Q4 2022 Innovative Industrial Properties Inc Earnings Call
Good day, and they'll come to the innovative industrial properties, Inc. Q4, 2022 earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by Seattle after.
Today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Brian Wolfe General Counsel. Please go ahead Sir.
Thank you for joining the call presenting today are Alan Gold Executive Chairman, Paul Smithers, President and Chief Executive Officer, Catherine Hastings, Chief Financial Officer, and Ben Regan Chief Investment Officer.
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.
Securities Litigation Reform Act of 1995.
Actual results may differ materially due to a variety of risks uncertainties and other factors.
Please refer to the documents filed by the company with the SEC.
Specifically the most recent reports on forms 10-K, and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward looking statements.
We are not obligated to publicly update or revise any forward looking statements whether as a result of new information future events or otherwise. In addition on today's call, we will discuss certain non-GAAP financial information.
<unk> normalized <unk> and adjusted so you can find this information together with reconciliations to the most directly comparable GAAP financial measure.
Our earnings release issued yesterday as well as in our 8-K filed with SEC.
Now I'll hand, the call over to Alan.
Alan.
Thank you, Brian and welcome everyone.
Today, we are pleased to discuss our results for our seventh full year of operations.
Our recent activity.
As reflected by our total revenue growth of over 35% over 2021, the company performed well in 2022, especially in the context of the significant macroeconomic headwinds experienced across industries and in the regulated cannabis industry in particular.
That financial performance drove dividend growth per share of 24% over 2021.
Totaling $7.10 of dividends declared over the course of 2022.
We also closed on a new acquisition with Tilda in Pennsylvania earlier, this month as well as lease amendments for additional real estate improvements at our properties in New Jersey, and New York with ascend foreign Mccann and goodness growth.
Ben will provide additional detail on those transactions and an additional portfolio activity and statistics.
As we enter 2023, we continue to see headwinds for the regulated cannabis industry driven by a number of factors that Paul will touch on in detail.
Price compression, a restrictive capital markets environment and.
And inflation on inputs and construction costs are driving many companies, including larger msos.
To streamline their operations.
This is no doubt a challenging time for the industry we serve.
We are steadfast in our belief.
Of the long term growth prospects and future of the regulated cannabis industry.
With longer term projections still for double digit growth.
And certain eastern states driving growth well in excess of that average with expected introduction of adult use programs in the near future.
In fact, notwithstanding the many challenges faced by the cannabis industry in recent months U S. Legal cannabis sales are projected to grow 14% in 2023.
As we noted in our January 2023 press release, certain tenants are experiencing difficulties and have defaulted on their obligations to pay rent.
Paul will discuss the status of those situations and we are here to answer any questions you have to the extent we can.
That said the vast majority of our tenant base continues to perform and we expect that these near term challenges will contribute to driving operators to be more and more efficient.
As with any industry, there will be ebbs and flows and I am proud of the way our dedicated and experienced team has responded and manage through the challenges that our industry has faced in recent months.
I will now turn the call over to Paul to discuss licensing and industry dynamics Paul.
Thanks Alan.
Before I delve into our perspective on market dynamics I'd like to touch on the properties, where tenants have not paid rent.
We are of course first and foremost focused on maximizing the value of each of our properties and having tenants with strong teams. They can manage their businesses successfully through the inevitable ups and downs of this industry.
We have engaged local council and other advisors in these situations commenced legal proceedings for damages and possession and are in discussions with applicable regulatory agencies, we expect each process to be different in both duration and complexity, depending on the nature of the state licensing program and rules and regulations scrubbing.
The cannabis licensing as well as the current and projected state market dynamics.
In many states releasing is a new concept for cannabis licensing authorities with many programs launched only in recent years.
With our veteran team internally in combination with our advisers across the spectrum of specialties.
We are confident in our ability to successfully navigate these situations.
We have commenced litigation for recovery of damages and possession against Green peak at our summit property in Michigan. We have also filed two actions against parallel for possession and damages at our Pennsylvania property as well as in action at our parallel Texas property, which is in the early stages of the development process.
Parallel failed to pay rent on the Texas property for the first time in February and we commenced an action against them as soon as they defaulted.
Each of these situations is highly variable as we progressed through re leasing our properties, we will endeavor to share as much detail as we can.
Green peak is current on their rent obligations at all other properties, we leased to them in parallel as current on the two other properties, we leased to them in Florida.
As for Kings Garden, as we noted in our operational update press release in January they continued to occupy and pay rent at four properties and are exploring a potential merger transaction.
Market developments.
As we have discussed on past calls, we continue to see price compression on regulated cannabis products with that compression more pronounced in certain states driven by basically supply demand dynamics are relatively uninhibited illicit market challenging taxation at all levels of government and general macro economic conditions.
Additionally to.
To give a sense of the magnitude of the change according to cannabis benchmarks the volume weighted average spot price of cannabis in the U S.
Last week of 2022 was $967 per pound down nearly 30% from the same period in 2021.
As an example of the illicit market issues. It was reported recently that as many as 1400 shops are operating in New York City alone and illegally selling cannabis products by only one was actually licensed and opened four adult use at the time. The data was released in January .
I think this gives you a sense of the issues surrounding elicit sales and lack of meaningful enforcement and the priorities that we believe state and local governments need to place on supporting the regulated cannabis industry with more reasonable taxation and regulation frameworks and by taking meaningful steps in tackling the illicit market.
And this is certainly not in New York specific issue, while the U S regulated cannabis market reached an estimated $26 billion in sales in 2021, New frontier data estimates the size of the U S. Illicit cannabis market in 2021 was approximately 70 billion in order of magnitude nearly three.
<unk> greater than the regulated market.
Okay.
Capital availability.
As we've been reporting for some time now financial markets have turned restrictive with the rapid tightening of monetary policy that really accelerated through the back half of last year the.
The impact of that restrictive environment has not dissipated in any way, especially as it pertains to capital availability for the regulated cannabis industry.
Capital raising across the cannabis industry continues to be extremely challenged with total capital raised in 2022 down over two thirds compared to 2021 for U S regulated cannabis operators and the beginning of this year is showing little improvement with capital availability remain at multi year lows.
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Cannabis equity prices as measured by the leading cannabis E. T. F. M. S. O S were also down over 85% as of year end 2022 since their February 2021 peak. This dynamic is also evident in M&A activity with transaction volume for 2022 down over.
70% versus 2021.
As we noted on our prior calls well capital availability and the public REIT markets also diminished considerably in 2022 with the decline steepening to the back half of 2022 U S reach raised $41 $5 billion in debt and equity in 2022 compared to <unk>.
$133 6 billion in 2021.
Marking the lowest year since 2009 in the depths of the great recession.
Inflation and supply chain issues.
A continuing theme as well as the impact of inflation on our operators input costs as well as cost per our development projects.
While we are seeing some loosening of supply chain issues and some limited relief on pricing, we still see extraordinarily long lead times for certain key inputs in our development projects in particular, electrical switch gear, which are causing significant delays in project completion.
Of course, these challenges have the effect of requiring the operator to put up more capital to complete the project and are resulting in delays in revenue generation as projects take longer to complete.
In combination with the current environment of limited capital availability. This continues to be a significant obstacle for certain operators.
With all of these dynamics in play cannabis operators across the spectrum have been focused on efficiencies, including right sizing in certain areas with prevailing market conditions. This includes some of the larger operators, who have announced consolidation or reduction in operations and certain states, including layoffs.
State programs.
Shifting to adoption of state programs, we continue to see momentum in states that spanned a political spectrum in November of last year, Maryland in Missouri, both adopted adult use programs by popular vote.
Meanwhile, our adult use legislation is progressing to the Minnesota legislature, and there are expectations that Ohio, Oklahoma, and Pennsylvania could legalize adult use cannabis this year.
In Florida, the Smart Safe, Florida organization supporting adoption of an adult use cannabis program in the state collected sufficient signatures to trigger a review of the proposal by the Florida Supreme Court in anticipation of putting at Port via Constitutional Amendment promoters in November of next year.
Federal legislation.
In terms of long awaited federal legislation the cannabis industry continues to experience roadblocks and achieving any meaningful progress.
The Safe Banking Act of course was blocked again from both the annual defense spending Bill and omnibus spending bill in recent months with.
With the Congress now divided with Republicans holding a slim majority in the house and Senate majority being Democrat and with the faction, scoring up within each party weekend, you need to see significant challenges and successfully bringing forth meaningful federal legislation addressing issues of the cannabis industry, even though there is bipartisan.
Support on many of those issues.
I'd like to now turn the call over to Ben to discuss our portfolio and investment activity for 2022 and year to date, 2023%.
Thanks, Paul.
For this call I'd like to cover certain characteristics of our property portfolio and tenant roster. In addition to discussing our investment activity in 2022 and year to date.
At year end, we owned 110 properties across 19 states comprising $8 7 million rentable square feet as noted on our prior calls of these 110 properties 100 need properties are included in our operating portfolio.
No one tenant represents more than 14% of our total invested capital and no state represents more than 16% of our total invested capital.
Multistate operators make up 85% of our total portfolio and 55% of our operating portfolio is leased to public company tenants.
The total amount of capital invested and committed across our operating portfolio equates to $272 per square foot, which we believe remains significantly below replacement costs to.
To note. These statistics do not include our additional investments this month, which I will discuss in some detail.
For fiscal year 2022, we collected approximately 97% of contractually due base rent and property management fees from our operating portfolio.
The Kings Garden defaults in July contributed to a large majority of that 3% of uncollected rent.
As we noted in our update press release issued in January vertical parallel one of our properties in Pennsylvania, and Green peak in one of our properties in Michigan constituted the remaining balance of uncollected rents in 2022.
To recap for the full year 2022 we acquired nine properties and executed lease amendments to provide funding for improvements at 12 properties, representing a total investment commitment of about $394 million.
As you May know, we also executed on our first property disposition in Q4 of last year, selling our Pennsylvania property that we originally acquired in 2019 and at least to my tree and private single state operator for $23 $5 million or approximately $461 per square foot.
Which is well above our operating portfolio average of $272 per square foot and above what we originally paid for the property including funded improvements.
For this transaction, we recognized a gain on sale of approximately $3 $6 million.
We also entered into an agreement to sell our properties previously leased to vertical and needles, California earlier this month with seller financing to a third party that is taking over candidates operations.
This month, we closed on a sale leaseback transaction for 58000 square foot fully operational cannabis facility with tilt in Pennsylvania for $15 million.
We acquired our first property with tilt in Massachusetts in May of last year.
Concurrent with our closing of the Pennsylvania transaction. This month tilt refinanced a retired its legacy debt substantially reducing its overall leverage and extending out the maturity on its primary debt obligations to 2026.
And last week, we committed an additional $34 million of capital for improvements at three projects each of which resulted in a corresponding adjustment to base rent that starts immediately.
Those include $15 million and additional funding for ascend Edison, New Jersey facility and an additional $15 million for farm Mccann at its New York property and an additional $4 million to goodness growth at its New York property.
We also negotiated cross default provisions on all leases for each of those three tenants.
As Paul discussed, we initiated litigation proceedings against parallel at the properties in Pennsylvania, and in Texas and against Green peak in one of our properties in Michigan.
The timing for resolution or re leasing of those properties is uncertain, but we will keep you informed as much as we can as we progress.
We had committed approximately $158 million to these three properties, which together represent approximately 7% of our total invested and committed capital. However, parallels Texas property has been under development and has yet to commence vertical construction with only around $8 million funded to date, including the site acquisition, although they had been paying.
Full rent on the full amount of committed capital to that project since October of 2021.
Therefore, approximately $19 million that we previously committed to the Texas project and approximately $12 million. We previously committed to the Michigan project has not been spent on those projects.
In terms of expected additional investment activity as always forecasting investment activity in this industry is challenging.
As we noted in our last few calls we expect to continue to be opportunistic with our investments as we focus on the ability to raise capital and terms, we determined to be reasonably favorable in light of the opportunities to place that capital.
With that I'll turn it over to Kathryn Kathryn.
Thank you Ben for 2022 we generated total revenues of $276 million, an increase of 35% over 2021.
Kris was driven primarily by the acquisition and leasing of new properties and additional real estate infrastructure, allowing first at our existing properties totaling $394 million in 2022.
As well as contractual rent escalations at certain properties offset by the previously disclosed non collection of brands, primarily associated with the default of tenants.
<unk> revenues for 2022 also included $3 $2 million of security deposits applied for payment of rent for leases with Kings Garden in California, and so as Owen, Michigan, which we previously disclosed.
Although we have the right to draw upon the security deposits that we hold for any of the defaulted properties, we have not yet done so for parallel our green peak.
As we detailed in our earnings press release issued yesterday rent collection for operating portfolio was 92% for the first two months of 2023.
94% for Q4 of 2022 and 97% for the full year of 2022.
In 2022, we recorded net income attributable to common stockholders of $153 million or $5.52 per diluted share net.
Net income for the year was impacted by $3 million and litigation related expenses incurred primarily related to Kings garden and the shareholder lawsuit filed in 2022.
Consistent with Q3, we've added back this expense from our calculation of SSL to normalized SSO.
Adjusted funds from operations for 2022, which adds back noncash stock based compensation and noncash interest expense related to our unsecured senior notes to normalized <unk> was $234 million or $8.45 per diluted share.
Of course, SSO normalized <unk> and <unk> all exclude the $3 6 million dollar gain on sale of one of our Pennsylvania properties in Q4, which is previously leased telemetry.
On January 13th we paid our quarterly dividend of $1 80 per share to common stockholders of record as of December 30th the common stock dividends declared in 2022 totaled $7.10 per common share and represented an increase of $1.38 or 24% over dividends declared.
In 2021.
Our board continues to target a dividend payout ratio of 75% to 85% of SSL.
For Q4, our payout ratio for the quarter was 85%.
At year end, we had approximately $2 $6 billion in total gross assets and a total of about 306 million in debt consisting solely of unsecured debt with no maturities. This year or next year and 300 million of that debt not maturing until may of 2026.
Our debt to total gross assets ratio was 12% at quarter end and our total fixed cash interest obligations with a little over $4 million per quarter.
We've maintained investment grade credit rating and had a debt service coverage ratio of over 15 times and with that I'll turn it back to Alan Alan.
Thanks, Catherine I'd like to note the following <unk> closing.
We are steadfast believers in the long term growth and success of the regulated cannabis industry.
And as with any industry, there will be challenging times that will push industry participants to drive for further efficiency in their operations and strengthen their brand.
We believe our facilities are well positioned to address those needs with well developed highly controlled environments for production of distinguishing products that are the long term driving force for brand recognition.
And the capacity to produce efficiently at scale.
And with our experienced team of dedicated professionals and advisors I am confident in our ability to successfully navigate the inevitable ups and downs of this industry.
As always we thank you sincerely as long term owners of our company and for your steadfast support throughout these years with that I'd.
I'd like to open it up for questions. Operator can you. Please open the call up for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your attached on phone if you're using a speakerphone. Please pick up your handset before pressing Vicky.
If at any time. Your question has been how does can you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Tom Catherwood with BP I T. Please go ahead.
Thank you and good morning, everyone Alan.
I appreciate your comments at the outset, and then you touched on it as well about.
The complexities of the legal and re tenant a process for.
For both parallel and Green peak and have that really differs by state can.
Can you help us understand maybe the litigation process a bit better does eviction come first and then there's hearings on damages or the top intertwined and therefore, it could take even longer for you to potentially get the asset back under your control.
Yeah.
That's.
A very complex question and since it's really complex I'm going to turn it over to Paul.
Can handle those well. Thank you all so Tom So I think.
Youre getting it typically in jurisdictions when you file unlawfully retainer.
Possession, yeah, it gets priority and so that's what we're seeing in the three jurisdictions, where we have filed in Texas, Pennsylvania, and Michigan. The possession cases will be heard sooner than the damages cases and in each of those jurisdictions. Other separate so we have filed.
In each of those jurisdictions for possession and we do have hearing dates coming up in the next two to three weeks in each of these jurisdictions for possession. So we do anticipate that we will get a judgment in our favor for possession and then we will execute.
Immediately.
You get possession so.
I want to stress that we have moved as quickly as possible and we have retained local council who are expert in their jurisdictions in the local laws with regard to unlawful detainer eviction. So.
We're very pleased with the speed that we're able to file these actions and we look forward to getting possession of the assets as soon as possible.
Then falling those possession cases come the damages cases, and those typically follow a more typical timeline.
And that's probably 12 months to 24 months before we get any resolution on those so again, we're filing those with all due speed.
And obviously, we'll keep you advised as those matters develop.
And the company is using all its expertise and diligence to mitigate those damages.
Through through a variety of processes, including releasing reselling or selling any assets that we can.
I appreciate it really really helpful to understand that and then maybe cat along the same topic, you mentioned not having applied the security deposits from parallel in Green peak.
To the back rent.
Are you restricted on that use or is there a different strategy and approach here.
Again I think this is oh this is a.
A complicated question and it really has to do with the litigation for possession.
Is that right Paul yes. So it is in each jurisdiction differ somewhat but you want to be careful, especially when you're trying to get possession, you don't want to complicate the case at all because some judges will look for a reason not to grant eviction, because some jurisdictions are slanted in favor of tenancy, but.
That's why we're being very cautious.
As to when we do reach the security deposits, but rest assured the security deposits are 100% of our control. So when we feel and local council feels appropriate.
To tap those security deposits, we will.
Got it got it and then.
You've been adding cross default provisions are into your lease amendments.
Over the last or at least you had kind of been publicly saying that over the last few quarters.
Provides some additional insight into how those provisions work and then maybe the portion of your leases that currently include them.
Well I mean, I think there are they.
Work.
And when as though.
It's very simply you know if someone defaults on one lease then they basically have defaulted on all of our leases and so they there's no picking and choosing choosing which project are that you know may may they may be struggling with.
They're all of our leases are at risk putting.
The.
The entire company at risk and and so when companies enter into those cross default provisions. They do them very carefully very consciously and and with a great deal of thought and negotiation.
Right now we have we believe that we have over 38% of our of our revenues are are subject to cross default provisions.
Provisions.
Really helpful. Appreciate that Alan and then last one for me.
Just going back through the fourth quarter operating and investment recap that you put out in mid January .
It looks like there were roughly $157 million of transactions under a.
PSA or LOI, so far have been I think you've covered $49 billion of transactions that have closed this year.
Some of which seem to be kind of above and beyond that original $157 million. If I'm reading it right. How was your acquisition pipeline sizing up right now and then what are your thoughts on funding of that as we as we get through 2023.
Yeah go ahead Ben.
Yeah, Yeah, I can talk about the pipeline in general obviously, there's always ebbs and flows but just as a general comment there continues to be a tremendous amount of demand for capital in the industry overall.
So we feel the pipeline is very healthy and were being very opportunistic in a.
Thoughtful in our approach as to which of these transactions that we're evaluating that we ultimately want to move forward with.
Yeah.
Okay.
Got it that's it for me thanks, everyone. Thanks, Tom Thanks, Tom.
The next question comes from Cano Mitchell with Piper Sandler. Please go ahead.
Hi, Thanks for taking my question.
So first obviously there are a lot of moving pieces here with.
They pretended to properties that are defaulting or maybe becoming Curt again, so would it be possible for you guys just provided.
Any update on the old back rent.
Situations, such as kings guarded or so so and the repayment of the security deposits.
Okay.
Well first.
We only have.
With 28 30 tenants are so it's not that complicated to <unk>.
As choose shows Sosa was granted.
A relief and we used.
Three months of security deposit.
And so we've used the security pause that they've placed for that rent. So there's no back rent owed from frozen.
They do Oh, they do or they are going to be required.
Over the next 12 month period of time to replace that our security deposit and we expect them to do just that.
[laughter].
Back rent.
Hi, Matt.
The concept of background I don't I don't understand.
I guess the way you're thinking about it and I'd like to understand the way you're thinking about it better is because.
We've collected the rents the rents that have been collected those who havent collected that they've been in default on the ones that are in default.
Our Kings Garden.
Green peak in parallel and as we discussed we are pursuing a.
Those individual transactions they rather they represent a total of.
One of our total revenue.
We do we know do we have that Oh, let me, let's work on that and we'll get back to you on that on that percent of our total revenue.
Combined.
Okay, Yeah of course that that makes sense.
And then.
Regarding.
Kingsguard parallel they both defaulted on development. So I guess is there any change in how you guys are approaching it.
Investments are whether you're becoming more cautious about new development investments.
And at the same time, how you're comparing that to the risk profile of funding incremental.
This thing asset expansions.
Capex does that matter.
Yes.
I think we're being.
As we described our pipeline were being opportunist opportunistic and you know cautious in evaluating every transaction, but the but our business is.
Is to provide capital for this industry and thinking through the way this industry works new state.
Obtains a the permission to go ahead and do medical cannabis for adult use cannabis that those products those buildings those facilities didn't exist before so there is an absolute need and that is why we are in existence and it is the opportunity for us to you Jenny.
Great. These are what we think are above average returns for what we still believe is below average risk and and we still have oh five or six.
Developments that are still being finished in and they are proceeding are proceeding very well and there are and we still believe that that is a good business line for us and that's how we were able to generate a with a lesson or approximately 17%.
Our of our invested capital in 2022 eight.
A 35% year over year, our total revenue growth.
Yeah.
Okay very helpful. And then maybe just one more for me.
Regarding the definitive sale agreement for the vertical product.
Property excuse me seeds are all in California. So I guess, just hoping you guys could give a little bit of insight as to how you're viewing the california market nowadays compared to other markets.
And whether there is.
Any insight you can provide as to the the transaction process.
The sale of the vertical.
Properties, whether it has to do with the previously disclosed defaulted, whether that had an impact.
Well certainly it had an impact and it's certainly we've been we've been discussing and talking about vertical for at least a year plus and and we've been trying to figure out the best approach to deal with the vertical transaction.
And and.
I'm trying not to get any more committed to that transaction by providing more capital to it.
And so.
We've been working with the tenant on a variety of bases, including helping them find alternative capital and they've found alternative capital and alternative capital came in it came in Oh it was needed because.
The facility needed some additional capital to fix some of the things that the previous owner did do probably.
And the best way.
And the new capital New Investor in order to put the capital in a wanted to own the asset as opposed to.
Being a long term sale leaseback transaction. So in combination with all of that we came up to what we thought was a very creative way for us to continue to receive I think a very attractive yield on our capital.
Allow this new investor to continue.
Best in the property and make that a successful opportunity and then should something untoward continue to happen in that market will have an asset that is has additional investment that's been put in not by us and a lower basis and.
The ability to we think continue to recover.
Our recover recover the our investors capital and a return on our investors' capital.
Okay.
Okay very helpful. That's all for me. Thank you Alright, and then that's fine.
Yeah.
Okay next question please.
The next question comes from Scott Fortune with Roth Capital. Please go ahead.
Good morning, and thanks for all the color.
On that note I'm paying providing color on my opinion or potential buyers out there that they're looking to take over these california properties or potentially properties in Pennsylvania and Michigan.
Thank god that neither known existing poignant.
Our balance sheet and looking at the I forgot to take market share in any markets, where they can get a sense for where the hell well or what are you looking for a meaningful potential.
Releasing or even buying assets and if he wants to get back into the chassis.
Looking at our properties.
Well I'll be tougher market or contiguous man I really think you got them.
Right.
Well I think that goes to the back half of the of the question and the last question, which is you know what's going on in the California market.
The California market still is.
Difficult Paul Yeah, So Scott I know, you know, California, well it still remains challenged however.
We are certainly aware of and have tenants in the portfolio that know how to navigate the California market. There is money to be made in the California market. If you know how to do it. So you know when we look at the global market in California, It looks Panama Blake, but.
We do have some positive signs.
Theres been some legislative reform in Sacramento with regards to the taxation.
Theres been more funding for enforcement of the illicit market. So those are all positives if you're also seeing some stable stabilization.
The spot market pricing. So you know that's all positive but.
It's still a very big black market in California, just as it is in New York, Michigan, Massachusetts. So those are the challenges all of these large.
Markets do you have to face, but as I mentioned.
If you know how to navigate.
Those challenges.
You could be very successful in each of these markets right.
And then as to.
I think the question revolved around as an example, the Perez asset development asset.
That is a subject to a letter of intent that are for a lease.
And it is continuing to proceed I think very well we hope to have you know a have a final lease in the near future and so we're very positive about that situation as to.
The other.
Other assets.
Certainly the Texas asset is an asset that we don't have control of over and are going to be in the beginning process, but we do believe the land site is in a a.
Quality industrial location.
And with our I think it has an Amazon dispute distribution facility nearby. So there's there's there is value there.
In addition to the fact that we've I think we've collected and.
Based on the structure of that transaction, where we committed over $27 million, but only have spent $8 7 million and have actually collected what around 81% of the asset value.
Already in cash flow.
Not to mention the fact that we still have if we get control of the asset we will have the value of the asset to be able to further enhance the return to our shareholders.
As to we.
We don't have control over the assets in a in Michigan or in Pennsylvania.
But we believe that there will be a.
A variety of opportunities for us to.
Deal with those assets that anything else you want to add Ben or cat.
Yeah, well I would say you know Scott about your question about how do you get some of these msos interested in these challenged markets.
Kind of look at it like it's almost a monopoly board and these are strategic acquisitions by some of these msos that may not have a presence in one of the states. They want a presence and they'll look at opportunities through M&A, perhaps to get these so you know, we're certainly aware of which.
Players out there are looking for assets in these particular jurisdiction so.
It's.
It's something we're working on.
I appreciate all that color then that's great and then one last one quick one for me without providing guidance. Obviously you guys have highlighted the challenge is.
And then near term macro environment.
And uncertainty in there you've gone away from acquisition more opportunistically.
We're putting up.
Deploying capital you know around $25 million last couple of quarters. It looks like you know $50 million.
Quarter to date.
Yeah.
Tim or rate moving forward here near term.
For wind.
Yeah, we can see strong demand or what key to begin paying the acquisition levels and taking opportunities to start acquiring again kind of what are you looking out into.
And for 2023 from Oklahoma.
Well first of all it's extremely unfair to put any sort of budget.
Any sort of commitment given the fact that we just are spent.
I spent a great deal of time, describing how difficult to not only the the industry is experiencing capital raising but also the real estate industry and how interest rates have.
We have increased significantly in our cost of capital has increased significantly.
As to you know I think we've talked about a very strong pipeline are better.
A pipeline that is conditioned upon us having access to capital.
And we were exploring all sorts of avenues for capital. We believe that there is you know a secured a secured debt capital out there where we could be looking at that we could be looking at unsecured debt capital. We have some other unique opportunities that we're looking at.
And as we.
As we move forward down the path of exploring that capital, we will match fund that with acquisitions.
As we've done in the past and so I.
We arent going to give any kind of any guidance, we arent going to give any.
Any indication as to how much additional.
Additional acquisitions that we are going to do this management team is highly focused on making sure that our rents are collected is that a M that we can recapture any value from.
<unk> transactions, where we get the asset back.
And.
Appropriately deploying capital and we think it makes the most sense.
No understood I'll jump back in the queue. Thank thank you. Thanks Scott.
Yeah.
Again as a reminder, if you have a question. Please press Star then one our next question comes from Eric des <unk> with Craig Hallum Capital Group. Please go ahead.
Great. Thank you for taking my question.
So just kind of a high level one for me so as we look out over the past year. It's.
Clearly that price compression raskin regulatory risk have increased.
Looking at New York, I think it's clear that.
Ah flipped from medical to adult use doesn't always equate to outsized growth for the existing operators and I'm just wondering on a high level can you just talk about how these developments.
Influenced any changes to your capital allocation strategy or maybe it's more about any changes to your lease terms now you've got some more cross default provisions in there as we've mentioned.
Could you just kind of talk high level.
How these developments have a influence any changes to you know sort of which markets youre looking at what kind of operator, just any sort of high level changes to help us understand sort of how you are thinking.
In response to some of these recent developments would be great. Thank you.
Yeah, No I mean, I think you've you know the.
Cross default the sex.
Section, that's something that we're highly focused on our we haven't changed our the length of our leases are we're still we're still going down that process. We're still are very interested in new new markets that have the ability to limit.
Licenses, even though that that's the case in New York.
No.
As you know we can't.
Force the government to it.
You know to apply the law to everybody, but we certainly hope that they get the get the message that that is that's an important thing to do.
We are we are being opportunistic when we are focusing in on the best operators are with the greatest amount of capital and you know and certainly have a become much much more.
As with any new startups with you know hoping to grow into their space or grow into their their their development over time.
So you know I think that's the best we can do.
We do believe this industry continues to be a very very exciting.
Exciting industry.
There even at the even with all of what we've talked about with all the cautionary tales.
We we are.
Still looking at.
<unk> New states, such as Oh, you know, Oklahoma, Ohio, Minnesota, Maybe Kentucky, New Hampshire, maybe even.
With Pennsylvania, having adult adult.
Ah yes.
And theres, others, and there's others that.
We can look at so there's still a great opportunity for us in this industry over the long term.
And.
Even and even you know revenue our total revenues for the industry I think we're up 13 or 14% for 2022 and are expected to continue to grow in 2023.
And beyond and so were we.
We are cautiously optimistic.
Uh huh.
On a 2023, but certainly very optimistic on the on the long term aspects of this industry.
I appreciate that color and then last one for me just kind of a follow up here.
Right.
When you look at both cap rates and the sort of annual step up.
Obviously, we do have pricing down in some markets like 50% year over year I'm. Just wondering how you look at both of those if you see any.
Our likelihood of those kind of softening in you know, perhaps the quarters ahead, if we don't get any material rebound in prices I'm, just wondering sort of how you are kind of weighing.
Weighing the pros.
It was in kind of a more attractive rate for you, but putting more pressure on the tenants and a court.
Kind of challenging environment here I'm, just wondering sort of how you feel about the cap rates on an annual step up.
Typically in.
Any comments that would be great. Thanks.
Alright, so just to remind everybody that we are we.
We enter into sale leaseback transactions. So we're more focused on our on our yields and our yields as a continued to be very I think.
Creative to our current cost of capital, which is still very high and so and that and as long as we continue to have the the ability to do accretive transactions.
I think we are we are still looking.
Looking at a potentially.
Potentially deploying capital in the future if we can raise.
Reyes.
Capital effectively and cost.
Cost effectively.
That's how we're looking at it we don't have a you know we don't have the business of buying from existing investors at.
Whatever cap rate that they want that's not our business.
We believe that a cap rates for all all all real estate asset classes have increased with it with the the U S. Economy's general increase in rates and cost of capital.
Okay I appreciate the color. Thank you.
Thanks, Eric.
This concludes our question and answer session.
I'd like to turn the conference back over to Alan Gould for any closing remarks.
Thank you.
First I want to thank the team for all their hard work I mean, it's a they've they've done a phenomenal job to get us to where we are today and they still have a tremendous challenges and work together as we move forward throughout 2023, a I also want to again, thank our stakeholders our shareholders for their.
Sure.
<unk> support and and with that I'd like to end the call. Thank you all.
The conference has now concluded. Thank you for attending today's presentation you may all now disconnect.
Yeah.
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