Q2 2020 Innovative Industrial Properties Inc Earnings Call
Good morning, and welcome.
Industrial properties second quarter 2020 earnings call Oh.
All participants will be in listen only mode.
Please note conference specialist my question to start to fall with ideal.
After today's presentation, there will be an opportunity question.
Good question you May Press Star then one on your pets. So.
So your question please.
Then too.
Please note this event is being recorded.
I would now like to turn the conference over to Brian will General Counsel. Please go ahead.
Thank you for joining the call presenting today are Allen Gold Executive Chairman, Paul Smith, President and Chief Executive Officer, Katherine 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.
And actual results may differ materially.
To a variety of risks uncertainties and other factors.
For detailed discussion of some of the ongoing risks and uncertainties of the company's doesn't.
I refer you to the news release issued yesterday, we filed with the FCC on form 8-K, as well as the company's reports filed periodically with yes, you see.
The company disclaims any intention or obligation to update or revise any forward looking statements are there as result of new information future events or otherwise.
I'll now hand, the call overtime.
Uh huh.
Thank you, Brian and welcome everyone to our second quarter earnings call first and foremost they want to express our deep appreciation to all of our medical professionals caregivers and researchers who were on the front lines fighting the cronto virus pandemic, we're experiencing across the globe.
It has been a trying time over these many months.
As we continue to battle this health crisis, and its resulting extreme economic disruption.
Well, we're heartened by the advancements our health and science community has made in such a short period of time to understand this disease and formulate highly effective treatment plans for patients and what we hope is a highly effective vaccine.
As we discussed on our last call in men the regulated cannabis industry. Both medical an adult news was deemed been a central service by the vast majority of state local jurisdictions in the United States.
And our tenant operators have answered that Paul.
Tapping their operations and ways to ensure continued compassionate individualized service to their patients and customers.
In an environment designed to maximize the safety and health of patients customers and employees.
And the recap.
Our investments in support of the tremendous future. This industry during the second quarter of 2020, we acquired eight properties totaling over 775000 square feet in five states and amended leases with our existing tenants for additional property improvements.
Collectively representing over $225 million of investments.
These investments were comprised of both follow on transactions with our existing tenant partners to facilitate their continued expansion in.
Including industry, leading operators ascend wellness cresca.
Holistic and Kings guard, and new tenant relationships, including Chile, and Colombia care.
Then Regan, our vice President of investments will discuss our recent acquisitions in more detail and our overall portfolio.
As of today, we only 61 properties and 16 states totaling 4.5 million square feet, which are over 99% leased on a long term basis to high quality license cannabis operators. The one property that is not least in our portfolio is our Los Angeles, California property with attendant under receivership.
As noted in our press release issued yesterday holistic industries, our long term tenant partner in Massachusetts, Maryland, and Pennsylvania has entered into a definitive agreement to acquire the operational licenses for this property and we are optimistic regarding the completion of this transaction and partnering with Colin.
Stick again on long term basis for this property no remains subject to customary closing conditions and final receivership court approval.
As we noted in our press release issued yesterday aside from our Los Angeles property, our tenants have paid 100% of contractually due rent criticism months of April May June and July, including the three tenants for which we provided temporary rent deferral in Q2.
As of today, we have no other tenants under a rent deferral program, which we believe is a testament to the quality of our tenant base and their ability to adapt to this new norm.
[noise], reflecting the strength in the resilience of our tenant partners, we paid a quarterly common stock dividend of a dollar six per share to stockholders on July 15, representing a 77% increase over our second quarter 2019 dividend.
Driven as well by our continued execution on our pipeline of acquisitions.
This dividend was also supported by our tremendous hundred 80% plus growth year over year rental revenue net income and AFFO.
Which to know does not and take into account.
Oh, that's three acquisitions, we completed after quarter end constituting $49 million of additional investments.
The cold in 19 pandemic and severe economic disruption constitute the first recession faced by the regulators the Kansas industry and we believe our tenants have adapted exceptionally well to new ways of serving their patients in customers, which Paul will touch on later.
On the financing from well I also would like to personally thank all of our stockholders. Our long term company owners, whether steadfast support providing us over 370 million in gross proceeds over the last three months to support our long term time partners and their continued expansion initiatives well for.
Additional partnerships with the top tier operators in the industry.
Katherine will also provide more detail regarding Irish financial results and capital raising activity.
As always we are focused on continuing to be long term stewards of your investment in our company and navigating through the immense challenges posed by the health crisis, an economic disruption. Despite these challenges we continued to be strong believers in the resilience and potential of there's still quite young industry and being a key real estate capital provider.
Enable is continued 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 provide an update on the regulated cannabis industry with a focus on the cobot 19 pandemic, including one of the current regulatory environment for cannabis operators. During this crisis and two dynamics or the industry. During this crisis and developments that we can.
You need to watch it closely.
As mentioned on our last call I'd like to also preface this discussion, noting that regulations and 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 well not significantly change.
First regarding the current regulatory environment as it pertains to cope with 19 pandemic.
As noted on our previous call we continued to be in touch with each of our tenants train is pandemic and we monitor state and local developments closely.
In the vast majority of stage medical use an adult use cannabis have been determined by applicable government authorities to be essential businesses.
I can continue to operate as an exception to general state and local shutdown orders.
The essential 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 as essential but shutdown adult use cannabis businesses as not essential for a period of time, allowing them to reopen in late may.
As noted previously over the long term, we see the clear nearly uniform designation of medical use cannabis businesses as essential during this crisis has 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.
As we touched on in prior calls pre Pandemics 2020 was shaping up to be another watershed year on the state legalization front with as many as 11 states residents expected to vote on medical or adult use cannabis legalization.
However, shelter in place orders greatly impacted the ability of organizers together sufficient signatures in person.
And as a result, a number of the initiatives have been postponed.
Even in the face of such challenges a number of initiatives are moving forward, including voter approval of an adult use program in New Jersey, where we acquired three properties after the quarter end.
And in Arizona, where we own two properties. It appears likely that adult use legalization well beyond the bell for November with organizers, having collected over 420000 signatures over 180000 more than what's required.
Post pandemic, we expect a strong long term momentum a both medical use and adult use legalization across stage to continue if not increased in line with the clear shifts of opinions of citizens nationwide and the importance of supporting an industry that will serve as a key source of good paying jobs.
Tax revenues and ancillary economic growth in communities for many years to come.
Finally to note while there have been put in place a number of federal assistance programs to support a wide range of businesses train is pandemic and despite the efforts of industry groups and certain congressional leaders.
And it was businesses are still not able to avail themselves of the benefits of the federal E ideal TPP or agricultural support programs given the status of cannabis as a schedule one controlled substance.
Secondly, regarding the industry dynamics strangeness pandemic.
First off our tenants and their dedicated teams have done tremendous work, Dan and day out providing access to candidates for patients and consumers all working tirelessly to implement protocols and procedures designed to protect the health of patients consumers and employees.
Our tenants were able to quickly adapt to this new environment instituting social dispensing and further enhanced sanitation procedures as well as implementing online ordering advanced scheduling curbside pickup and delivery to name just a few of these changes.
And why there's certainly had been significant disruptions state and local levels, such as with the Massachusetts shutdown of adult use cannabis operations the industry as a whole host.
As demonstrated tremendous resilience in a phase one of the greatest health and economic challenges our country has faced.
On a macro level legal cannabis is one of the very few sectors in the economy that is held up well in this current environment notwithstanding the complete lack of federal support has afforded to nearly all other industries that said there certainly has been a good amount of variation in performance across states driven by a number of factor.
Including the adaptability of state and local governments to accommodate in curbside pickup and delivery the breadth and duration of stay at home orders and Kobin infection rates among others.
For example, the state in Nevada has experienced a precipitous decline at tourism, which has had a significant dampening effect on the stage adult use Canada as market.
And of course in Massachusetts Adult you stores were required to close for a few months by state authorities, which had a very significant impact on sales.
At the same time states like Maryland, and Pennsylvania continued to exhibit tremendous growth and resiliency each month in service of patients.
We also continued to see consolidation of the industry, which has been a theme for a number of months now and continued challenges in the capital markets for candidates operators.
Within our portfolio, we have seen some of that consolidation play out with cure lease closing on its acquisition of grassroots late last month, and Columbia cares pending acquisition of the Green Solutia, all of whom our tenants.
We also expect that strong brands and strong balance sheets will provide further differentiation in this environment in the months to come.
Certainly proud to work with many of the best in class operators, and we have continued or strategy of focusing on developing and expanding our real estate partnerships with strong well positioned multistate operators as Dan will describe in some detail.
Well this isn't an extremely challenging time for a country and our world. We believe that the regulated candidates industry has exhibited exceptional resilience in this crisis to date and we'll continue to thrive and be one of the top long term drivers of growth and good jobs across the country.
And it bears repeating again, what an exceptional growth opportunity the U.S. regulated canadas industry represents ARPU and Bts forecast growth from $9.1 billion in 2018 to over $31.4 billion in 2024, a compound annual growth rate.
Nearly 23%.
And it's really difficult to draw comparison to any industry in the world that represents such an opportunity.
I'll now turn the call over to bed, who will walk you through our recent acquisitions and follow on investments in our property portfolio that.
Thanks, Paul as Alan noted since April 1st we have acquired properties in five 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 61 properties across 16 states, representing approximately 4.5 million square feet.
Including approximately 1.5 million square feet under development or redevelopment.
Similar to past calls I plan to touch on each of our acquisitions by state and also provide some information about each tenant at our portfolio overall in the state.
As we previously announced just last month, we entered into our 16th state acquiring three properties in New Jersey, We acquired a 111000 square foot industrial property and entered into a long term lease with cure lease with our total investment in the acquisition and tenant improvements at the property expected to be $35 million in the.
Cricket.
Pure leaf is a leading multi state operator and late last month announced the closing of its acquisition of grassroots another tenant of ours in Illinois, Pennsylvania, and North Dakota.
Purely from grassroots together have a presence and 23 states with over 135 dispensary licenses 88 operational dispensary locations and over 30 processing facilities and 22 cultivation sites, comprising 1.6 million square feet of cultivation capacity.
In total we have long term leases at four of our properties of care at least in grassroots representing a total investment a little over $100 million, including commitments to fund future 10 fruitless.
Shortly after our cure leave transaction, we completed the acquisitions of two properties in sale leaseback transactions with Columbia care. Another strong multistate operator, as you May know Columbia carries in the process of acquiring the green solution a tenant of ours in Colorado.
Columbia care in the Green solution together are expected to operate and 18 jurisdictions with over 70, U.S. dispensary locations 22 cultivation and processing facilities.
1 million square feet as cultivation production capacity and over 1300 employees.
These three transactions in New Jersey represent a total investment of just under $50 million, including commitments to fund future tenant improvements.
New Jersey represents 16 state, where we own properties. We're excited about the market potential for both the current medical use program and the prospects for introduction of an adult use program.
Governor fill Murphy has taken important steps to improve and expand access for patients under the medical use program and legalization of adult use cannabis is on the ballot. This November for residents of New Jersey with recent pulling showing strong majority support.
Now to Massachusetts.
As we discussed on our last call in April we acquired a 199000 square foot industrial property and entered into a long term lease with ascend wellness with our total investment in the acquisition and tenant improvements at the property expected to be $49 million in the aggregate.
Ascend is a vertically integrated M.S., so with retail and cultivation operations in Massachusetts, Illinois, Ohio and Michigan.
This transaction represented our third acquisition at least with ascend having previously acquired and entered into long term leases with ascend for their cannabis cultivation and processing facilities in Illinois and Michigan.
And at the very ended the quarter, we closed on a 118000 square foot industrial property and executed a long term lease with Cresca last their total investment in the acquisition and tenant improvements at the property expected to be a little under $29 million.
This transaction marks the fifth acquisition at least with Costco, having previously entered into acquisitions and leases for Cresca is candidates cultivation and processing facilities in Illinois, Michigan and Ohio.
As of today, we own five properties in Massachusetts, and our total investment including committed funding for future tenant improvements is $166 million, including the additional $17 million, which maybe requested by truly at our wholly owned property.
Five properties are also leads to some of the top regulated cannabis operators in the United States, including ascend Crisco holistic industries pharma can entry lease.
As Paul previously noted, Massachusetts determined to keep medical use cannabis businesses open as an essential service and to close adult use cannabis stores for approximately two months with adult use canvas stores reopening in late may.
Now for Michigan.
As discussed on our last call in April we acquired a 115000 square foot industrial property in a sale leaseback transaction with fresco with our total investment in the acquisition and tenant improvements at the property expected to be $32 million in the aggregate. After our recent amendment to increase the tenant improvement allowance by an additional $16 million.
Yeah.
As of today, our total investment, including committed funding for future tenant improvements for the properties, we own and Michigan is about $131 million, Michigan has allowed bolt adult use and medical use cannabis businesses to remain open and according to a Michigan marijuana regulatory Agency report June 2020, total sales for medical use in adult used.
Candidates for approximately $90 million or over a billion dollars on an annualized basis compared to total regulated sales of about $35 million during January of this year.
We believe these statistics demonstrate the resiliency of the canvas industry against a backdrop of a very difficult economic environment.
On to Pennsylvania in early June we closed on our third acquisition and lease with holistic industries for 108000 square foot industrial property in New Castle with our total investment in the acquisition and tenant improvements at the property expected to be a little over $15 million in the aggregate.
We previously acquired at least holistic scana bis cultivation and processing facilities in Maryland, and Massachusetts.
Well, let's stick as one of the largest private vertically integrated MSR was in the U.S. with operations in California, Maryland, Massachusetts, Michigan, Pennsylvania, and Washington DC.
A little later in June we expanded our investment with Greenleaf medical at our Saxon facility, a 266000 square foot industrial facility.
Greenleaf previously redevelop the 103000 square feet of the facility for medical use cannabis cultivation and processing and we are providing relief $30 million in funding for the redevelopment of the remaining 163000 square feet.
We also lease to Greenleaf, our property in Richmond, Virginia, and 82000 square foot cultivation processing and dispensing facility that we acquired earlier this year.
Pennsylvania State authorities have done an excellent job of fostering the growth and expansion of access to patients throughout the state as of the end of June there were 330000 registered patients and according to marijuana business Daily Medical Canada sales are expected to nearly doubled this year approaching $400 million with a large majority of pens.
Sylvain ins pulling in support of legalization of adult use as well last month, the majority of Pennsylvania steep Democrat sent a letter to the governor and legislative leaders to pursue adult use legalization in part to generate much needed tax revenue to help offset losses stemming from the current pandemic.
Multiple bills legalizing adult use or pending in Pennsylvania is legislature.
Now for California.
In May we acquired a 70000 square foot industrial property in southern California for 17.5 million and entered into a long term lease with Kings Garden.
Including this property, we lease five properties to Kings garden, including the four property industrial portfolio totaling 102000 square feet that we acquired in April of last year.
Kings Garden is a leading cannabis cultivation processing and manufacturing operator, having developed a tremendous brand and reputation for consistent top shelf quality.
Notably in highly unique in this industry Kings Garden declared its first quarterly dividend in June of this year to its equity investors.
Finally, as Alan mentioned in the beginning of this call and as we disclosed in our press release yesterday, we are advanced discussions with holistic our tenant partner in Maryland, Massachusetts, and Pennsylvania to lease our Los Angeles property.
Holistic has executed an agreement to acquire the retail distribution cultivation and manufacturing licenses from the former tenant at the property, which is in receivership.
The court date has been established for approval of the sale the licenses in the coming weeks and we expect the transaction to close a few weeks after that approval.
Nothing is certain at this point, but we are optimistic that we'll be able to make a definitive announcement in the near future.
In terms of overall pipeline, we continue to see a very strong demand for our real estate capital solutions and our an active negotiations with a number of top tier 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'll turn it over to Catherine.
Catherine.
Thanks, Ben it's been yet another busy quarter and the regulated candidates market has really shown its resiliency. During these unprecedented times both of which are reflected in our financial results for the second quarter and six months year to date.
We generated total revenues of approximately $24.3 million for the quarter.
183% increase from Q2 as last year.
The increase was driven primarily by the acquisition and leasing at new properties additional tenant improvement allowances provided to tenants at certain properties that resulted in base rent adjustments.
And contractual rent escalations in certain properties.
By temporary rental barrels.
As we discussed on our last call we've been in close discussions with each of our attendance. During these unprecedented times and execute a temporary rent deferrals for three of our 23 tenants.
Generally structured to apply a portion of the security deposit we hold under each lease to pay April Renton Paul.
For rent for May and June info and provide for the pro rata repayment of the security deposit and deferred rent over an 18 month time period, starting July 1st 2020.
Pursuant to these amendments a total of $743000 security deposits that we holding cash were applied to the payment upfront for April and a total of 1.5 million in rent was deferred for me and Jan.
The total amount of $2.3 million from these amendments represents approximately two and a half percentof. Our total revenues annualized as reported for Q2.
As Alan mentioned, we've collected 100% contractually due rent across our total portfolio for the month of April May June and July.
Other than for Los Angeles property, including full repayment of July rent and pro rata repayments at the security deposit and deferred rent from the three tenants that were under the rent deferral program.
We've also not executed rent deferrals for any additional tenants other than these three tenants.
As we've indicated in the past our Q2 revenue reflects only partial quarters of revenues from the acquisitions on leases executed during the quarter.
No revenues of course for the leases executed after the ended the quarter.
And our revenues for the quarter were also impacted by rent abatements or deferrals under certain leases that are expected to burn off and the next few months.
As we continue to account for all of our leases on a cash basis.
For the three months ended June 30, 2020, we recorded net income of $13 million.
From operations, which adds back property depreciation to net income was 19.7 million.
Adjusted funds from operations, which adds back noncash stock based compensation expense and noncash interest expense related to our exchangeable senior notes.
$21 million.
For the three months ended June 30, 2020, adjusted funds from operations grew to 263% from the prior year period.
On July 15th we paid our quarterly dividend of a dollar and six cents per share to common shareholders of record as of June 30.
Q2, 2020 common stock dividend reflects a 77% increase from the prior years second quarter.
As we've indicated in the past the board continues to target dividend payout ratio of 75% to 85% of assets. So on a stabilized portfolio basis.
During the quarter. We also continued to fund real estate improvements into many of our properties as offered in tenant improvement allowances or construction development to our operators under leases.
As we previously noted these improvements are critical to either redeveloping and existing facility to the candidates facility or finding expansion to address growing market demand.
As Ben previously mentioned, we've been proud to partner with many of our attendant operators and amend the leases to provide for additional expansion capital at our facilities for a corresponding increase in base rent.
During the six months ended June 30, 2020, we capitalized costs of approximately $158.4 million and funded approximately $161 million relating to tenant improvements in construction activity at our properties.
And with respect to financing activity.
In May we completed a follow on public offering of common stock raising net proceeds of about $115 million, including the exercise insel ever underwriters option to purchase additional shares.
And in July we completed another follow on public offering of common stock raising gross proceeds of about $259 million, including the exercise unfold over underwriters option to purchase additional shares. This brings our total capital raised to approximately $1.4 billion from the IP.
Ill follow on common stock offerings, our series a preferred stock exchangeable senior notes and our ATM program.
To date, we've committed around 77% of our raised capital or approximately $1.1 billion in the aggregate under leases.
We are truly grateful for all of our stakeholders continued support and we're 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, as highlighted on our last call I'd like to note that we remain very conservatively leveraged would know secured debt and approximately 12% if our total gross assets consisting of our exchangeable senior notes at quarter end.
Leverage rate and balance sheet composition that is truly unique among real estate companies.
Those exchangeable notes has a fixed cash interest rate of 3.75% equating to approximately $5.4 million of total cash interest payments per year and do not mature until 2024.
Those exchangeable senior notes the only debt, we haven't a balance sheet totaling $1.2 billion assets as of quarter end.
And with that I'll turn it back to Alan Alan.
Thanks Catherine.
As we've highlighted in prior calls I'd like to note. The following in closing we are proud of everything that our tenants have accomplished and commend them in the way that they have adapted to this ongoing pandemic to continue to provide safe and reliable access to patients and consumers.
We are well capitalized with strong flexible balance sheet that we see as a tremendous asset to allow us to whether these uncertain times and continue to support our tenants and the industry as a whole and its continued expansion.
And.
We believe the last few months have demonstrated the tremendous resiliency of this industry.
And we are steadfast in our belief and it's very bright long term future.
I want to personally thank for stockholders for your continued support and trusting us as stewards of your investment we have and will continue to do our very best in their role every day with that I'd like to open it up for questions. Operator could you. Please open the call for questions.
We will now begin the question and answer session asked a question you May Press Star then one on your Touchtone phone.
Speakerphone, please pick opinions that people are pressing to.
And withdraw your question. Please press Star then Q.
My first question today comes from Tom Catherwood with BP I can.
Thank you and good morning, everybody have.
So.
I don't want to talk politics here, but taking a step back the D. N C voted down federal legalization from its 2020 platform recently and that said it supports.
Decriminalization and and rescheduling through executive action, primarily targeted medical cannabis so in relation to your portfolio, how could decriminalization or rescheduling impact your business and would expose your tenants to competition from Interstate commerce or.
In port of candidates from other countries.
Hey, Tom as well so yeah. We're also see the DMC pretty much adopters book Biden Sanders policy published so that was no surprise there, but we were actually I'm pleased to see.
What the Biden Sanders policy was now the DMC. So as you know what there what they're proposing is.
That medical cannabis.
The legal over 50 states, which means that doctors can recommend cannabis without any federal intervention. So we think thats a real positive for our business and the industry because that certainly opens up all states to medical cannabis without the necessity of a vote.
What it does to it it's not.
Scheduling cannabis, which would not open up Interstate commerce. So thats. Another net positive we think so yes, yes. This.
When it comes into fruition next year by elected.
Yeah.
The Democrats take the Senate.
We could see some change, but we're all pretty positive about what that would look like.
As you know, we're not going to see.
For please.
He scheduling cannabis and it looks like buying is really adapting.
Stage Act as opposed to the more act so that would put the decision to recreational cannabis to the individual states. So we see it is a net positive for the industry and that's certainly our tenant operators.
Got it thanks, thanks for that Paul.
And then.
Next one is it just goes back a bit but if I recall correctly when mad men was going to acquire pharma can you signed a Tri party agreement to govern how far mccann's leases would be handled after that transaction.
With.
Sure relief closing on grassroots, which you mentioned and obviously Columbia care with TG us and even with the announce deal between Jushi holding this and for urea in Pennsylvania.
How are you addressing your leases during changes and ownership and do you get any additional credit enhancements or increased corporate guarantees.
So.
Just just for clarification, there was no Tri Party agreement.
With.
Amendment Treehouse.
Slash on us.
Back then.
The.
And just to be.
So that didn't exist.
And what we but what we do do is our all of our leases come with a corporate guarantee.
And give us the ability to review, who then the new any new entity is and that any guarantee wouldn't disappear. If we don't believe that the new entity that is it is acquiring.
One of our transactions and one of them through.
One of our leases.
In a better financial position than the previous.
The previous entity.
All all so a leases are subject to our too too.
Our approvals as to.
Whether when when an acquisition occurs.
And then the corporate guarantees stay in place and then transfer and then if we do we do come to an agreement with the new entity that new entity. Then is the now the new corporate guarantor of of the leases that we have in place.
Got it okay and is it.
I guess I would assume then that.
If you approve and if that lease transfers over and you get the new corporate guarantee of the new entity. The rest of the terms remain the same whether it's you know rents whether its rent increases up to that point in time, whether its lease duration. All all that remains from the previous from the original agreement correct.
Other than a a one lease where we have a the kind of has a right to purchase option all of our lease in terms of none of them are there is no early termination rights. There is no no changes no no pre agreed modification to any lease.
Got it. Thank you for that thank you for that Alan.
And then.
Maybe for a for for Paul here in regard to your.
I said it 1500 honored Esperanza Street, great to hear that holistic is under contract to acquire those licenses. It seems very similar to holistic first deal in California in 2018.
But help me understand the receivership process, if I recall correctly.
You know throughout this process it sounded like there was reverse inquiries and interest on that Youre space.
But at the same point in time, though licenses in the process thing of the receiver held up agreements is the process that the licenses and the assets that are under receivership have to be resolved before you can the lease the space or is that just the process that you've decided to follow how did that workings.
Absolutely.
Yes, so it's been a long process certainly and it hasn't been helped by the cobot shutdowns with some of the administrative offices in Los Angeles and with the receiver. So we've been working closer with the receiver and we're very happy to see holistic interest in the property.
But at this point, it's still not a done deal we're optimistic it will close.
But when the receiver gets filed court approval of the transport of the licenses to holistic.
That being a position to talk about the lease, but it's premature for us now to discuss the lease terms.
Yeah, Jeff and just to back up just a little bit on on that specific transaction.
It was further complicated by the fact that there was a Canadian.
Owner.
That started the receivership process and the receivership process was started in Canada and then when that receivership process was was adjudicated.
On the then they order became the.
The.
Primary investor.
Capital capital source for that.
The previous tenant and then it was trends then there was a second receivership process started in.
California and L.A.
Comp so that further complicated.
Process on top of co that on top of the lack of access to.
Courts and administrative process in California.
Just just.
Keeping all that in mind typically.
We are we wouldn't see that that type of complication.
Got it got to that that's that's really helpful.
Last one for me is for Ben you May not have this kind of at your fingertips right now, but you spoke a lot about.
Kind of tenant expansions, so so whether its phase two or phase three of of someone building out the their space.
It obviously seems to be a.
Great source of investment in your portfolio do you have a sense of how much expansion potential there is within the assets that you already own whether it's sitting out space. That's already exists or you know greenfield expansion on additional acreage do you have any sense of that.
Yes, so we're continuing to see a real nice mix in the pipeline between expansion, our existing facility and new investments.
Similar to many aspects of the business is very much driven by state by state markets and as we continue to see specific stage, we saw a lot in Illinois as an example late last year.
We'll see a lot of out in the Midwest those.
Medical States continuing this year.
The increase in the market is driving a lot of demand for real estate capital.
Expand these facilities and it is part of our underwriting going in on the acquisition that the side for the building itself will be able to support where we see the market going over the long term.
Got it appreciate that thanks, everyone.
Thanks.
Our next question comes from Scott portal with Roth Capital Partners.
Good afternoon, or morning, and congrats on the quarter and working through this coven environment I just want to get a sense of kinda velocity, a the pipeline I know you've acquired about 387 million year to date.
Since Covitz come on board can you provide even though the timeline of placing are deploying capital young normalized you said, it's about three to six months are we seeing delays or expectations that extending out in this environment going forward.
So.
When we when we raised the capital or last two capital raises we made it very clear that we could place that capital in a six to nine month timeframe and we believe that we're right on that path and that and or slightly ahead of that schedule.
We don't believe that that cobot welcome it does make it a little bit more difficult for us to transact to our business isn't any specific location.
We are the team has done a fantastic job of.
Of overcoming those those issues and continues on pace to deploy the capital that we raised on the six to nine month timeframe.
Okay, Great and then quick follow up on that Paul you mentioned it out the legalization front. It seems like Theres a lot more momentum on federal legalization and potential DEA scheduling, which changes the dynamics a little bit more competitors can come onboard but.
With the portfolio you still seeing a yields in the 13% range here remain high or are you seeing tenants kind of holding off in a sense.
The potential federal legalization and policy reform, just kinda talk about that as we look forward into November here.
Yes, so I don't think we've seen any real hesitancy on any of our potential acquisitions to wait and see what's going to happen.
In November because I think people understand that theres, a lot of moving parts and what could happen would takes the white house, who takes the Senate.
But you always talked about earlier our.
If biden takes.
The White house, and we see some congressional action will be mostly states rights type.
Movement, and I think thats going to be a slower process.
Then some people might think.
But.
I do believe that we're not going to see a de scheduling.
Cannabis from this yesterday, so it's still going to remain a controlled substance whether it is as scheduled two or three.
So we're not seeing huge shift.
Immediately one way or the other wherever whatever happens in November.
If we do see more legislation towards the stays rights.
We think thats really great for the industry.
We're not anticipating Interstate commerce with the state's Rice Act.
So we're not seeing tremendous differences in what we have today as far as the each of the operators being able to operate within their state boundaries. So.
We'll have to wait and see what happens but.
We're very optimistic for the industry and for operators.
And to be Claire can declare we're not predicting federal legalization.
As for seeing federal legalization on the horizon right now.
We are saying we have that we're seeing a.
Both both party platforms, having a a preference to states rights and that's that's what we're saying.
No I agree I could and then a real last real quick one from left as far as the pipeline is probably the Theyve been question. Obviously you guys have continued to move up into the top end misos, they're out there and then nice job expanding with them.
But underneath the pipeline are you seeing more smaller regional profitable players coming on board to two to start discussing potential deployment of capital for these new and upcoming players.
Yes, I think we're still seeing a nice mix of both we have established relationships with lot of the top firms I think we'll continue to.
Look to expand those relationships, there organic growth or through any M&A activity that the hyper soon.
And in a lot of these markets. Two point. We are also taking a look at smaller private or single state operators that are successful in the markets out there and with that.
Perhaps the smaller footprint.
If the underwriting make faster we like the investment we're taking a look at them as well.
Okay I appreciate it thanks to the color and I'll jump back in the Q.
Thank you thanks.
Our next question comes from Eric There L'oreal with Craig Hallum Capital Group.
All right. Thanks for taking my question guys.
Follow up on Scott's question, there, but perhaps more from a a risk management perspective, So you know.
That's great and see that you're a three tenants with rent deferrals and for full rental payments through July and you guys have also obviously done a great job increasing your exposure to your tier one tenants.
My question for you is how do you guys kind of Ah think about diversifying your tenant base versus increasing your exposure to existing tier one tenants and then a follow up can you help us understand.
How much exposure you're willing to take on with any individual operator.
For example would you ever want to get you a 100% other companies production assets just trying to get a sense of of the runway you guys have within your existing pads. Thanks.
Thank you so.
I think the.
Think we're really very comfortable with that our tenant a or our tenants that we currently have in our portfolio and the business model has always been one of growing with are our car DRAM tenants and being a a partner with them and their and their growth plans moving forward, we believe that.
To that gives us the greatest ability to attract the top quality tenants and to be able to support those top quality tenants as they as they expand throughout.
The the states that therein.
We remind everybody that this is a nascent industry that this is an industry that has been emerging over the last several years and I and that it only has.
A certain amount of a you know of high quality or there are certain number of growers that are of the of the size that we wish to do business with and we are very excited about the team that we haven't we continue to add.
A new ones as they emerge but that it is a relatively small segment of our small industry to begin with.
We think that supporting that tenants in their their growth facilities is is.
Appropriate and a risk and it is risk adjusted in the sense that we don't have all of their real estate.
And nor do we provide all of their capital we do provide a significant portion of it and a and very pleased to be a partnered with those tenants that were doing that with.
Okay. That's helpful. Thank you.
Our next question comes from John Massocca with Ladenburg Thalmann.
Good morning.
Hi, John.
So touching on Esperanza, a little bit more.
Assuming things go as planned I correct me, but you're negotiating a new lease at the property with holistic rather than holistic taking over the existing.
That's correct.
Okay.
And I know you might be a little bit restricted in terms of what do you can say on this but could you provide maybe any color with regards to where potential future cash rents with holistic would be versus what dialing that was paying prior.
We are positioned to do that because of that that.
Transaction hasn't been approved by the courts and so.
It's still subject to court approval and confidential. So we weren't where are we aren't prepared to be able to talk about that today.
[laughter] problems, but and then is that maybe think about cadence of acquisition volume, particularly in the near term there were a couple of things in the pipeline at the time of the most recent equity raise some of those close but there was no particular, one big transaction in Florida that was kind of in the pipeline is that still in that.
Why today and has that they've moved from L. Allied to two p., a day or something but anymore.
Solid.
So.
Well, we had when we did that trend or the capital raise we indicated that we had about a $131 million are between them Palisades Anello wise.
We have closed on approximately 78 million of that leaving one large transactions. So that is now under asset.
And a total PS a pipe our.
Total of about 83 million today.
In addition.
No not in addition, including the that one large transaction.
We are hopeful.
And then.
You know maybe little bit bigger picture, we talked a little bit about.
Legalization versus kind of decriminalization in terms of when it does your tenants, but I guess, how might that potentially affect your your ability to access capital picking on the debt side I mean, it that added.
Yeah, well you have as much active debt capital with decriminalization as you would with kind of full legalization.
That does that.
That's.
Hard to tell because we don't know what decriminalization might mean in terms of the banking side of the business.
But.
Whether its decriminalization or.
Legal fold legalization or whatever or whatever you want to whatever whoever has access to capital our debt capital. We will have the greatest access and the lowest cost to capital given the size of our balance sheet and the expertise that does management team has built up over the over the last 544 and a half plus years.
So thats where.
And then turn it back and one more on on the portfolio side of things I'm, sorry, but a little bit roundabout here.
What kind of drove the additional funding at the at the Cresca property in Michigan, just any color there would be helpful.
Yes, sure John back and speak to that so similar to many of our other transactions we will close on an initial.
Transaction, where the tenant will look to build out.
A portion of the facility.
You too.
Look to grow in a particular markets will often times come back to us.
I will discuss an amendment will provide additional capital.
Build out the balance the facility they feel the market is report.
That is what happened with the Costco building in Michigan.
They wanted the additional capacity to meet the demands are seen in the market right now.
Yeah, I guess they hadn't originally planned for that capacity. It wasn't essentially they were looking for other capital sources and didn't get it and came back to you at what they were going to build a smaller facility and realize the larger facility is necessary and it went back to you for more capital.
Correct way of kind of framing it well, there's another way to frame it too in that when when we that's a unique position. We're in is that when we provide capital we expect a definitive timeframe in which case and which rent start and so they are.
There.
They may have the the plans for growth, but if they take the capital upfront.
They're going to be paying rent on an upfront.
So they it behooves them to take just what they need when they need it and then after we own the facility they absolutely need to come back to last for additional growth capital.
Understood. That's it for me. Thank you all very much.
Huh.
If there any further questions. Please press star one at this time.
Seeing no further questions I would like to hand, the call back over to Alan gold for any closing remark.
Thank you and thank you all for joining us today and I also like to again, thank our stakeholders in our stockholders for your consumer and continued support and <unk> and a very importantly to also thank all the employees for all their hard work and getting it and having such a successful quarter and.
And.
The growth of this company so thank you.
And with that we will sign up.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.