Q3 2023 Innovative Industrial Properties Inc Earnings Call
Good day and welcome to the innovative industrial properties incorporated third quarter 2023 earnings call. All participants will be in listen only mode should you need assistance. Please signal any comfort specialists by pressing star then zero.
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Please note this event is being recorded.
Now I'd like to turn the conference over to Brian Wolfe General Counsel. Please go ahead.
Thank you for joining the call presenting today are Alan Gold Executive Chairman, Paul Smithers, President and Chief Executive Officer, David Smith, Chief Financial Officer, Catherine Hastings, Chief Operating 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 of the pre.
But securities Litigation Reform Act of 1995, and 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.
Pacifically. 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.
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 such as F O normalized <unk> and adjusted <unk> you can find this information together with reconciliations to the most directly comparable GAAP financial measure in our earnings release issued yesterday as well as in <unk>.
Our 8-K filed with the SEC.
I'll now hand, the call over to Alan.
Alan.
Thank you, Brian and welcome everyone. We are pleased to report our financial results for the quarter, which I believe reflect our team's continued dedication and hard work in the execution of our day to day operations.
As I've noted in the past calls we are pleased with our company's position as the broader macro economy and the regulated cannabis industry continued to experience challenges that have impacted operator fundamentals in a number of respects. We have one of the strongest and most experienced teams of real estate professionals in the cannabis industry.
Our high quality portfolio, and arguably a conservative and flexible balance sheet with a 12% debt to total gross assets no variable rate debt no meaningful debt maturities until may 2026.
And as noted in our earnings press release issued yesterday, we further enhanced our liquidity position by obtaining a revolving credit facility, which David will touch on in his prepared remarks.
To recap the quarter, we generated total revenues of $78 million in Q3, and adjusted funds from operations of $65 million.
Great collection for Ip's operating portfolio was 97% for the quarter.
The financial performance continue to drive dividend returns to our investors with $7.20 of dividends declared per share in the past 12 months, an increase of 6% over the prior 12 month period.
The Q3 dividend payout ratio was at 79% of <unk>.
Modestly below the midpoint of our targeted ratio of 75% to 85% of <unk>.
This quarter was another quiet one for us in terms of additional acquisitions and investment activity.
As we noted for several quarters, we expected a significantly slower pace of investment activity given the ongoing macroeconomic uncertainty and significant adjustments to cost of capital since the fed began aggressively raising rates last year.
We did commit additional funding to complete the development of one of our newer properties, which Ben will discuss.
From a regulatory perspective, we are certainly following closely the developments stemming from the department of health and human services recommendation to the DEA that cannabis be rescheduled from schedule one to schedule three under the CSA.
First there are significant benefits to this including a potential lifting of the confiscatory $2 80 E federal taxes imposed on regulated cannabis operators and Paul will discuss our thoughts in more detail.
While the vast majority of our tenant base continues to perform we have previously discussed we have taken back certain properties from parallel Green peak in King's Garden, and Ben and Paul will provide updates on those properties.
As always we are here to answer any questions you have to the extent, we can I will now turn the call over to Paul to discuss regulatory and industry dynamics Paul.
Thanks, Alan before discussing overall market developments I'd like to provide an update on the properties leased or previously leased to parallel green peak in kindergarten.
As we noted then I think it is worth repeating here. 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 evident 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.
As we noted in our call last quarter Green peak was placed into receivership in March in mid March we regain possession of the summit building, our cultivation and processing facility under redevelopment.
In addition in May we regained possession of two small retail locations in Michigan previously leased to Green peak for which our total investment is less than $3 million and expect to regain possession of one more retail locations at the end of November.
The receiver is paying rent on all other remaining properties leased to green peak, including the harvest part cultivation and processing facility and the remaining retail locations.
Short approved the sale of Green peaks assets to a buyer in October with the buyer, assuming the harvests peak lease and leases for the remaining three retail locations with no changes to terms.
As noted on our prior calls we also filed actions against parallel for possession and damages at our Pennsylvania property and our Texas property, we regain possession of the Texas property in March which is in the early stages of development and the Pennsylvania property just earlier this week.
We are actively exploring all options for these properties as we noted previously parallel continues to be current on their obligations for the other two properties, we leased to them in Florida.
In late September as we previously disclosed we regain possession of the remaining four properties previously occupied by King's Gordon and Ben will discuss our marketing activity on those properties as well as for the summit building in Michigan.
Market developments.
As we've noted for some time now the regulated cannabis industry continues to experience a set of challenging circumstances, but I would like to note that even during this macroeconomic environment growth of the overall cannabis industry in the U S continues to remain strong with BD S. A projecting cannabis sales up 29 point.
$5 billion in 2023, representing approximately a 12% growth from 2022.
Additionally, PDSA estimates that approximately 60% of U S. Adults could have access to adult use cannabis by 2026 with new state programs coming online.
Unit pricing for regulated cannabis products has been under pressure in certain states at the wholesale level reflective of what we believe to be a number of factors, including basic supply demand dynamics lack of meaningful enforcement in certain states on illicit non licensed cannabis sales by state and local law enforcement authority.
These taxation and general macro economic conditions.
That dynamic continued through Q3 as a general matter, though of course with some state specific variations and we have seen an uptick in national spot wholesale pricing since mid September.
Capital availability.
Another continuing theme from our protocols is the impact that the tightening of financial conditions has had on capital availability for the cannabis industry.
As with other industries, the cost of capital and capital availability have fundamentally changed for cannabis operators over the course of the past year plus.
With Viridian capital advisors reporting that both U S, operator capital raising and mergers and acquisitions activity year to date were at their lowest levels. Since before 2018. The funding environment continues to be significantly challenged right now.
Federal legislation.
On the federal legislation front there were a few noteworthy developments in late September the safer Act was passed by the Senate Banking Committee, marking the first time that cannabis banking legislation advance through this committee.
While it shouldn't bollock victory.
Paper was also supported by a bipartisan coalition of 22 States attorneys general in a letter sent to congressional leaders and with Senate majority leader Chuck Schumer vowing to bring the act to the floor quote as quickly as possible unquote.
There remain numerous obstacles in getting the act through Congress and into law. So were tempered in our enthusiasm as we have been with prior shape Act introductions, starting 10 years ago.
Of course, the other significant development during the quarter was that in August the department of health and human services recommended to the DEA. It cannabis be reclassified from a schedule one drug to a schedule III drug under the controlled substances Act.
H S. Based this recommendation on an FDA review of cannabis is classification pursuant to President binds executive order in October of 2022.
The process for reclassification will require DEA approval and likely complex administrative rulemaking proceedings and it remains unclear how long this process will take and the scope of any final decisions on rules that said such a reclassification is expected to end the 280, he tax treatment, which is <unk>.
Posed an extreme tax burden unregulated operators, which would be a great win for the industry and immediately provide for a significant improvement in many operator financials. We will of course be monitoring progress in this area closely in coming months.
Like to now turn the call over to Ben to discuss our portfolio and leasing activity in the third quarter yeah.
Thanks, Paul as.
As we noted earlier, we have regained possession of certain assets from parallel Green peak at Kings Garden and are continuing to focus on re leasing efforts on those properties.
Guarding our summit property in Michigan, which we took back earlier this year, we executed LOI to lease the entire property and are working through lease negotiations and final planning for completion of the redevelopment of that project.
With respect to the four properties previously occupied by King's Garden until late September we're pleased to announce we executed an LOI for lease for the 19th Avenue claimed properties earlier. This week just over a month after regaining control of those two assets.
We're also in active discussions regarding the other two smaller properties and evaluating alternative uses including non cannabis users given certain zoning changes that have impacted those properties. Those two smaller properties represent less than 1% of our total invested capital.
Regarding our San Bernardino property, which we took back from King's Garden late last year, we continue to explore potential mixed use development of that property, which may include a self storage component pursuant to an LOI executed with a potential joint venture partner as we previously noted we expect the process to take many months.
Continue to report on progress as we can.
For our properties in Texas, and Pennsylvania, We're parallel defaulted, we took back the Texas property in mid March and continue to explore options for that site in Pennsylvania parallel wound down its operations in late October and we were awarded a judgment for possession in damages at trial in late October.
While we have been active on the leasing front in terms of new investments. It was a relatively quiet quarter. As we've noted for several quarters now given the significant adjustments to cost of capital across industries, including our own cost of capital and the macroeconomic uncertainties. The regulated cannabis industry has been facing we made the strategic decision to reduce.
Our overall investment activity and continue to be extremely selective and patient in evaluating potential investment opportunities.
As Alan noted in late October we amended our lease with good growth in New York, providing additional funding to complete the development of the expanding cultivation and processing facility and adjusting it accordingly.
As goodness growth disclosed last quarter. The company is exploring the sale of its New York operations, including the operations at this facility.
With that I'll turn it over to Kathy Kathryn.
He's been in this call I will describe our property portfolio and tenant roster. In addition to our rate collection statistics and updates on our development projects.
As of September 30th we owned 108 properties across 19 states and leased to 29 operators.
Rising 8.9 million rentable square feet.
These are 108 properties 103 properties are included in our operating portfolio.
Our portfolio continues to be well diversified with no one tenant representing more than 16% of our annualized base rent and no state representing more than 15% of our annualized base rent.
We have relationships with some of the largest and most experienced operators in the industry with our least operating portfolio comprised of 90% multi state operators and 62% leased to public company tenants.
Total amount of capital invested and committed across our operating portfolio equate to $274 per square foot, which we believe remains significantly below replacement cost.
For the third quarter, we collected approximately 97% of contractually due base rent and property management fees from our operating portfolio.
The 3%, we did not collect related primarily to our previously disclosed defaulted tenant parallel at one of our Pennsylvania property.
Our revenue and rent collection for the quarter included the application of approximately $2 $2 million on security deposits as.
As we previously disclosed we amended our leases with holistic in exchange for inclusion of cross default provision and extension of terms for all of the leases and agreed to apply security deposits for rent payments to the Michigan and California properties through September 30th.
With pro rata payback of the security deposits starting in January 2024.
Holistic began paying rent on these properties in October.
Similarly, as disclosed last quarter, we amended our lease with tenants go in Massachusetts, a property that experienced delays in completion of construction pursuant to which we extended the term of the lease temporarily reduced base rent for April through January and then increase the base rent for the remainder of the term.
With the application of security deposits for certain rent payment.
School began paying rent in September which has been fully collected through October.
Finally, as we disclosed last quarter, we amended our lease with forefront at one of our Illinois properties in July applying a portion of the security deposit to pay one half the monthly contractual rent due from the tenant commencing on October one 2023, and continuing through November 30th 2023.
With repayments over a 12 month period starting in January.
Boyfriend has paid the 50% of rent you since this amendment.
Similar to our third quarter stats in October we collected approximately 97% contractually due base rent and property management fees from our operating portfolio with the 3% we did not collect relating to a previously disclosed defaulted tenant parallel in Pennsylvania.
We also continued to fund draws for improvement allowances, our construction development tour operators under our leases.
As we've previously noted on prior call. These improvements are critical to the efficient production of quality cannabis products at scale in Q3 of 2023, we funded $18 million net of building improvements and construction activities at our properties.
And with that I'll turn it over to David David.
Thank you Catherine.
For the third quarter, we generated total revenues of 78, Million% to 10% increase from Q3 of last year.
The increase was driven primarily by an increase in tenant reimbursements versus the prior year period.
As well as activity in prior periods for the acquisition and leasing of new properties.
Additional funding of building improvements provided to tenants at certain properties that resulted in base rent increases.
And contractual rental escalations at certain properties.
As Katherine noted that $78 million of revenue for the third quarter included $2 $2 million of security deposits supplied for payment of rents or <unk> <unk> per share.
For the three months ended September 32023, we recorded net income attributable to common stockholders of $41 million or $1 45 per share.
Adjusted funds from operations for the third quarter was $65 million or $2 29 per share an increase of seven 5% compared to the $2 13 per share of <unk> <unk> generated in the third quarter 2022.
Driven by increased tenant reimbursements.
Revenue generated by properties acquired in prior periods.
Contractual rent Escalations and revenue earned on additional capex investments at existing properties.
F over the third quarter was up <unk> <unk> per share versus the second quarter <unk> of $2 26.
With the increase primarily due to contractual rent increases.
Slightly offset by lower income from the King's Garden portfolio.
Notably regarding King's Garden results in the third quarter included $1 7 million or <unk> <unk> per share of rent from them and as Paul noted in his remarks, they are no longer a tenant as of the end of September.
On October 13th we paid a quarterly dividend of $1 80 per share to common stockholders of record as of September 29.
Equivalent to an annualized dividend of $7 20 per common share.
As Alan noted our dividend remained covered by our <unk> during the quarter with a payout ratio of 79%, which is in line with the board's targeted payout ratio of 75% to 85% of <unk>.
Turning to the balance sheet at quarter end, we had approximately $2 6 billion and total gross assets and roughly $304 million in debt.
Importantly, all of which is at a fixed rate.
Our debt consists solely of unsecured debt with the majority of this or $300 million not maturing until may 2026.
In addition, our credit metrics remain strong and among the best in the entire publicly traded REIT industry with a debt to gross assets ratio of less than 12% and a debt service coverage ratio in excess of 16 times.
While our balance sheet remains in excellent shape and.
In October we added additional liquidity with the closing of a $30 million three year revolving credit facility, which can be expanded subject to obtaining additional bank commitments.
Pricing is based on the prime rate plus an applicable margin based on the deposits with our bank.
Notably since our IPO, we have always strived to maintain access to multiple capital markets.
As we have previously access the common stock preferred stock convertible debt and unsecured bond markets.
The closing of this revolving credit facility further demonstrates our ability to access capital in the cannabis industry and provides another liquidity option for the company.
With that I will turn it back to Alan Alan.
Thanks, David I would like to note. The following in closing we continue to be steadfast believers in the long term growth and success of the regulated cannabis industry and our team of dedicated professionals and advisers is singularly focused on navigating our company through this rapidly evolving business environment.
We have a solid foundation of properties, a dedicated team and a clear vision for the future. We are optimistic about the legalization trends, we believe our expertise property portfolio and balance sheet position us well for the future.
Now with that I'd like to open it up for questions. Operator could you. Please open the call up for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you're using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Tom Catherwood with <unk>. Please go ahead.
Thank you and good morning, everybody.
Maybe paul or or Alan.
Thinking more broadly of the cannabis industry in the U S. You mentioned modest improvements and in wholesale pricing starting in the fall.
And obviously, we've seen recent states that have added adult use programs with that as a backdrop how has the business outlook. Your tenants trending and are there any markets, where you're incrementally more constructive or hesitant at this point.
Thanks, Tom.
I think you're asking.
You know a really good question and I wish I had the the best Crystal ball with the clearest vision.
The industry continues to perform well I think it's continues.
Continues to be very widely accepted as we've just described a number of states that have Oh now have either adult use for medical cannabis are where I think it's 40 states now.
And and growth in sales continues to increase year over year.
With the projections that by 2027, and that's supposed to be over I think 43.
A billion in total sales.
So I mean I think the industry in general is is continuing to.
Two.
Move in a positive direction.
What we are potentially experiencing as you know the the growth rates have not been are not as robust.
Our robust as they have in the past, but may be positioning himself for future of our.
Future.
Higher growth rates than we've experienced this year an unexpected early next year. So I think that's the best we can do and are you now and analyzing where we think the industry is today.
And I could add Todd. This is Paul that you know we look at the rescheduling.
Possibility next year is just a huge positive obviously with the $2 80 application and I don't think we can overstate the impact to 80 relief would have on an operators across the board. So we look at that as a real positive.
Also we still look at state developments know, Ohio next week has a boat on Rick and all eyes on Ohio next week. So.
You know, there's a lot of a lot of positive things going on in the industry.
Great I appreciate those comments and then maybe.
For better or for Paul going over to the assets you've had in the market great to hear the news on the L O wise.
Maybe just a broader question on the marketing of assets when you get them back when you have them.
Out is the demand mainly coming from Msos looking to add higher quality cultivation assets or kind of pall as you alluded to with the potential for the rescheduling are we seeing new company formation, and maybe new capital coming into the <unk>.
Street that we hadn't seen in the past six to 12 months whats the kind of mix of those tenants out in the market looking at your assets.
Yeah, Let me, let me ask Ben to respond to that.
Deal with that every day Hey, Tom.
We're really seeing a mix, which I think was great to see when we took some of these properties back and took them out to market are the two properties. The two main properties Kings Garden that we recently got back that we.
We're pleased to announce an LOI for we saw interest from from new companies that were looking to get into the industry. We saw interest from existing.
Existing players in the California market.
Really a good mix of existing and new companies that I think really saw the value in those assets at these were fully built out.
As we've said in the past. These are mission critical facilities that would take a lot of investment and time to build and the fact that we had fully built out ready to go facility is really.
So it was a very attractive to a lot of different types of companies.
I think we saw that in both the amount of interest in how quickly we were able to put those those properties under LOI.
Yeah.
It's been really helpful. And then maybe for David Great to see the addition of the revolver in the fourth quarter.
As far as the process behind adding that was this a matter of you know it took a while to find the terms and the rate and the structure that worked for you and so you've pulled the trigger now or are you looking out at opportunities in the market and just the added capital flexibility.
You to where you want to be part of any kind of color on the thought process behind that.
Yeah sure Tom.
The revolver itself I'd say more so the latter that you mentioned there was a an opportunity just to bolster our liquidity at the company as you know we already have a incredibly strong balance sheet, just a chance to add additional liquidity for the company was attractive to us.
In terms of the.
You know what I can say on the bank itself is a very large bank they've been lending in cannabis for a couple of years now they have over $60 billion of assets. So I think that also speaks to.
One just interested in the industry and also interest in us as a credit.
And pricing is also very very attractive to with with no ongoing news feed. So just again at the end of the day, it's another chance to increase liquidity for us.
Thanks, David and then just last one quickly for me Ben.
Remind us when a tenant is looking to sell their business like you mentioned FERC goodness growth in New York What is Ips involvement do you have a say in assigning the leased to a new operator.
Yeah, Hey, Tom we would not be involved necessarily in the discussions on a transaction, but yes of course, we do have a say over anyone that might come in.
To want to lease our buildings. So we do get involved from a lease assignment perspective in terms of who the new tenant would be we will underwrite them just like we underwrite any other transaction and make sure that it's good.
A good fit and we feel for the for the property.
Got it really helpful. Thanks for all the answers everybody. Thanks, Tom.
The next question comes from Scott Fortune with Roth Capital. Please go ahead.
Yeah. Good morning, first a little housekeeping item around kind of litigation expenses, there and the movement or potential timing.
Potentially again, Dan Corey.
The litigation side of things.
You're going to get update on that that'd be great.
Sure Scott This is Paul as we mentioned we were we.
We concluded the litigation in Pennsylvania, with a judgment in our favor of $15 $5 million.
We also got recovered.
The property effective this week, so that litigation is done.
Ongoing litigation remains in some areas.
But we continue to.
Pursue vigorously our options.
Against the defaulting tenants. So you know that that was a good one in Pennsylvania.
And we just continue.
To pursue aggressively our all our legal remedies.
Perfect and Paul while I have you.
On the call there can you expand a little bit more on the recent filed lawsuit by influential law firm and somebody or myself.
Partners to teach and they're seeking kind of blocked the federal government from enforcing prohibition against the state legal Kansas activity.
Although likely they take a few years to play out potentially going to the Supreme Court, there, but kind of thoughts or protection from.
The state for the states and your business model with Msos tenants.
She'll lead to any sort of cooperations in these key states in any kind of thoughts on kind of a justice side.
Move in cannabis reform progress forward.
Yeah, Scott, it's really interesting lawsuit and of course, they retain David Boyce, who is one of the top.
U S Supreme Court litigators in the country. So that that gives us instant credibility I think to get the case before the Supreme Court the.
The case was filed in Massachusetts.
<unk> challenging the rider with federal government to regulate state operated cannabis businesses because you go back to the Gonzales case in 2005, it gave that federal government right Deregulate Interstate commerce.
Of course, the way the states are operating now its interest state.
Commerce. So the challenge is saying that the federal government does not have jurisdiction to regulate businesses that operate solely within the states own borders.
The second part of the cases also interesting from a legal analysis gives us a nullification theory and that is basically saying is the federal government has allowed the stage to violate federal government for 12, 13 14 years now so.
So it's kind of a waiver argument that says the state.
The federal government is not allowed to continue to.
To have this.
Prohibition when it's refused to enforce its rights so you're right, it's going to be a long haul, but I do think it will get before the Supreme Court.
I think we will probably have.
Rescheduling before it hits the Supreme Court.
So, we'll see but it's probably yet.
Two to three year process, but.
It's nice to see a legitimate case now.
And now.
Now we're looking really at three fronts, we're looking at activity at the traditional level, we're looking certainly activity.
At the executive level the rescheduling.
And of course safe banking safer banking is trying to wind its way through Congress. So its a three front attack that we think is very healthy for the industry.
I appreciate that color and then if I can sneak one more in.
Probably to ban, but can you can you provide color.
On your private tenants as we're seeing you know.
Similar action by your private or single state operators are following the trends by my main the public companies.
To significantly reduce costs capex and those with debt, we're seeing extending or <unk> that kind of debt maturities out to generate cash flow seems to be positive for the tenants and healthy in this tough environment.
They are improving their operations and the kind of environment without expecting kind of beneficial cassel from the elimination of <unk>.
Can you just put a little bit color on your larger private side of the tenancy and their options as far as.
Kind of what the public fund done.
Yeah sure Scott This is Ben happy to happy to provide some color there I'd say, we're really seeing.
Similar initiatives taken by the private companies as we're seeing with the public companies and they are all experiencing.
The same market dynamics as the public groups.
In terms of capital raising.
In terms of operations.
Single State private companies, we are multistate private companies and I think it's been very healthy a lot of the things that you noted for the industry in terms of focusing on efficiencies of operations addressing any sort of balance sheet challenges that they might have it's been great to see that a lot of the publics have been able to extend.
Loan maturities refinance restructure some of the debt and really push out some of that.
That concerns that some investors might have had for some of the public msos.
So again I think it's very healthy overall for the industry, they're taking the same steps.
No.
Ben we're pleased to continue to report the strong rent collection or staying current on rent that are continuing to occupy and operate out of our facilities.
Their operations and really focus on their financial health, which again I think there's really a benefit to the industry overall.
Thank you for the detail I'll jump back in the queue.
Thanks Scott.
The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey.
Good morning out there.
<unk> always interesting whenever an earnings call gets into a constitutional law. So I. Thank you for that Paul.
So two questions here. The first is maybe going along the legality part.
David You mentioned the bank that you guys got the letter of credit from was over 60 billion. So certainly you know one of the I would assume a big bank that would be subject.
A radically to federal prohibitions on lending, but clearly not bored.
So.
You know, we all discuss safe banking, but it almost seems like impracticality given candidates has access.
The community bank level and it looks like all the way up to the 60 billion level.
What benefit would safe banking provides that the industry doesn't seem to already have an obviously banks underwrite the.
The credits are bad operator or credit worthy potential.
Central borrower clearly is not going to get credit so from a good sponsorship basis, what's the difference from right now too if we had safe banking.
Well Alex this is Paul So I think the short answer is it would encourage more banks to get into the space because right now Penn sand regulations do make it okay.
Expensive.
For banks.
And borrowers and customers to have accounts because of the extensive.
Reporting requirements basically.
So if we have say banking in that in theory would go away, which I think would encourage more banks to get in but to your point, there's still or are the credit issues of these operators. So we've been consistent I think since then we've been talking about this for six seven years as you know even with say banking are safer banking now.
We don't think that the large.
Money banks the wells the chases are going to come into the space.
But it would be definitely a positive for the operators to have better access and cheaper.
You know.
We always go back.
We were talking about earlier about the whole rescheduling idea, which we think is certainly more of it impactful to the industry than safer banking would be right now because of.
The potential for 280 <unk> relief.
So that's what we're really keeping our eye on but.
You know safer banking would be good but it's you know it's.
Schumer says he's going to get it to the floor vote before the end of the year, we will see with all the competition.
Having to fund the government.
And as the various war fundings.
It's probably not going to get space. This year. So I think if say forgets some floor time in the Senate.
Q1 next year.
It can get over to the house Ware.
I think we all understand it's going to have some resistance at the house so.
All eyes on on rescheduling for next year.
Okay. The second question is and yeah, I mean, especially given Mike Johnson is hard to imagine the house passes but who knows.
The second question is on you know as we look at the industry one of the key issues that you guys have grappled with although you've managed through it is every quarter, there's like a new tenant that comes up as a credit issue. So you guys are are steadily resolving legacy credit issues, but then a new one pops up so it's like a conveyor belt.
Right.
And ideally.
So there is no conveyor belt, let's let's not don't put those words in our mouser.
Out there that's not that's not a fact, that's occurring but we have dealt with some legacy legacy credit issues.
Maybe in your other companies or in your own personal life. You have you know a conveyor belt of problems, but not in ours. So what's your question again.
Yeah. My question, though is for the past few quarters in fairness there'd been a number of tenant issues that have come up so historically, you're right. It hasn't been a conveyor belt, but recently.
Recently, we have been having that issue. So my question is what is the key to getting the operators on a better footing to 80 E tax burden going away is that the big solution is it is it better state crackdown on the illicit what I'm trying to do is understand what gets you know the current situation.
To resolve such that your rent collections go back to a 100% and you guys can regain a competitive cost of capital to continue to grow the way historically you have.
Hey, Alex This is Paul so I think as we see.
Said in prior calls and I know you and I have talked about it.
It's a combination of many things.
Certainly.
Crackdown on the illicit market is one price stabilization across the board is another.
And certainly better access to capital for the operators and that would probably mean.
Ability and interest rates, so there's a lot of macro.
Factors that would come into play I think that would certainly improve.
The credit health of the operators, but again to AE relief would be the number one and the quickest.
Solution.
<unk> been looking at various legal opinions and they think that it.
$2 80, we have a rescheduling.
During next year that it would be retroactive to January 1st of 24.
So even if we if we get it.
Sometime before the election.
August September that would give relief for the whole tax year, most likely for these operators so.
That's something that could be an immediate.
Relief and really really move money down to the bottom line.
Okay. Thank you.
The next question comes from Eric The Warrior with Craig Hallum Capital. Please go ahead.
Great. Thank you for taking my questions.
First of all just a bit of a housekeeping question.
Was hoping you can help me understand the lease amendment with goodness growth a bit more.
In the press release, it states that the improvement allowances increased by $14 million to now about $67 million, but if I look at the property list from previous quarters. The amount of committed capital was already $67 million. So I'm. Just wondering is this just the difference between committed capital and tenant improvement allowance in there.
Now post lease amendment that committed capital for this property is now roughly $81 million.
Yeah, Eric that's correct.
The financial supplement is through September 30th that we would adjust that with the amendments for this next quarter, but $81 million.
New committed capital.
Got it thank you.
And then I guess just more broadly.
Can you just kind of talk about how you're viewing the risks associated with New York and obviously, it's been a slower market to start illicit market is pretty entrenched there was a bit surprised to see more capital being allocated to that stay. So I guess could you just kind of give us your your updated thoughts.
New York.
Yeah. So you know.
Obviously, New York has had some struggles.
But the size of New York market is compelling and we do believe that.
It will get through these growing pains and.
The Big Big thing, we really need to see of course is crack down on the black market, but also opening some more stores and I think we're going to see that.
Starting this quarter next quarter, but we're going to see.
And emphasis on getting more retail stores open they can handle supply.
Ben do you have any other thoughts on that.
Yeah, and I would just add to that I mean, even with all the.
Historical issues that we might have seen in New York. It is still projected to be a top five market by 2027. So we do think there is a lot of a lot of long term value in the state.
Apart from Steve specific dynamics, and we felt that this was a good investment. This is underdeveloped property under development property that we wanted to make sure was completed on time.
We felt that this adds value to the property.
For the long term.
So we like where this sets this particular asset up for a market that has seen some challenges has a tremendous amount of growth potential.
Okay. That's helpful. I appreciate that and then.
Last from me I'm, just hoping that you can help me.
Kind of understand a bit more what's going on.
With the <unk> assets and the potential impact to.
To you our rental revenues and overall portfolio. So a couple of weeks ago sundial issued a press release announcing that their bid to takeover receivership of those skyman assets was approved and.
And that are part of that receivership process.
Uneconomic leases, representing more than 12 million of annual fixed obligations were rejected.
So I guess, there's a few questions what is the impact of your rent collection of this $12 million.
Would you look to restructure this lease how might a restructuring look and then I guess, it's more broadly speaking how do you kind of look at the risk of other leases of yours potentially being deemed uneconomical. Thanks.
Hey, Eric This is Ben so just wanted to clarify they obviously have a lot more leases and just with us. So I think the press release was referring to some things outside of our portfolio. As we've described we took back the summit property from from Green peak.
That was in May and.
Very happy to announce that we signed an LOI for that entire property and are looking forward to getting that tenant in there and operating and paying rent.
We did take back.
Two smaller retail assets.
And our Premier prepared remarks mentioned the <unk>.
Retail asset total of those is about 0.3% of our assets across those three retail properties.
Remaining leases.
The buyer did agree.
Assuming those as is and we are not making any changes and there were no changes requested to any of the deal terms on those leases.
Okay, Great. That's helpful. Thank you.
Thank you Greg.
This concludes our question and answer session I would like to turn the conference back over to Alan Gold for any closing remarks.
Thank you.
And thank you all for joining us here today, and and once again I I can't thank the team for all their fantastic hard work that they've done over the last quarter and are looking forward to.
Better quarter coming up.
And to a fantastic 2024.
Thank you all.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.