Earnings call transcript Q1 2023

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Operator

Good morning. I will be your conference operator today. At this time, I would like to welcome everyone to the NewLake Capital Partners Fourth [First] [sic] Quarter and [Full Year 2022] [2023] Earnings Conference Call. Today’s call is being recorded.

I will now turn the call over to Valter Pinto, Managing Director of KCSA Strategic Communications. ahead. go Please

Valter Pinto

Board; Good Jarrett Capital operator. I welcome to Head Chief of everyone joined Executive Investments. and Thank Lisa of Senior Officer; first afternoon Vice quarter NewLake Meyer, the Chairman DuGan, Partners by Officer; call. Coniglio, XXXX the President today Chief and you, Financial Gordon and Anthony Annenberg, earnings am and conference President

within maybe of the Litigation that begin, of statements remind made variety deemed and and I’d forward-looking differ conference today’s Reform actual of we Harbor statements Before Safe uncertainties a may everyone other call meaning Securities the due of XXXX like during Private to factors. materially risks results to the and Act

XX-Q risks to company’s I company as future with statements XX-K, as a and uncertainties For company’s otherwise. any and press discussion the the X-K, forward-looking of a evening with detailed in whether filed refer SEC intention business, ongoing periodically update or of and revise you well issued to information, the new some yesterday release any Form the obligation result disclaims filed SEC. or on reports the The of events as other the or

are included the end more attributable to to and for the GAAP real shareholders supplemental measures FFO of common at non-GAAP from and the FFO our AFFO, to used net information. estate in measure terms performance to our AFFO Please real financial reconciliation release estate income adjustments press complete containing the of industry and operating compare of press refer release. and companies. A definitions

diluted subject company’s activity, Commission. and more on the rates. and Securities such general filings average based assumptions including fully expenses, reflects administrative of conditions, guidance described occupancy shares leasing Exchange and company’s weighted levels, is outstanding plans risks the acquisitions current interest rental of uncertainties outlook view and and with U.S. market management’s in future This the the The as rents, future and operating uncollectible and to dispositions, pace rates, current and assumptions

pleasure DuGan. Gordon, please the With over it’s turn to my call that, to go ahead. Mr. Gordon

Gordon DuGan

for morning Thanks, call. thank Valter. us you for conference joining Good this and all

continues are QX environment. and very our and same We and industry that a expectation. through the well the Luckily our to well time our business our have with is the perform positioned going At work it's results environment. to we team, for and difficult very well-known pleased the this skill of cannabis operating company through

major Massachusetts. is even dividend a Our ours of collection at covered in well issues asset with rent

essentially have And that capacity million with leverage lowest on undrawn interactively very debt $XX debt priced. REIT the is We facility, no public I'm we capital of. our which of aware have

a sit good very operating in So position a we difficult environment. for

prior swearing to the operators, prices most and to election the pass failing capital critical industry, sell do operational volatility to business facilities in cannabis to we be states that tends the then keep picks business. to mission relative operators And recent for given House markets have they down shovels which to in companies operate operators, legislation And this own we the again. significantly with and the in to while impacted those of need which some stock in been yet cannabis-related Representatives, to safe reaction the issues the

in seeing Massachusetts. our they and are we need current that shovels Sometimes a in don't and picks situation

California think doing Massachusetts I criteria. of States. and exposures is and of business. point grow a and the some operational phenomenon these again think in And short-term issues that selective in Western and we spillover of places believe we been But overcapacity we've messes avoided are states Colorado, in this overcapacity, we've very alleviate that in will is as some like in a should some in we the where sales to pockets We in those terms we've opposed out, short-term states as as our more of our the states then elsewhere the investment the Pennsylvania, phenomenon seen which like

you we we've do of we buyback, transactions in several stock also release, investing given is have time. see over a that that's a we a are we're of would years, company cautious at very to been say at we've the implementing discussing well-run on level in a meeting in which market a the to last conservative our the these people stock a as in buyback our of to stock Also, allows with -- and in price, sheet balance levels, press sign us same position but a management that. be that are position which because our new I our the had

recently And grow. the legalize very same these is at let's difficulties to The time continues to Kentucky happening that legalized remember cannabis. good industry medical state continue are operational cannabis. example, which a states red is a

the momentum continuing at the operational some good So we're level, see state to challenges. despite of

then for some summary, that. been well. in more the seeing. We're and we well challenges other think has positioned optimism the challenges that And we're safe But into speak continues Anthony with business Congress, the much about to seeing deal will we're reason perform very reintroduced to

over it Anthony turn to I'll now.

Anthony Coniglio

talk our our to industry first, and thank today. Thank address joining Today, But our you call going everyone management. for our capital and let's about portfolio, portfolio. you, the I'm Gordon,

paid QX. with are other the thus will was one continue far paying as full have Gordon As QX That quarter. thus not discuss far rent mentioned rent. we quarter, and as for the to in current in us case property and more well in the first in during All detail, properties Jarrett second

the and because we've we have collection, report we forecasting security to that we're QX to of capital to XX%, portion of the collection second across you may about properties rent of be similar in result, range some when asked quarter point a XX% XXX% we it's deposit. a out rent when the of this, want to also As include report rent which I deployed. a collection, all own

We the continue us focusing believe difficult our strategy that particularly of license industry. well, period this jurisdictions cannabis on during will limited to serve for

defaults, the Colorado, operator of have dynamics the they're concentrated and at jurisdictions and even and unlimited difficulties licensed landscape as look that pricing, in jurisdictions challenge licensed Oregon taxation operators. best we When unlimited California. competitive Michigan, These such largely

fact, flow recently markets. those we've in licensed seen We've a In difficulty avoided the few Curaleaf those as markets such recognizing cash those states. unlimited profit extreme and exit generating from

is We transaction. are of do our dispensaries one million of serving Diego, dispensary where and underwriting property there at the in line jurisdiction the people only limited have with license and time San that performing the transaction XX X.X in

we to only current not underwriting, initial important but license limited to navigating jurisdictions think our again, the are So environment.

activity, starting see Focusing industry, the stabilization. signs while there some and lay they now operations of seen certainly been to their of to back their cash margins markets on M&A exit on have lines. bottom underperforming employees Operators the tenants making continues were and in adjust their flow. hard industry, and off broader operators out we're We've decisions where the improve to cannabis focus headwinds improving to be

difficult While these are to they are implement, necessary. measures

grow. we much time, period. result of much of XX% see more these we and of get other that same indicator which difficult to when believe to The a At this to Gene and is on XX%, see operations. and to operators demand, landscape we'll their from tenants of one industry up Technologies. a Canada the XX% whole sales Flowhub (ph), industry side stronger the I X% a year-over-year as [XXX] improving were as efficient efforts a according And continues

a implement begin of this market growth operating many areas a year, just basis, to passed adult and state-by-state use start recently recreational strong Missouri and recreational Delaware in sales and legalized an off seeing to we're and are had rules On use adult the use a program summer. for optimism, Maryland Connecticut

has fact dispensaries state and tenants to the we medical signs that approved in and country Kentucky coupled was investment medical ’XX the scale and are markets. There launched for use to the and that April. has continued and when table one adult into to for two the and our NewLake end new of half of in exciting is they finally launching successfully yet look industry at approximately legalized, additionally, set Curaleaf industry begin the future program legalized of one the in approved first is companies sales these Georgia cannabis that see forward with growth the opportunities of

see we level, federal and positive the industry. areas the of for momentum other At optimism

With past the hearing over on number tomorrow and a safe held banking introduced of being few weeks. bills cannabis-related the

the it the safe banking when it and passing, on are actually we've that we'll the introduced noteworthy to was committee better recent in is bill cautiously the and been if the more a give convened Senate in We're after While hearing and bipartisan know fashion quickly. and most a able in coordinated both optimistic, will other the fairly bill likelihood provided. hearing House and the if the Senate we'll was of view floor but Then we think be a pass. provisions hits subdued

some to reinforce seek be capital highly I point our we regarding Lastly, disciplined commentary management. wanted that capital Gordon's to decisions. around

that believe cannabis returns. in real to shareholders will our provide investing continue We with long-term estate attractive

And as the shareholders. result, structure valuing we've for our market further prices, our opportunity the just a taking begun the not at buyback our enhancing accretive benefit However, is appropriately of to stock. capital shares

investments. stock price taking our into We disciplined low continue be capital to about will advantage of new deploying and

In we sprint. our investments, a this patient in new very capital. view, is the a not deployment of Regarding marathon, remain

We ensure in have with on and $XX approximately market been quality quality developments observing million we to quality jurisdictions invest focus to we've properties tenants. available

through in more our hand walk over I'll over Head Annenberg Jarrett that, to you. portfolio it detail. our of With to Jarrett, Investments, to

Jarrett Annenberg

current be for on Anthony. of want the outlook XXXX. provide in Clinics rest Calypso. Thanks, and to update quarter first an first We activity I'll portfolio, Revolutionary our the and covering

own their noted, Anthony approximately paid dispensaries. rental our not Massachusetts use and to cultivation unfortunate in two after has in we harvest in delays and facility issues The Revolutionary is working XX% rents opening business processing income, company represents and related was adult XXXX rebuild Clinics of As XXXX.

we the their evaluate basis and circumstances During as rents and towards quarterly applied will facts security on deposit of security of deposit XX% evolve. a outstanding the quarter, first use

to the period, constraints. this the continue managing including can difficulties in work We and through company reducing cash been and flow current the believe operations. company improving have expenses to hired through assist Consultants

crop new in to their long-term received and first will year We solution. progresses. revenue are approval as open recently working a with close boost in and the on to Summerville, February store adult planted use are margins They which harvesting their management

we the timeline will are for continue action, provide and we resolution interest. to best optimistic, proper when under cautiously cannot all a conclude We shareholders' remain rights progress. take we keep of our we on our prepared While you but it's in to if our maintain today, lease and posted

to wanted pay I Calypso, that to originally Regarding Pennsylvania. sale weekly note processing and own this contracted process facility we their rent and through they schedule. cultivation is a continue in work on

Moving overall to portfolio. the

As facilities X.X along tenant have there, provided square dispensaries total XX inclusive across representing of XX with million XX of has approximately states alone we of with facilities March in a XX, committed and one XX $XXX cultivation tenants been the XXXX, feet. that million

basis was square our per retail, $XXX portfolio foot. across For the

our replacement cultivation, $XXX per For foot, below costs. square current well basis is

a XX.X% times XX% operators. committed slightly is use integrated traded X.X coverage that of each for the state. fully cultivation our the vertically on tenant which X.X properties available where reports times and committed estimates latest appropriate basis. company dispensaries. in note capital the differently level given quarter to in we was Please with EBITDA publicly property is for for is

XX, in construction a collected closed and and escalators. through yield weighted an tenant lease improvements unfunded million of for announced of tenant for term previously approximate our expansion is all years had and built-in we assuming now option on TI In Missouri remaining XX.X XX.X% is March lease where CX's underway. with improvements deployed QX, in the growth $X.X rent average As portfolio

and in adult foot $XXX As to we million market $XXX,XXX million facility will parcel purchased per off and expected total basis the committed to our as a build for of a be The Missouri. approximately be foot. $XX kicks feet adjacent use XX,XXX square to is TI the to $XX.XX XX,XXX building expansion reminder, square square cultivation their

transaction in improvements is that the XXX as we and provide last from to a Additionally in build an contributing the QX, Phoenix. our foot the this of indicated million If miss facility tenant our expected million the Difficulty] foot. additional to quarter cultivation of amount total Please tenant XXX,XXX $X is facility with is signed funding, per the square $X.X square in up $X.X Difficulty] the to out. [Technical [Technical basis processing million the down LOI to note original non-binding to

LOI, and Mint have transactions. approximately almost commitments, the entirely $XX.X we of CX unfunded Mint which Including is comprised million the in

to to the be towards the Mint CX the of and the of next QX XX-months complete expect facility end QX. completed over beginning project We be

facility we with QX, given mutually in to the Mint thing decided in dynamics. change Last market sell Massachusetts the their

is utilize Our million beneficial how that continues Mint both to basis capital. and scheduled relationships allowing the are or make and the $X of we to in to rent decisions tenants is in our the $XX as foot while This portfolio our we knowledge market by approximately property tenant the seek risk our our and example their tenants to square and per shareholders mitigating better deploy to sell an pay asset.

portfolio. Beyond current Revolutionary Clinics, all tenants the of entirety our are across

to the methodically problems financial property portfolio watch emerge. all tenants difficult, we information taken optimize quarterly we level impair to potential have try issues. We necessary to received operations, they their before to continue level, identify for closely review the steps Our while

Massachusetts the close the state tenants. each to environment we and shows, operating with contact As monitor our example understand maintain

of Given economy cannabis in approach. state whole, our is it in and the us the to vigilant portfolio imperative underwriting remain market the conservative as managing for a and

started a While the industry we the midst multiple across state to in see price difficult stabilization have markets. is period, of

tie more compression, wholesale drop average back previously of is price per such Illinois, pound. to pricing days. driven This risen pricing in in has where is flower The now XXXX, mature as from U.S. range early the $X,XXX $X,XXX $X,XXX In stabilized pricing has up seen seen for risen pound in by has indoor October the in has a price from increase significant per had that pound XX% per past $XXX March. XX Massachusetts markets and about which

While price much compression at appears continued we be slower and like pace. to states it a expect in Illinois Pennsylvania,

to XX% side, compared more on starting capital see funding it raises XXXX. capital are for cash with to in interest that the year-to-date, said, path. or flow have able positive operator access the in down stronger and market operators we're quiet That On total remains sector been companies private to either that

look navigate who underwrite the the long-term allow the at learnings knowledge to position industry will our plus of capital quality million environment our on able XXXX, been of rest of new the This advantage four should conservatively, we to current As utilizing with to and market us with continue past in-depth the over deals years. have $XX and we take available in partners, industry. execute accretive be to transactions winners approach

Lisa I'll in walk With our results that, hand it over to to CFO, Meyer detail. our you more financial through

Lisa Meyer

Thank you, Jerry.

first drove XXXX, For improvement XXXX. cultivation increase acquisitions, mainly and in the allowance existing to of an of compared portfolio generated total expansion million, properties, period the of Florida tenant XX.X%, Property that total facility in $XX.X quarter our revenue the our same increase revenue. the of with

same to of the for $X.X in the period shareholders common common to million XXXX attributable to non-payment attributable On Revolutionary basis, $X.X quarter increased due income a our to net was rent of from shareholders income first Net which decline of XXXX, million, for $X contractual the experienced from quarter compared XXXX. of a financial approximately in results the fourth million. sequential we Clinics,

However, or deposit from to income. offset the we XX% $XXX,XXX security applied decrease partially in their rental

determine future will We continue situation the in remaining quarters. and if applied to the deposit much be and security evaluate how

the XXXX to for be XX% rent Anthony the collection to range of in our projected second is As mentioned, quarter of XX%.

in the It our expectations, with that continues is portfolio which investment. perform note quality our of is well a of to direct important result to our and line

quarter we million a per declared AFFO $X.X of of $X.X diluted $X.XX cash of diluted our share. per or or per common And of XXXX, $X.XX portfolio For first share. dividend million the share. FFO generated $X.XX

is the of dividend supported power by Our our earnings fully portfolio.

pursuant record payout quarter repurchase XX,XXX shareholder of first per a stock $XX.XX XX, to common shares at acquired value, equivalent per XX.X%. price improve XX, XXXX XXXX of With at March to paid ratio was to of to share. the April on share. our common of The business stock Also, close plan, average dividend of on we an shareholders $X.XX

have strong sheet $XXX of continue we At to a debt balance March gross $X and only with estate million in XX, million. total assets real XXXX,

million well the $XX to on believe from and redeployed business facility, available capital. we earnings our positioned have company We investors, credit as to is revolving execute strategy under grow well our as

will now, And operator back I turn the to call the for Q&A.

Operator

Thank a proceed Please you. question-and-answer is your Our We'll Massocca Ladenburg with question. from be conducting session. Instructions] John Thalmann. now [Operator first question with

John Massocca

Good morning.

Gordon DuGan

morning. Good

John Massocca

Are with schedule Revolutionary negotiated rents? the in any security or that of of kind XX% in used amounts a other Clinics, the logic So, maybe future was the are for deposit go through repay of why tenant? the something maybe quarter, terms they that of using deposit security to the on that

Anthony Coniglio

We get time our very not the way did that a we We with not something clear to take resolution that security wanted John to for potential approach according looked documents from. recognizing horizon deposit. and leases conservative our work, tenant that to that's the at and the to have approval

restructuring the continue a And so through that. remainder on if in of to as we of basis we're going out how we work their recognize to look quarterly business, the

John Massocca

of updates is structured, today the not maybe the and in sounds then for new any maybe some, kind deferral abatement formal it rent progress kind towards give asset? on in And is or of, agreement Okay. any or you of, yet, color agreement place like but place kind or agreement that answer there more can

Anthony Coniglio

is take it believe other them for business again. place what be need is really that to and formal to a their consultants we the demonstrate business situation growing no options see to where We're before allowing we opportunity thriving we the a off agreement But this to There's do and table. yet, the in is John. rebuild

of at we all XX% rights have on if deposit left a week. of regular and security we'll basis once and have multiple talk not times we we least So a to them week, still be -- our the a still

we're want watching that to those decisions participate when information. we situation decision make make is we'll once make the their the we looks back or the if a that a the we'll And want have So very at of all landscape and then future if take property. closely like what we'll we to decision time

John Massocca

potential the some in then guess sale maybe maybe is regards maybe logic Mint, Okay. can look in or you asset sell provide the background how And on of the behind the sell of to that maybe I with property? asset the why to disposition the color or rather today? Maybe property Massachusetts? retenant that look And the the state market property look to than sale

Anthony Coniglio

we schedule into with Sure. behind in to there anticipated Construction pricing And very the higher when in than was that the originally entered sure, different -- the admittedly Massachusetts place. Mint market facility. build so purchase a out was

is Given agreed $XX and move at most to pricing the market with current our given asset where foot, wholesale Massachusetts was user basis forward. Mint, basis better current to rather reposition likely non-cannabis a our it construction the sale, than we a for

Jarrett Annenberg

points dispensaries getting their into put ROE and on to are number tenant it and excess in the given where property areas capital building we product supply market. platform agree that manufacturing the point market in exists, their other in served capital, would operator a cheaper acquiring third-party have their two, to is for building Massachusetts, own was versus wholesale a better the the instance then Two for we that out in Arizona, acquire better add, in that And their would that I'd suit. build opinion one that the became in it with

where and to vertical support they're facility decision we cultivation in perspective, between we're fully two. a from more the that our capital going going So Arizona would have

John Massocca

still Massachusetts of… point cultivation it at Is asset kind that producing asset or Okay. this -- is

Jarrett Annenberg

No.

John Massocca

[Multiple Speakers] Okay.

Anthony Coniglio

cultivate, [Technical Difficulty] never paying, but the it built right, was out there.

Jarrett Annenberg

operational. Never

Anthony Coniglio

it to that got operational. where never it's They point

John Massocca

even there's the makes there’s obviously tenants no anything in And at remarks. revolutionary. clarify toward yet of applied But been point or XQ at this rent? then That sense. implied no XQ deposits either something But kind kind point, security with just to this your other was potential rent ‘XX ‘XX in essentially of maybe revolutionary that

Gordon DuGan

Yes.

be was ever clear security Revolutionary QX Lisa for Clinics. that crystal the $XXX,XXX that I'll we've deposit about So only applied the talked applying

far through aside are Clinics QX, their reiterate them. even about discussion commentary the at We do rental amongst from any to of have Revolutionary And deposit tenants what in in with not our for to I that security all payments rent QX current wise [Indiscernible]. want ourselves thus

John Massocca

of now you're for Perfect. And but of decreasing picture, of like kind operations It maybe has back tenants demand what's capital environment, the being just that deploying kind and a product cash pair given flow bit as been operators also then kind positive? a right Okay. additional capital? looked relatively on of bigger maybe conservative your being kind focus to from for sounds the have and little of EBITDA outlook

Anthony Coniglio

part Why talk around TI in about take I'll and don't the timeframes TI you that? of macro the the

Jarrett Annenberg

Yes.

So in a made we seeing more the we're and focus online. between of do think conservative expansion perspective, it and outstanding the being TI in perspective, positive our are you next markets given macro the their new conservative being call But from on see months out to the we $XX.X market cash And XX over operators expect coming also the then flow. plans We're point, state underwriting a to from million transactions. Mint. continue CX the go and

activity, New a of are Jersey, being Maryland, our function this it's seeing wisely using underwriting capital Missouri, market. we our in and just Connecticut, conservative so in

Anthony Coniglio

the cash to order industry in opinion everybody what very in back CapEx on pulling my is appropriately. in And preserve

either the estate, capital a we facility real inventory on operators remember it or hire that capital get dispensary capital requires acquire it's part expense operating cultivation So equipment to people. to acquire the on also into themselves dispensary provide facility, a of to for the or whether part when the and for the

and something cash operations. optimizing of right and CapEx maximize existing trying avoid in to to type reducing that costs industry people the are platform expense So flow the that their is endeavor now and from that they're instead

John Massocca

remarks. impact bit we of How touched kind and how banking or in whole you as something around worked rates? Is that process deal then be flow Washington will the and it prepared on does And that think little about through safe even in maybe cap and in is as the need that's about really cost Or of that pricing just on today and they're take operators think cost out maybe and they of to are if that future? changes their thinking going their kind more capital, there? they're capital maybe about go But the of that in a here now they Okay. capital Washington? to the focused

Anthony Coniglio

is and when that banking have mid-single-digits. be the it observation years of cost three used would My operators Operators or evolved and my two they're happens, is drops to capital thinking world to ago. the safe oyster say my the

a people now the capital of more think But safe couple they some does of the industry. get it years thinking if operators to expect were ago. capital significant I to realistic would will they realize don't that I the bring happen, then banking compression that are believe that in cost

an Now I investors expanded potentially have to think capital of equity from. just base excited to and they're opportunity the have to debt some raise

anywhere credit if us, the be Most XX% line if We increase started positive we to an were extreme card banking provisioned for from top cards. transactions. in people would XX% allow think accepting safe For industry. encouraged to credit it's in there they sales estimate

operating line which boost very their this perspective revenue, and safety from really credit banking really perspective the soundness help that to will to the that improves So their top beyond from is cash cash flow. non-cash from for provisions transactions, operations. a and anything moving landlord positive a of safe boost And obviously that's industry there of

John Massocca

turmoil the weeks months, facility the and does all of Okay. And of think place impact of then we just in the kind your one a kind ability at about kind banking that revolving of the credit in market couple is regional over occurred that's non-issue today? one last kind of all detail all given that's use last that to have you as or

Lisa Meyer

a because place. It's in already non-issue, it's

the we with. without regional deal with we good So that relationships banking -- very banks have

So not issue. it's an

John Massocca

Okay. me. very That's for much. it Thank you

Anthony Coniglio

Thank John. you,

Gordon DuGan

Thanks, John.

Operator

question-and-answer [Operator This Thank are further no Instructions] concludes… at There session. questions the this time. this you. And concludes

Anthony Coniglio

Thanks, everybody. day. Have wonderful a

Operator

today's conference. concludes This

you at You day. time. a may for have Thank disconnect lines and pleasant this your participating

NewLake Capital Partners (NLCP) 10 May 232023 Q1 Earnings call transcript