
Two of Colorado tenant.
Sylvania time and.
And so.
Yeah, we can go through each one of the tenants are and talk about why and it is but it does it does start as I said as you describe some of it with you know kind of an emerging tenant and then some with the having to deal with the state issues himself.
I'll turn it over to bend to go through the three tenants.
And Tom.
So the tenants particular vertical wellness in California, Greenpeak in Michigan, and then midstream medicinal in Pennsylvania, and you're really seeing a number of factors from construction impacts for earlier stage facilities to.
Disruption at the retail level as you're shifting to the social distancing curbside pickup in home delivery model.
As well as potential collection issues I want to comes to California, and you have impacted the retail level.
And effect verticals wholesale business for example.
So it's different factors for each tenant.
We had in depth discussions with all of our tenants and thought it was prudent to support these three in particular through the rent deferrals.
And have a very high level confidence and each of these management teams to be able to navigate through these challenging times.
Got it I appreciate that color Alan and Ben. Thank you. So I guess thinking it from another perspective then.
No many of the other Reits that have reported seem to be any early stages of engaging with their dependence and evaluating deferral requests.
From your statements here it sounds like you've already engaged with all your tenants. So my question is are there more deferral requests that you're evaluating and if so how large of a percent could that be.
So as I said, we've talked with all 21 of our tenants when we're we're.
And I think we're fairly confident that we are at I have dealt with the issues that the that our tenants might have keeping in mind that the majority of our attendance over I think we generate over 80, 70% to 80% of our tenants our EBITDA positive as reported in there the last reporting periods.
And so.
You know, we're fairly confident in the quality of our port our portfolio and been are very excited about the growth prospects of the of our tenants going forward, especially given the fact that we now believe that we're at the beginning of reopening of these oh of the economy in general and specifically in.
Some of these days and we believe that that.
That opening is going to allow the the states to remove the regulations that are preventing some of these tenants from achieving their maximum revenues.
Got just away.
On that last point the idea being that that three months is enough of a window to allow some reopening.
Wow centuries to reopen and kind of carry those tenants through and construction to complete.
And that's how we evaluated it yet.
Got it.
And then.
Regarding acquisitions, you've already put.
Including the deals with a grassroots and truly from 2019.
Looks like you've put roughly $246 million to work year to date, how does your pipeline shaping up currently and how does your investment focus or interest shifted at all since the onset of Copel.
So I think our I think we you know.
Apps were a little.
The slow things down just a little bit in our acquisitions and then when we said we raised the capital we indicated that we'd be able to place that capital on a three to six month in or around six month time period, Although I think we're going to achieve them, but more to the backend.
I think our pipeline continues to be very strong and Ben then why don't you talk about that further yes.
Well that pipeline is very strong right now continues to grow we're seeing continued demand for this type of capital solution.
Theres still lot of very high quality operators out there continuing to grow their businesses.
And real estate capital is very important to be able to build out these mission critical facilities.
Due to support their operations.
And and we have the ability to be very disciplined.
And selective and work with the top companies in the country and support their business.
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Got it that's it for me thanks, everyone. Thanks, Tom.
Our next question comes from Scott Fortune with Roth Capital Partners. Please go ahead.
Good morning, and thank you and congrats on the quarter.
Okay. Yeah following up on that paid on the funding you funded about center and 20 million give unfunded commitments about 144 million not counting that 35 million 10, an option.
Around 380 million in cash that back it since about 200 million going forward could be developed into the pipeline can you can burn that and then just kind of fall on providing the color on the new cobiz environment for the pipeline going forward are we seeing more T.I. delay or final pipe.
Client acquisition delays to kind of slowed down on that draw down the capital.
So I mean to take a are you gonna have cat deal with the first question and then we'll deal with the your second part of your question regarding the Covance displays all have been deals.
Thank God the way that we look at our uncommitted capital. So we really have about a 113 million of uncommitted capital today, we raised a little over a billion dollars and capital today, Please almost a little under 900 million.
I think your numbers may not be including the additional about $35 million that tenant improvements that is really at the election.
Two operators to to be able to request.
And then Alan Yeah, and then and as to cover its impact on on the pipeline and.
Maybe construction activities I think Ben wasn't sure why don't you deal with that.
So were like we said about the pipeline, we're continuing to see extremely high demand for this type of capital.
Given the challenging economic conditions.
We were saying we continue to be very selective and disciplined in which types of investments that were.
Willing to pursue and move forward one.
In the environment.
Great can follow up on that then going for you said your pipeline would come about 50 or 75% from existing clients is that came moving up as our radio or you're still seeing theres a lot of number and covering the space is a widely good nothing coming private companies said that.
Are you know positive EBITDA, they're moving forward or you still think some nice opportunities to add new tenants going forward kind of stepped through the potential of the pipeline.
Goodness of per Se.
Yeah, we're continuing to see both were continuing to see a lot of organic growth within our current portfolio as our intense expand into other steve's or expand their facilities or their footprints on their existing speeds.
And.
A big part of our business plan, how has been to support our existing growers as they expand our operations and on top of that like you mentioned we are seeing.
New tenants new operators in the industry that are extremely successful that are also coming to us potential investment opportunity. So it's a nice mix existing tenant relationships as well as new growers coming to us.
For new potential investments.
Okay. Thank you for the color and then one last question too.
Any additional color on China, Mad and outlook for that property kind of dub tailing that with looking at some of these tenants three tenants that you you're helping get across the finish line here from that so let's assume covert can continue.
The pull out pressure on this.
And then challenges continue full for the 10 acquired attend the next step for these tend to process going forward for discounts and not being able to meet we rent payment.
Even though it's a small percentages over portfolio just kind of STEMI true yeah, how you're looking time it is their interest in that property.
I agree we purchased a being purchased.
Versus being re commission from that standpoint, and the next steps for these potential tenants down the road as the risk.
All right so to be before I turn it over to Paul to talk about a dozen unamid.
The let me, let's be clear that these tenants.
Could work could and should it could make their rent payments. What we felt was is that by working with the tenants weekend and we can make these tenants.
Our put these tenants and better better financial position for the long run now.
This was the the the accommodations that we made were a combinations that we believed was in best interest of the tenants and of the company but.
Let's make it a very clear that our existing tenants are do have the ability to continue to pay their rents going forward and then and then and and arent in the position of you know going into a receivership position that we know of today now I'm going to turn it over to Paul the talk about.
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Beyond that to be sure. So hi, Scott So what I can tell you about.
Esperanza property is very positive.
We're happy to report that we're in an advanced negotiations with a very qualified multistate, operator, and we're hopeful that have.
Deal in place in the next few weeks so.
We're moving very positively in that direction.
Okay. Appreciate I'll jump back into queue. Thanks, guys. Thanks, guys.
Our next question comes from Eric Dey, L'oreal with Craig Hallum Capital. Please go ahead.
Great. Thanks for taking my question guys.
From a follow up.
On your on your pipeline.
In terms of minimizing tenant risk can you help us understand how you guys think about.
Diversifying your tenant base versus increasing your exposure to higher quality tenants like like GE.
Well I.
I mean.
First.
I think one thing that we Havent talked about is the then when we talk about our pipeline is that is the.
The fact that yields have remained very high and very strong and I think that that's an important important point, we're still seeing transaction opportunities and our pipeline.
Yields a north of a 12, then and into it and certainly and certainly close to the 15%.
And then in terms of a diversification.
You know obviously, there's there we believe with 21 tenants that were were.
Fairly well diversified within our within our tenant or tenant base.
We we are getting continue to grow that grow that keeping in mind that every time, we had a new grower. We the grower that is added expects us to be therefore, not only for the current transaction, but to be a partner with them going forward and that's the basis of our business model and why we focused on.
Folk focused on.
The highest quality growers going forward today and why we're so excited that we have and.
Folio of of the top 10 growers I believe we have you know seven to 10 10 of those and hopefully it or you know we were hoping to add to the last couple as we go forward.
So.
That's how we're looking at it it's important that we do diversify with who within a our tenant base.
We intend to do that.
Very controlled basis over over the next couple of years, but it's also important for us to be able to continue to support our existing growers and a and by providing them additional capital as they as they continue to expand and take advantage of this emerging industry.
Okay that makes sense. That's that's very helpful. Thank you and then just this a bit of follow up to that.
Are you guys looking at different markets on a.
On a geographic basis in terms of looking to increase your exposure to more limited license states or is it really kind of following your high quality tenants growth plans at this point. Thanks.
Well I Wonder if you take that sure. Thanks, Eric So there might be a little bit of both I mean, we continue to follow our.
Our.
Highly ranked MSR was in the portfolio and they're going to the states, we like and we do continue to like the limited license states.
Florida, New Jersey, we continue to avoid the Oregons in Washington, So nothing's changed our game plan in that respect, but we do see many of our current tenants.
Beginning to those new states.
And and I'll, just add that we still remain focused on the United States.
Okay, great. Thank you yes.
Thank you Eric.
Our next question comes from John Scott.
Lundberg. Please go ahead.
Good morning pardon jet.
So maybe just touching a little bit its kind of a broader follow up to the Dionte med question and I know its little hard to formulate without kind of a lot of historical data points in and obviously, there's there's ongoing discussions it down in net profit the former down in that property, but.
Broadly speaking what kind of recoveries do you think you can get on cannabis properties. They need to be re tenanted that have attended that goes into receivership and you guys have any kind of I'd add thought process there.
So.
One.
From the very beginning we've focused on a specific asset class and that being the cannabis related real estate.
These facilities or special purpose facilities they have they are.
Hi quality mission critical facilities.
And they have.
They have very unique.
Improvements within them that allow them to be.
Allowed them to operate as a growth facility or a dispensary and wood and we believe that these facilities as those as as that product.
Have long term and tremendous value.
If you're asking if they had to be re purpose for something different.
Your your then there is we absolutely believe that the that in repurchasing that the majority of the improvements that would not would not translate to another type of tenant.
Oh no.
There's definitely focused on repurchasing for additional preferred alternative candidates cultivated or retailers.
We're highly kind of you know, we're highly confident that a fully built out facility.
Especially one that isn't built out within the last a couple of years.
It would be in very high demand from other growers and certainly a grower that would be acquiring the license associated with the grow that happened to go into receivership. If it if that were to to be the case and and so we believe that there's.
That these of.
Improvements, our generic entry usable and fungible between tenants and would be in great demand.
Understood and then I know, it's maybe a little bit I mean, we're still in a period of those kind of dislocation in the broader capital markets and just economically generally but.
Given maybe the resilience of your kind of cost of capital and the fact that.
People you kind of competitors of yours, the don't have that gain access to capital when I say competitors may not other other people kind of investing in the kind of candidates real estate space in M&A potentially something that's still on the table in terms of a growth option or it is the kind of current environment make that less attractive just given.
There's kind of a lot of uncertainty out there.
So I think the question is it would we be open do acquiring a one of our competitors or or working with you know joining with.
If we.
We have a very strong pipeline, we have a very strong group of growers that are looking to grow and we're very proud of our portfolio and our tenants and we believe that.
That's supporting the the existing growers and and adding the the right additional growers to our our portfolio is the right path and the write business plan for us today.
Understood and then one last quick one in Sarnia, maybe I missed it in the prepared remarks, you guys gave some color on Massachusetts, but for your portfolio. Specifically are all of your assets are kind of open or or essentially and.
Have access to kind of retail distribution for the cultivation assets.
So we do have 1.3 million square feet of of of the facilities under development. So obviously those aren't open okay.
Of the assets that are completed and.
And.
And operating.
They are operating in some funk some state some functional ability if they can be if a the governor if if the.
Of the specific state allows them, but then I think there might be one one tenant that has closed a couple of their dispensers.
We've seen certain disruptions on the retail side, but the vast majority of our facilities have been able to continue to operate.
Procedures put in place.
To address the okay.
I understood really appreciate the color.
That's it for me. Thank you guys very much thanks.
This concludes our question and answer session.
I could turn the conference back over to Alan Gold for any closing remarks.
Well, thank you and I look like to thank everybody for joining us here today I just want to Rerate reiterate that how proud we our of our tenants and more importantly, I want to be I'm going to say how painful.
I am of our team for their dedication and hard work and with that conclude the call. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.