Q4 2020 Innovative Industrial Properties Inc Earnings Call
Hello, and welcome to the innovative industrial properties, Inc. FY 'twenty Q for 2020 earnings Conference call.
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Now, let's turn the conference over to your host today, Brian Wolfe Wolfe. Please go ahead.
Thank you for joining the call presenting today are on gold Executive Chairman, Paul Smithers, President and Chief Executive Officer.
<unk> in Hastings, Chief Financial Officer, and Ben Regin, Vice President of investments.
Before we begin I'd like to remind everyone of that statements made during today's conference call maybe deemed forward looking statements within the meaning of the safe Harbor of 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 the news release issued yesterday and filed with the SEC on form 8-K, as well as the company's reports filed periodically with the SEC the.
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 over to Alan.
Thank you, Brian and welcome everyone.
Today, we look forward to providing a recap of our results through the back half of 2020 and into 2021.
Our views on the continued evolution of the industry. We are so proud to share.
There are certainly a lot to recap gross from our company's activities and the regulated cannabis industry as a whole.
First and foremost we are thrilled to see on display of the great minds of our country and the world achieving what many believe to be the impossible.
Multiple sets of highly effective vaccines ready for distribution in less than one year from the onset of this pandemic.
A truly remarkable testament to the ingenuity of our scientists and one which we hope brings the light at the end of the tunnel that much quicker.
With all of the challenges that we face.
The over the last year the regulated cannabis industry has demonstrated the strong and sustained resilience across the United States.
And arguably the first major economic disruption that this very young industry has faced.
As we have highlighted on prior calls with the regulated cannabis industry is designated as essential services in the vast majority of state and local jurisdictions, our tenant operators had been particularly adept at modifying their operations in this new environment and ways to ensured continued compassionate.
The July service to their patients and customers.
Environment designed to maximize the safety and health of patients customers and employees.
And as the country and the world as a whole has suffered true not only of health crisis, but also one of the quickest and deepest economic contractions in recent history the.
I'd say its regulated cannabis industry continued on its tremendous growth path.
Growing over 50% annually from just over $13 billion in sales in 2019 to an estimated 20 billion in 2020.
And while the vast majority of businesses were retrenching in this unprecedented time experienced well position regulated cannabis operators continue to push.
For pets and deepen their operations we.
We were proud to continue to partner with them in 2020 as their go to real estate partner of.
The year in which we made 20, new property acquisitions and additional investments in our existing portfolio of totaling over $620 million.
As of today, we own 67 properties in 17 states totaling $5 8 million square feet, which are 100% leased on a long term basis to high quality licensed cannabis operators.
On the one property that was not least on our portfolio at year end was our Los Angeles, California property.
And as noted in our press release issued yesterday holistic industries are long term tenant partner in Massachusetts, Maryland, Michigan, and Pennsylvania acquired the operational licenses for this property in early January and we executed a long term lease with them for the entire property.
Aside from our Los Angeles property, our tenants have paid all contractual rent due in the fourth quarter 2020, and the first two months of 2021.
The other than one tenant in our southern California portfolio, having paid partial rent through that period.
And we have executed no rent deferrals for any tenants since since July of last year, which we believe is a testament to the quality of our tenant base and their ability to adapt to this new normal in addition to the exceptional resiliency of the regulated cannabis industry as a whole.
Reflecting the strength and resiliency of our tenant partners, we paid a quarterly common dividend of $1 24 per share to stockholders on January 15th representing a 24% increase over fourth quarter 2019 dividend and our ninth dividend increase since our IPO in December 2016.
On the financing from I would also like to personally. Thank all of our stockholders are long term company owners for their steadfast support.
Providing us over 1 billion of net proceeds over the last year to support our tenant partners and their continued expansion initiatives.
Well of forging new tenant partnerships with top tier operators in the industry.
Catherine will also provide more detail regarding our financial results and capital raising activity.
And of course regulatory developments in the cannabis and I'm sure all of our.
Are also top of mind with the continued strong majority support across nearly every demographic for legalizing cannabis.
In November of the momentum we have seen over the past decade on the state level continue there's five new states passed measures to legalize medical or adult use cannabis <unk>.
Resulting in 36 states, having legalized medical use cannabis in 15 states also having legalized adult use cannabis.
We are closely monitoring the many proposals and Congress regarding cannabis legislation and Paul will provide additional detail on that front.
Now before I turn the call over to Paul I want to reiterate our deep appreciation for you for a long term owners for your support throughout these for transformative years of our company and we look forward to serving you in this amazing high growth industry for many years to come.
With that I'd like to turn the call over to Paul who will provide additional detail on the recent legislative developments of the cannabis industry Paul.
Thanks, Alan for this call I plan to provide an update on the regulated cannabis industry, including one state developments from the most recent election cycle to our views on the federal regulatory permit.
And three recent dynamics of the industry. During this health crisis and in conjunction with recent election results.
As mentioned on our last call I'd like to also preface this discussion, noting that regulations and industry developments are evolving rapidly and why we wanted to provide you with a general current landscape. There can be no assurance that this landscape will not significantly change.
First state of results from the most recent elections in November.
As we discussed on prior calls pre pandemic 2020 was shaping up to be another watershed year on the state legalization front.
However, shelter in place orders greatly impacted the ability of the organizers together sufficient signatures in person and as a result of number of initiatives had to be postponed.
Even in the face of such challenges five new state measures to legalize medical for adult use cannabis passed in November with approvals of adult use programs in Arizona, New Jersey of Montana, as well as approval of a medical use program in Mississippi.
And noteworthy South Dakota voters approved both adult use and medical use programs in November a first for a state to approve both programs at the same time.
And just a few years time. These programs alone are expected to add over $3 billion in revenues to the U S totals.
Furthermore, with numerous adult use and medical use programs in place across the United States States with new programs have several models from which to choose and we expect the pes experiences will enable new states to effectively implement new programs over significantly shorter time periods and it has been historically the case.
In 2021, we're tracking no less than 11 additional states that may potentially move forward towards establishing new programs, including on the medical side, Texas, South Carolina, Alabama, Kentucky, Kansas, and Nebraska and on the adult side, New York, Connecticut, you met.
Sicko, Rhode Island, and Virginia of <unk>.
Of course. These include some of the most populous states.
Tremendous future potential for the industry.
With 36 States and D C. Having legalized cannabis for medical use in 15 states, having legalize cannabis for adult use. This continued rapid adoption across states is reflected of the 90% plus support seen among U S citizens for medical use cannabis and the overwhelming majority support of the U S share.
This is for adult use cannabis legalization as shown in poll after poll.
Second our views on the current federal regulatory environment.
With the clear dramatic shift of popular opinion in the last decade years' of experience of state run medical and adult use programs and continued rollouts of new state programs. We're of the opinion that national cannabis reform is that much near.
And as we all know the most recent federal election cycle by the changing of the guard in terms of the Democratic Whitehouse, a 50 50 Senate with a tiebreaker device President Kamala Harris, along with the continuing majority of Democratic control of the house.
That said there are numerous competing agenda items of the new administration and Congress in 2021, most notably getting the Covid health crisis on the control accelerating vaccine administration and supporting the economy and working families.
There are numerous cannabis related bills pending in Congress at different stages of review.
A few of the more notable bills include the more act passed by the house in December with a focus on Discursion on cannabis and social equity.
The Safe Banking Act, which would provide additional safety to financial institutions and serving state compliant licensed cannabis operators. The States Act, which would protect states to enact their own cannabis policies free from federal interference.
And Bill is focused on mitigating the draconian tax impact of IRS code section 280 E for cannabis operators.
It goes without saying that predicting federal legislation, including both the content and timing as it pertains to any topic is challenging and in particular with respect of cannabis that said with the near Universal designation of cannabis across the state programs is essential during this COVID-19 pandemic in comms.
Nation with popular support that really spans all types of demographics and part of your affiliations. We do believe that there will be changes on the horizon.
We are closely monitoring the status of the bills in Congress.
And evolving dynamics of both Congress and the administration, including the Senate voting dynamics in our view and of course. This is just our view we see certain bills like the Safe Act for bills had addressed the 280 tax issue as perhaps near term and bill such as the States Act further on the horizon.
Finally regarding industry dynamics in the second half of 2020 and continuing into this year.
The candidacy industry in general and our attention particular continued to exhibit of unique resiliency throughout the health and economic challenges, we have faced as the country over the past year.
In 2020, a year of unprecedented and reach in U S history in terms of economic decline the legal cannabis market was projected to have grown over 50% from the prior year fueled by the introduction of new state programs sustained growth and continued transition from the illicit market two of the regulated mark.
Kit and established state programs and continued acceptance and adoption by residents, including a strong and growing recognition of cannabis as therapeutic value across a wide array of medical conditions.
With the sustained growth and demand the expansion across states of regulated cannabis programs and the recent results of the federal election cycle best in class of operators, including many of our tenants have focused in recent months on additional capital raising and M&A activity to position themselves to take full advantages.
Of the opportunities that they see in the months and years ahead.
On the M&A side for our tenants we're tracking numerous recent announcements since early December including deals like our tenant credit goes 213 million dollar of announced plan to acquire Blum of wellness.
And our tenant Columbia cares announcement to acquire our other tenant greenleaf for $240 million in cash and stock.
This has been the trend of the last several months, which included our tenant cure of lease acquisition of our other tenant grassroots in Illinois, North Dakota and Pennsylvania.
And our tenant Columbia of cares acquisition of the other tenant the green solution in Colorado in 2020.
We have seen this trend really accelerate in December and January and we expect to see this continued consolidation has the top operators continued to gain market share.
We are also seeing a tremendous level of capital raising activity, which we believe is a reflection of the resilience and amazing growth of this industry. The broad based public acceptance and support of the regulated cannabis industry, especially medical use cannabis across the United States and changes in the composition of the federal government.
And this election cycle that may hasten federal regulatory changes.
In fact in January alone North American cannabis companies closed or announced more than $1 $6 billion in capital raises and the amount that is almost double the previous record for that time period.
And of course, the lion's share of that capital raising went to top tier operators, including many of our tenants, which we believe provides a meaningful further enhancement to the credit quality of our tenant base on.
I'll now turn the call over to Ben who will walk you through our recent acquisitions and follow on investments as well as some additional color on our overall portfolio debt.
Thanks, Paul since October 1st we made five acquisitions in four 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 67 properties across 17 states, representing approximately $5 8 million square feet, including approximately two.
Square feet under development or redevelopment with a weighted average remaining lease term in excess of 16 years.
Similar to past calls I plan to touch on each of our acquisitions by state and also provide some information about each tenant and our portfolio overall in the state.
Also plan to provide some additional detail on our tenant roster and overall portfolio.
We've been fairly active in California in recent months with our two transactions of King's Garden, and the re leasing of our Los Angeles property. The one property that was not least on our overall portfolio.
California's regulated cannabis market is one of the largest in the world with approximately $5 $6 billion on sales in 2020.
It is expected to continue to represent over 20% of the overall U S market in 2025.
King's Garden is one of the top operators in California consistently ranking in the top five of flower and concentrate sales in the state and as you May recall was one of the first cannabis operators to come in its regular quarterly dividends to its shareholders. In June 2020, a remarkable achievement for a company continuing on as the rapid expansion path.
With our two transactions in November 2020, and earlier this month, we now the six properties, the King's garden, representing well over half a million square feet, including projects under development and the.
Total investment of nearly $150 million, including commitments to fund future development and redevelopment.
We are proud partners of Michael King and his great team and look forward to supporting them through the development and redevelopment of state of the art facilities to dramatically expand production capacity and continue to deliver the highest quality product that they are known for.
And as we previously announced we are thrilled the team with holistic industries as our new tenant partner at our property in Los Angeles holistic has been of tenant partner of ours since 2017, and I'll go into more detail on our footprint with them a little later.
Moving on to Florida, we acquired a property comprising approximately 295000 square feet of industrial space and entered into a long term lease with harvest health <unk> recreation with our total investment in the acquisition and tenant improvements of the property expected to be about $35 million in the aggregate.
Harvest is a leading vertically integrated the U S. Multistate, operator with licensed operations in nine states, including 38 retail locations 12 cultivation and processing locations and over 1100 employees across its operations. We are thrilled at harvest of our tenant roster and look forward to supporting them in their expansion of production capacity at the.
Facility.
Florida is the largest medical use cannabis market in the United States closing in on half of million qualified patients, including the harvest property, we own and lease for properties in Florida totaling about 1 million square feet of tenants truly of parallel and harvest representing a total investment of a little over $150 million, including commitments to.
On the future improvements, we could not be more thrilled with our tenant base on the overall opportunity in Florida.
Now the Massachusetts in December we expanded our footprint in Massachusetts with the acquisition of at least the forefront ventures of an industrial facility for cultivation processing and dispensing.
Concurrently with that close we acquired another property and executed a long term lease of forefront in Washington, with our total investments across both properties being $33 million and comprising about 181000 square feet.
We're excited to bring forefront of and as a new tenant partner, a leading MSL with licensed operations and services in California, Illinois, Massachusetts, and Washington <unk>.
<unk> are for fund transaction, we own six properties of Massachusetts, representing a total investment of a little over $185 million comprising approximately 647000 square feet with tenants forefront ascend wellness Chriscoe labs holistic farm Mccann and true leave exceptional roster of leading msos.
As noted our forefront transaction marks our first acquisition of at least in the state of Washington.
Washington is a relatively well developed mature market with recreational cannabis sales of over $1 billion in 2019, and we believe that forefront has differentiated itself and its cost effective high quality cultivation of me.
We are excited of partner, where the tenant of this quality in the city.
Finally on the investments front I would like to touch on the follow on investments we've made in our existing properties, which we believe is a key differentiator of our model with the flexibility to grow to meet our tenant partners needs to expand at the appropriate times.
Since October of last year, we have executed of $25 million of follow on investment with Green thumb in all of.
<unk> $31 million follow on investment of the farm Mccann in New York follow on investments with holistic totaling $7 million in Massachusetts in Pennsylvania and of $7 million of follow on investment with live well in Michigan. In addition to others.
This exemplifies our mission to be the key provider of growth capital to our tenants being there to offer funding solutions for their expansion at the time and on the terms that provide them optimal non dilutive capital to capture that market opportunity.
Finally, I would like to touch on our most significant tenants as a brief update these top 10 tenants account for over three quarters of our contractual rent as of today.
Those tenants in the order of concentration include farm Mccann King's Garden, ascend wellness Chriscoe labs Green thumb industries holistic parallel pure leaf greenleaf and true leaf.
As you know of farmer Mccann is where we started having executed our sale leaseback with them for their property in New York in December 2016, shortly after we completed our IPO.
Since then we have partnered with farmer Mccann of numerous transactions to facilitate the continued expansion with five properties located in Illinois, Massachusetts, New York, Ohio, and Pennsylvania, with our total investment, including future commitments to fund additional improvements totaling about $167 $5 million.
With licenses in eight states on one of the largest privately owned vertically integrated cannabis companies in the U S. We are proud to partner with pharma can over the four plus years.
Support them on their strategic growth in markets, representing a tremendous growth opportunities.
King's Garden I discussed in some detail our tenant partner King's Garden as it relates to recent investment activity. So I won't go into much additional detail here, but needless to say we are thrilled the team at King's Garden in California, one of the top operators in the largest regulated cannabis market in the world.
The ascend wellness, we have been of sends real estate partner since 2018 and have partnered with the ascend on three properties in Illinois, Massachusetts, and Michigan, representing a total commitment of nearly $120 million.
<unk>, which is led by Abner curtain as a vertically integrated NSO with assets in Illinois, Michigan, Ohio, Massachusetts, and New Jersey.
Avner has developed a tremendous footprint with a world class team to execute on these key strategic markets and continues to effectively fund strategic initiatives throughout this pandemic, including of 68 million dollar of capital raise in August of last year to execute on additional expansion opportunities in Illinois.
Chriscoe lapse.
We have been credit goes real estate partner since 2019 and of partnered with Chris go on five properties in Illinois, Massachusetts, Michigan, and Ohio, representing a total commitment of $121 million.
<unk> was the largest wholesaler of branded cannabis products in the U S and as mentioned previously recently announced the transaction to acquire Florida's Bloom of wellness for $213 million in an all stock transaction and closed on $125 million stock transaction last month we.
We see <unk> was extremely well positioned to continue to gain market share throughout the states of operation with an enviable liquidity position to take advantage of these opportunities.
Green thumb industries as tenant partner of ours on Illinois, Ohio, and Pennsylvania, representing a total commitment of about $122 million led by Ben Kobler Green thumb is one of the largest msos in the United States with licenses for 97 retail locations 13 cultivation of manufacturing facilities and operations across 12 states.
Earlier this month, the raised $100 million of equity capital from a single institutional investor, which we view as a real testament to the success of their business and future opportunities.
Holistic we.
We own five properties leased the holistic in California, Maryland, Massachusetts, Michigan, and Pennsylvania, representing a total commitment of about $108 million, our Maryland property represented our second property acquisition in our history and we are truly grateful to have partnered with Josh Gander son, and his team since that time in a number of transactions.
As Josh has led his team and the highly successful expansion across the northeast and Midwest and now out to California with our most recent lease executed last month in Los Angeles.
Holistic originally founded in 2011 is one of the largest privately owned vertically integrated Msos with operations in California, Maryland, Massachusetts, Michigan, Pennsylvania, and Washington D C.
Holistic closed on an oversubscribed debt financing in September of last year for $35 million led by all of our capital.
Parallel.
We own two properties leased to parallel on Florida, representing nearly 600000 rentable square feet on a total commitment of approximately of $100 million.
With the great footprint in Florida, Massachusetts, and Nevada, Pennsylvania, and Texas parallel operates 50 retail locations nationwide and continues to look at further strategic expansion opportunities per.
<unk> is led by Beau Wrigley, who previously served as the chairman and CEO of global gum and confectionery leader at the William Wrigley Junior Company, which was acquired by Mars in 2008 for $23 billion.
Having previously raised over $400 million on capital parallel announced earlier this week of pending merger with series acquisition Corp. The spak with the closing expected this summer.
The transaction includes the commitment by investors for an additional investment of $225 million with an implied valuation of about $1.9 billion.
I want to congratulate Bo and his team for all of their success and we look forward to tracking the close of this transformational transaction for parallel.
Clearly.
We owned for properties leased securely for in Illinois, New Jersey, North Dakota, and Pennsylvania, representing a total commitment of nearly $103 million. These include the property is leased to grassroots which as Paul mentioned was acquired by care of leaf in 2020 and for which we received corporate lease guarantees from kiera leaf.
<unk> has developed a tremendous footprint with operations in 23 states over 100, dispensaries 23 cultivation sites 30 processing sites and over 1150 employees last month securely of closed on the capital raise in excess of 300 million Canadian dollars one of the largest capital raises for a publicly traded.
Operator, and this industry's history.
Green leaf.
We own two properties leased to green leaf in Pennsylvania, and Virginia, representing a total commitment of about $63 million Green leaf is the market leader in the mid Atlantic region with cultivation extraction processing and retail operations across Pennsylvania, Maryland, Ohio and Virginia.
As Paul alluded to in his remarks at the very end of last year of Columbia care of announced that it had signed a definitive agreement to acquire greenleaf for $240 million in cash and stock and that transaction is expected to close in the summer of 2021.
As you May recall Columbia care of acquired one of our other tenants at one of our Colorado properties of the Green solution in 2020.
We also leased to Columbia of care two properties in New Jersey, and pro forma for its acquisition of Green leaf, we would expect to lease to Colombia care properties, representing a total investment of about $88 million.
Take care of as one of the largest and most experienced msos operating 108 facilities with licenses and 18 jurisdictions and the EU.
Rounding out our top 10 tenants is truly a tenant partner of ours that properties in Florida, and Massachusetts, representing a total commitment of a little over $60 million led.
Led by CEO Kim rivers truly is the dominant cannabis operator in Florida, the largest medical cannabis market in the U S with 66 retail locations and 2 million square feet of cultivation.
Truly of also operates in California, Massachusetts, Connecticut, and Pennsylvania and was recently awarded several dispensary permits for the new West Virginia Medical cannabis program as it continues to expand its national reach.
While we touched only on our top 10 tenants. We are proud of what all of our tenant partners have accomplished during this time and feel that we have established in a few short years of tremendous tenant roster and property footprint that would be extremely challenging to replicate in coming years.
With that I'll turn it over to Katherine.
Okay.
Thanks, Dan it's been yet another busy quarter and the regulated cannabis market has really continued to show its resiliency. During these unprecedented times both of which are reflected in our financial results for the fourth quarter and full year 2020.
We generated total revenues of approximately $37 1 million for the quarter a one.
110% increase from Q4 of last year.
The increase was driven primarily by the acquisition and leasing of new properties additional tenant improvement allowances provided the tenants at certain properties that resulted in base rent adjustments.
And contractual rent escalations at certain properties.
As Alan mentioned, we've collected 100% of contractually due rent across our total portfolio for the fourth quarter 2020, and the first two months of 2021 other than for our Los Angeles property and for one other tenant in southern California that made partial payments during that timeframe.
And have no ongoing rent deferrals for any tenant.
Regarding the tenants that made partial payments, we're closely monitoring that tenants business and are in regular communications with their management and I would note that the properties that they lease.
Represent less than 1% of our total gross assets at year end.
And as we have indicated in the past our Q4 revenue reflects only partial quarters of revenues from the acquisitions on leases executed during the quarter.
And no revenues of course for the leases executed after the end of the quarter.
And our revenues for the quarter were also impacted by renovations or deferrals under certain leases as we continued to account for all of our leases on a cash basis.
For the three months ended December 31, 2020, we recorded net income of $21 million.
As noted in our earnings press release for the first time in the fourth quarter 2020 versus all other periods that we've reported to date.
Exchangeable notes for considered dilutive for purposes of calculating net income at the sow and E. S. S L.
As a result for the fourth quarter 2020 results. The exchangeable notes are treated as if they had been exchanged for common stock at the Zen current exchange price, which resulted in adding back cash and noncash interest expense for the exchangeable notes of approximately $1 $9 million for the quarter to SSO.
Diluted.
And also adding approximately two 2 million shares to the fully diluted share count.
This is essentially decrease on a reported <unk> per diluted share by seven standard. So we want to highlight this items, especially as it makes an apples to apples comparison difficult between the Q4 results and any other period as it relates to SSL and <unk> measures.
And then all of the other periods did exchangeable notes were anti dilutive for accounting purposes.
To note as well all years presented including 2020 treat the exchangeable notes is anti dilutive for purposes of SSL and SSL measures.
So for the fourth quarter funds from operation, which adds back the cash and noncash interest expense on the exchangeable notes and property depreciation to net income was $31 $6 million adjust.
The adjusted funds from operations, which adds back noncash stock based compensation to the SSO was $32 4 million.
On January 15th we paid our quarterly dividend of $1 24 per share to common stockholders of record as of December 31st the.
The Q for 2020 common stock dividend reflects the 24% increase from the prior year's fourth quarter.
As we've indicated in the past the board continues to target a dividend payout ratio of 75% to 85% of the SSL on a stabilized portfolio of basis.
We also continued to fund real estate of improvements into many of our properties as offered in cash.
Tenant improvement allowances for construction development to our operators under leases.
As we've previously noted these improvements are critical to either redeveloped being an existing facility. So the candidates facility or funding expansion to address growing market demand.
As Dan previously mentioned, we've been proud to continue to partner with many of our tenant operators and amend the leases to provide for additional expansion capital at our facilities for.
A corresponding increase in base rent.
During the year ended December 31, 2020, the capitalized costs of approximately.
<unk> $301 million and funded approximately $290 million relating to the tenant improvements and construction activity at our properties.
And with respect to financing activity.
In November we entered into a new aftermarket or ATM offering program, allowing us to sell up to 500 million shares of our common stock.
During the fourth quarter, we raised net proceeds of approximately $263 million Tiara ATM program, bringing our total net capital raised to approximately $1 $7 billion from the IPO follow on common stock offering our series a preferred stock exchangeable senior notes and our <unk>.
On the program.
To date, we've committed around 83% of our raised capital or approximately $1 $4 billion in the aggregate under our leases and has approximately $280 million of available capital to place today.
Finally, as highlighted on our last call I'd like to note that we continue to have one of the most conservatively leveraged balance sheets in the REIT space with no secured debt in less than 8% of our total gross assets consisting of our exchangeable senior notes at year end.
The exchangeable notes have a fixed cash interest rate of 375%.
Adding to approximately $5 $4 million of total cash interest payments per year and do not mature until 2024.
This is the only debt we have on the balance sheet totaling $1 8 billion.
Of gross assets as of year end.
And with that I'll turn it back to Alan Alan.
Thanks, Catherine I'd like to note the following the closing.
And just over four years of our company's operations. We have developed what I think is a truly exceptional property footprint and tenant roster.
With tenant partners that continue to execute exceptionally well and one of the most challenging years, we have experienced as a society.
We continue to be well capitalized with a strong flexible balance sheet that we see as a tremendous asset for future opportunities.
And we believe that in each year and the last for years has progressively validated our core belief of the tremendous future of this very young industry.
Which has demonstrated a truly unique resilience throughout the health and economic crisis.
And apart from nearly every any other industry.
I want to personally thank our stockholders for your continued support and trusting us as stewards of your investment we have on will continue to do our very best in the rule every day.
With that I'd like to open it up for questions. Operator could you. Please open the call up for questions.
Yes, certainly thank you we will now begin the question and answer session to ask a question you May press. The Star then one on your Touchtone phone.
If youre using the speaker phone please pickup your handset before pressing the keys to try the question. Please press Star then two at the.
This time, we will pause momentarily to assemble the roster.
And the first question comes from Tom Catherwood with <unk>.
Thank you and good morning, everyone.
Right.
Yeah, just building off of what you kind of Paul you touched on it and then Ben you touched on of as well.
On the capital raising and access the capital for cannabis operators in the U S. Obviously really positive news speaks to investor interest.
The stock prices of absolutely improved along with that.
But from your standpoint.
Given this increased access to capital how are your tenants, who viewing of real estate sales as part of their capital stack going forward.
So Thomas this is Alan.
Yeah.
We are really very excited about all of the.
The <unk>.
Interest in the industry by investors and providing greater and very much stronger balance sheets for our for our public kind of related tenants, but in the end we are still the best and most cost effective non diluted capital for.
For this industry and the the cost of capital that the debt the company's orange are incurring when they sell when they sell a piece of their business is significantly higher and and more dilutive than what we were providing so we're we're seeing a very strong in.
Tremendous and continued interest.
And what work on our program.
We believe that the.
The the.
Industry overall is growing much larger granting greater opportunities for us to provide.
More capital.
More of our more of our capital and to be able to place a very accretive on.
I appreciate that thanks Alan.
On the along those lines in terms of of the acquisitions 2021 is the.
Ahead of your pace in 2020 through the same period of time of.
And some of these new deals look a little bit chunkier. So so you know of larger deals spaced out a little bit more but.
But also still with the best operators can you give us a sense of how your pipeline right now compares to 2020.
Certainly and you know I think you've hit on a couple of points for the first of all of the these transactions are for <unk>.
Very chunky and and and they're chunky because by design I mean, we think we are of very strong business model on a business model that focuses on the larger size type tenants with the larger size type projects, creating chunky chunky acquisitions and the average D O our average deal sizes.
As a you know north of the the $30 million range and because of that we are uniquely us a unique organization in the industry.
Has the capacity to do those those size type transactions there are competitors and there are ways for R.
Our tenant partners to raise capital in the smaller range, but.
To do large large size type transactions the sale leaseback transactions north of that $30 million I think we think we're uniquely where of unique organization and well positioned to be able to provide back half of them.
We think that our our pipeline and I know that I'm going to have probably been spend of a little bit of to talk about our pipeline, but it is continues to be robust. We think that we believe that we've been able to.
The place capital on a very efficient base.
Basis, especially.
Especially after raising the capital we've been we've been able to consistently placed on capital in that six to nine nine month time period after raising the capital and we're highly confident that we can continue going on on that pace.
Ben do you want to add something sure Hey, Tom.
Just echoing what Alan said, we are continuing to see tremendous growth in the industry overall, which is very exciting the.
Of the addressable market continues to increase and again as Alan mentioned, we are uniquely well positioned and feel that we are the best proven.
The cost effective sources of non dilutive capital to the industry.
I appreciate that.
I appreciate that I'm looking at you know.
On the time of together with something of that Paul had said.
And then I think you mentioned it as well just the increase in M&A activity.
In the industry.
Are you seeing any companies looking at utilizing some real estate sales as part of a way to finance some of these transactions sort of like Blackstone pre selling some of the equity office assets back in the back in 2007 is that something Thats made its way into the market yet or is it still too early for that.
So I mean are we.
We think the M&A activity is continuing to to be robust, we think that our.
As Paul has described that.
Many of our large tenants have oh, I haven't been on the outlook or I've been on the on looking for a unique acquisition targets and we think that will continue we think our capital.
Which is still the most effective of non dilutive capital out there is a key component too.
To the way our large tenants are looking at their balance sheet and using that to help them with acquisitions.
Got it and just one last quick one from me just on vertical cat I appreciated your commentary there.
If on memory serves me.
This is one of the companies you gave the deferral to into Q and the idea of back then as they were diversifying their wholesale business moving away from kind of one key client that was having some trouble in and bringing some new ones, which they were able to do.
He is the kind of partial payment still tied to the diversification of clients or is this something that something new that they're working through.
So you know.
The time I'll have I'll have a cat.
Pat answer that or maybe even Ben but the you know we're we're really very proud of our of our overall portfolio and to saying that we're in now we're 100% leased and is a remarkable feat and a very young for very young industry in general the industry continues to have.
All of our tenants continue to to to.
Look at look at different business models to maximize their on their opportunity.
And we are really excited about the fact that we've been able to generate 100 per 180% year over year AFI.
<unk> growth.
With a portfolio that had been 100% of leased.
So pat or Ben who would like to.
Yes.
Thanks, Alan the outcome.
On the vertical wise one of the three operators that we could provide that limited COVID-19 rent relief program to the back in April.
No.
We feel that those assets are really well positioned there we continue to work with vertical to try and get them current the are continuing to operate from the debt facility today.
And as I remarked.
They are less than one percentage of our.
Total portfolio.
Got it. Thank you for all your time guys. Thanks.
Thank you and the last question comes from Daniel Santos with Piper Sandler.
Hey, Thanks for taking my questions. So I'll, just keep with the tenant health and <unk>.
The sort of theme and kind of dig into that a bit more if I understand the situation correctly. It isn't all of their assets. That's an issue was sort of indicates that the issue of sort of location dependent.
We've talked in the past about the limitations you guys have on what you can disclose about your tenants, but how can we you know and the investor community in general get more comfortable with the idea of that there arent more tenants to follow I mean, I appreciate that in some ways for a cash business cash collection is the most important metric, but there has to be some other metrics that we can sort of.
Look at qualitatively or quantitatively, the kind of get comfortable with your specific portfolio.
So you know and I appreciate the I appreciate the question and what we've tried to say we have a very simple and I think of very strong business model of providing.
The non dilutive in the cost effective capital to to this industry. It is.
We are kind of.
A variety of different type of tenants.
Of that have a variety of different type of business models and to say that this one.
This one.
Issue is location specific of that I don't think of it has really anything to do with the location of the of the the ASP of more of the specific business model that the.
This one tenant are focused on.
The more focused on the wholesale side of the business as opposed to.
Creating your own brand and and.
And focusing on that brand and growing that brand over time.
Of that name.
And they were I think more affected by what was going on on the broader industry, including with what's happening during because of Covid.
And and and I think that that's the primary effect of of.
The business and they're working through it. We believe you know we're doing our best to help them, but once again I mean.
We have a $1 $8 billion worth of real estate over 67 different private this is one property of one tenant.
It represents less than 1% of our of our of our revenue.
Right and I totally appreciate that it is sort of small piece of the portfolio, but I guess as we sort of book forward right. I mean this year, you've now had sort of two tenants that you would have to disclose on again.
Get that you've had 100% rent collection, but are there some metrics or some things that we can book at to get a little bit more comfortable with the sort of underlying health of your tenants.
So other than that reflected the 100% of environment other than the fact that we've had 180% year over year on that.
The growth on our E F F O I I'm trying to figure out of metric here is on track.
I'm talking other than the fact that we have the the top 10 tenants in the entire country other than the fact that the the tenants.
<unk> been able to raise capital and.
Not only from.
From private investors and the family offices, but also through the through the public market.
I think maybe perhaps that's the one metric that you think that you could focus on that really gives the the the state of health of the industry.
And then just the ability to raise capital.
And we think we can focus on on that you could also focus on on the fact that in the industry itself the year over year growth of sales of is still growing at north of 30%.
That's a really strong thing.
You know I think that Ben mentioned that over 75 per cent of our revenue comes from you know the top 10 tenants in the in the entire country.
Other very strong metric.
<unk>.
And Paul do you want them from.
To go further on that I would just look at the industry itself and.
2020 was the pandemic here and we've seen tremendous performance of our tenant operators.
And the tremendous growth of the industry and most importantly, I think is the early designation.
Of cannabis industry as essential services in those states, we operate which really.
Allowed our operators to excel.
On.
The results. They did so I would just add debt on top of the things that the.
All of the numerator.
Okay.
That's helpful. And then my next question is sort of on the balance between ATM dilution and acquisitions like you said in a lot of ways you have a free simple business model you raise the equity you buy assets, but unless those things are sort of perfectly time youre going to take the dilution hit before you get the benefit of the income so without being too long winded I guess a is there a weighted.
We can kind of close that gap between the dilution in the earnings or how could we be thinking about it as we model you on the.
Going forward and then I guess b given that you ended the quarter with cash, which presumably funded your 21 acquisitions, how should we be thinking about ATM in the future.
So Dan I think of.
If you recall, our you remember that.
We don't have access to a credit facility and we don't have access to that kind of of the ability to warehouse capital on the credit line of warehouse acquisitions on the credit line.
<unk> raised capital later to pay down the credit line. So you can think about our excess capital as our credit facility that we created for ourselves.
And.
And the cost of that capital isn't realized the cost of our dividend.
As we go forward I think that it's important to note that we've you know we've been very consistent in our ability to be able to place that capital in the six to nine month period of time after raising it.
We believe that raising the capital at.
Through the ATM at the end of the.
2020 really.
It gives us the strength and ability to continue to move.
Move through our pipeline and give our our tenant partners the confidence that when they need the capital we have the capital available. It gives the new tenant partners of the confidence that when we commit to do a transaction that we can accomplish that.
Remembering again that we don't have the access to our credit facility to be able the warehouse those types of here.
Type transactions.
Thank for the best way to model. It is to is to assume that the <unk>.
Capital and that's put on the balance sheet will get placed in that six to nine months period of time.
And of the M that.
That dilution that the that we do take when we redo raise that capital we believe as well.
Well well taken care of with the very accretive.
Type of transactions, we're doing.
As you know we.
We did over we did over $600 million worth of transactions in 2020, all within our targeted acquisition yield range of between.
The 11, and 15% and we believe that we will be able to continue to do that as we move forward.
And Dan I, just wanted to also point out too that we tend to hold cash on our balance sheet.
It has already been committed so remember that when we're making a commitment for construction we have that cash available that sits on our balance sheet until we actually funded out overtime as improvements are going into the properties. So I think in my prepared remarks remarks, we'd indicated that today, we have about two.
$180 million of cash for the future investments that have not been committed today.
Perfect. That's super helpful. I'll leave some questions for other people.
Thank you Dana.
Thank you and the next question comes from Scott Fortune with Roth capital.
Good afternoon. Thanks for taking the questions wanted to kind of follow up a little bit on the pipeline outlook, you kind of breakdown percentage of the.
Existing tenants that are moving forward with new facilities or tenant expansions and kind of.
The new tenant opportunities the beauty of the.
The space is a lot of these limit of licensees the captains who is going to.
Provide a lot more tenants over the.
The long run for the states to do well within each day from that standpoint, because he can provide a little more color on.
On kind of the procedure of the.
<unk>.
Tenant pipeline and potential new ones.
And the operators are looking for sure.
For capital here that'd be great.
Sure I mean, I think the <unk>.
Best way to look at.
The very strong pipeline is that us and our business model is that we.
When we bring in of new grower and we have the 22 growers.
Growers now that are part of our tenant base.
And.
That we commit to not only.
Helping them with the current transaction, but helping to support them to grow as as they move forward as you can see from our historical acquisitions, probably I would say you know greater than 60% of our of our transactions were repeat business with the existing growers.
And we.
Tend to add new growers, very carefully and with a lot of consideration because that.
Of that commitment to be able to provide them future capital.
So with that maybe I'll turn it over to Ben product, perhaps talk about where we what we see on our pipeline.
Yeah, sure Hey, Scott So we continue to see a nice mix of business with our existing tenants.
Becomes a very mutually beneficial relationship really I think proven out by the fact that we've closed on follow on follow on transactions with the vast majority of our current partners.
And then on top of that with the with the new markets coming online with the expansion in the industry overall.
There is also a lot in the pipeline and a lot of business in a lot of capital needs really across the industry inside and outside of our portfolio right.
Right.
And Scott just said.
I also remind you that you know the.
Market or the availability of capital for our tenants.
Even for five months ago was it was very challenging for them and while they are enjoying it now.
We all know with debt.
What comes up sometimes goes down and and and there could be a.
The different different market conditions as we move forward.
Cathy one of them.
I just wanted to I think this is a very unique industry to where in addition to acquisitions for our capital.
These market the state markets grow their programs when we on the operators are identifying a facility that they want to.
We have operations in much of that includes expansion opportunities.
And so we've seen a great use of our capital.
On the amendments to existing properties that we already own.
The last year of $160 million of amendments for that expansion growth for <unk>.
Properties that were already in our portfolio and Thats the great opportunity for us to continue to get an increase in base rent as well as on our lease extension and I think it's looking at our weighted average lease length today of.
Well over 16 years, that's on a great.
Testament to the interest in our portfolio.
Okay.
Hey, Scott this is I appreciate the color.
It makes a lot of sense, Turkey, as new states coming on board here, we see every day on states will continue to legalize here on Monday.
Jersey, and New York are only three 4% of of the portfolio.
And those the two very under supplied to it seems like your largest tenants will move that way.
The last question for me from a connect.
Landscape.
The C P W.
The new AMC gamma on a little different model kind of what are you seeing from my standpoint, and how's that.
Potentially compressing some of it some of the cap rates.
We've also the debt offering or the jeopardy, who's got some of the that's kind of cause kind of thing.
The cap rate compressions going in Korea.
I think we've.
Continuously scene.
The potential competitors for <unk>.
Pop up.
As of the strong business that we've been able to.
But together, but the.
We haven't actually seen any of them really succeed in the long run of the.
The raise some amount of capital and then they bring to the capital pretty quick and then.
Our stymied, we think we still have and continue to have it continue to be the the only.
The REIT focused on the medical cannabis industry on the New York Stock exchange in and we think that are our size you know having a.
Our market cap of in excess of you know for five $5 billion.
Is is a pretty strong lead.
We do think that day.
There is maybe not from other competitors, but from other capital. There is competition. There always has been and will always continue to be but we're I think of very strong real estate team that has been able to adapt and we will be able to compete quite effectively.
Been able to grow this company from you know.
In the very short very short for year period of time from you know less than $70 million two as I said north of four and a half million dollars.
You're seeing seen cap rate.
The cap rates are holding up here on the 11% to 50%.
Steven.
We have debt our pipeline continues to be in that range and we continue to believe that that's.
The the appropriate.
Appropriate the kind of range for our portfolio at this point we.
We do think that there are.
You know very Super you know.
Certain tenants that are very very strong and have access to.
Perhaps a little bit more competitive capital in that but we're.
We're confident that we kind of continue to grow.
With those type of yields.
Okay.
I'll pass it on appreciate the color. Thank you. Thank you Scott.
Thank you and the next question comes from Matt <unk> from Craig Hallum Capital.
Alright, great. Thanks for taking my questions.
First one just kind of bit of housekeeping.
So understand the the portfolio is very much so healthy and that these.
Rent.
The the property in L a and vertical.
There are partial rent.
The 1% of your assets. So understanding this is small.
You guys quantify how much of an impact that had on your rental revenues in Q4.
So we we disclosed.
On the press release said about 400 or $424000.
Was used from there from verticals available security deposit.
For rent.
For 2020.
Okay great.
And then just a bit of the follow up on the previous question.
So it's good to hear that rates arent really.
The budging and.
In your pipeline from which you can see right now.
Where do you think competition will impact your pipeline I mean, obviously, if we get say banking and these companies can access.
Debt.
It's pretty logical that cap rates would come down obviously, you guys could kind of lever up and offset that.
But just wondering sort of where you envision competition sort.
On the impacting your pipeline.
Whether it would be sort of fewer opportunities, maybe just lower rates, maybe also lower durations some.
Maybe some some some buyback of provisions in there just kind of help us understand.
What are the factors that that you're seeing potentially being impacted by increased competition or perhaps of your tenants are starting to get a bit more.
The tough on negotiations that'd be that'd be great. Thanks.
Sure and I think that you know.
I think that.
Competition comes from other real estate.
The competitors and the and from the.
The industry is access to capital and we do believe that that the industry is access to capital and cash.
Can and does have an effect and perhaps the.
It creates the opportunity for Sun.
Some of our most are the largest type tenants in the in the industry to ask for a lower yields but it doesn't it doesn't mean that our business model has really changed much we're still very focused on on.
The sale leaseback transactions.
We're not modifying our the the lengths of our least way of actually increased the average length of our lease from the average 15 years that we were doing.
Early on to now average of 20 years.
We've actually.
I think we've seen some moderate for some modest modification of our.
Annual cost increases, which were 3% to 4% and now they're probably two and a half to three 5%.
Are you now.
We started out and I looked at.
Focusing on.
On the certain class of <unk> of of tenants.
That has grown significantly and and now we need to bring in another group of those of those those tenants.
Our underneath that are underneath the current our current.
Crop of tenants and we're focused on are focused very highly on that we are quite pleased with the the.
The yields of part of the transactions, we've recently closed which are right down the middle of our of our.
Of our expected or anticipated acquisition yields.
And we think that we'll be able to.
The very close to that as we move forward.
Throughout the year I think the year and the year as we start of a long a long time left in this year, we still of a lot of acquisitions to do.
And we think we're going to be right there between the on.
On average between 11% and 15 per cent.
Okay. Good that's.
Good to hear I suppose last one for me here.
Just kind of given all of the potential puts and takes with the industry.
Some of your of larger tenants, maybe having less of the dependence on.
On the alternative capital while at the same time.
Presumably more and more license growers kind of entering the space and potential tenants entering the space.
So.
When you kind of look at all of those different puts and takes the increased competition et cetera, do you envision any shift in your strategy excuse me as it relates to.
Production assets versus retail assets any reason for any of those.
Changing dynamics, the impact that strategy of sort of favoring large production assets over.
It's sort of more traditional retail assets.
No.
We've.
Never shied away from doing retail assets in a with any one of our existing growers, but if the average size of the retail asset asset has not changed from that.
Two one to $2 million to $3 million on size and we're focused and command states are staying focused on our larger sized transactions and as I described earlier of our average transaction sizes in that 30 $30 million size range.
So.
We don't see any need to change our business.
You know model.
From where we are I did indicate just my.
On my last answer.
The answer my last question that we are.
Again looking at the.
A group of of tenant growers that are that are not the same as the the current top 10 that we have on our portfolio.
I wanted to very carefully they say that they are not the same quality of they are very high quality growers that are just not there just arent public or at the same financial level as the other is as our current gross because they've grown such so significantly with the you know the.
The over the last couple of years.
Perhaps that might be the the area, where we where we you might see some new growth names that arent as familiar as you the as the current ones that we've been.
With in the past.
The 24 months.
Okay, great. Thank you appreciate the color.
Thank you and the rest.
Last question comes from John Masako from Ladenburg Thalmann.
Most of my questions as part of the answer but I have a couple of quick one.
I guess, our cap rates the different for didn't know bode transactions versus some of the recent lease amendment deals essentially view of some advantage of being the landlords that.
That would allow you to facilitate pushing higher yields on some of those deals.
I don't think that you can go down that path that you know of de Novo transaction would have a different a different.
The yields on a.
Lease amendment, we evaluate and underwrite every single one of our transaction individually, we underwrite the quality of the tenant of the quality of the location of the.
The deal terms and and the complexity of the transaction and that all goes into helping us create what we think is an appropriate yield for the capital of that exactly.
We intend to offer.
I think if you were thinking more of a de novo, perhaps you know new growers that arent multistate operators that have no debt.
Our.
That have received the license, but haven't really grown in the past at those those type of transactions aren't what we're focused on.
If that's what you're asking.
No. It was one of the first part of the answer which I think.
I explained it pretty succinctly.
And then understanding each transaction as you say, there's kind of a spoke in the space.
Is there a good rule of thumb for us the follow with regards to trying to think about the impact that kind of starting deferrals and abatements might have on kind of quarter to quarter.
One quarter has a particularly robust amount of investment activity, how that's kind of effects of <unk>.
For the quarter rent either in the next quarter or three quarters out or whatever you think maybe the best kind of way, we should think about it particularly from a modeling perspective.
Okay. So I think what we're.
Where you're going with that.
Perhaps the number of transactions on our pipeline or that we do on a on an average quarter debt.
Our debt have some sort of a rent deferral because of construction that has to be completed or development that is ongoing.
And I think that's fair.
Is that the question and I think that.
Yes, just kind of maybe what's a good rule of thumb for for when they think about that went the impact.
Yeah. So John I think we've described in the past debt if there's typically a large construction projects of wear offering yeah yeah.
The large.
The tenant improvements or element of the construction that there tends to be of longer abatement period before rent at the beginning fully on that committed capital.
And I think in the past before for the past year I mean, many of our projects were smaller tenant improvement projects.
We typically had maybe between three to six months, maybe nine months tops. If it were maybe $10 million of tenant improvements. This year in 2020, we've really seen an ex.
A large.
The acceleration of our big Ti projects and many of those or taking between three and 12 months.
On before.
The two.
To complete that construction and some of our abatements.
We will mirror that periods of.
That three to 12 months before we're ending rent on the full amount of that the capital of committed.
Okay.
Very helpful.
I would just add to what it has been what cat says that that I think at any given time it could be upwards of 75% of our pipeline. We will have some sort of development for significant build out component to it.
Okay. That's very helpful and that's it for me. Thank you very much.
Thanks, Joe.
Thank you.
Includes our question and answer session I would like to turn the conference back over to Alan Gould Executive Chairman for any closing remarks.
Thank you and.
Once again I'd like to not only again, thank our stockholders for their support but certainly for the.
The the team here for your unbelievable hard work in the AR.
In 2020 on the and.
The first part of here of 2021, it's been a very challenging period of time, not only for the world and in the industry, but I think we continue to be very very hopeful and positive about the about innovative industrial properties and our prospects as we move forward. Thank you all.
Thank you. The conference has now concluded thank you for attending today's presentation.
Your lines.
Yeah.