Innovative Industrial Properties, Inc. (IIPR) Q4 2022 Earnings Call Transcript

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Innovative Industrial Properties, Inc. (NYSE:IIPR) Q4 2022 Earnings Conference Call February 28, 2023 1:00 PM ET

Company Participants

Brian Wolfe - General Counsel

Alan Gold - Executive Chairman

Paul Smithers - President and Chief Executive Officer

Catherine Hastings - Chief Financial Officer

Ben Regin - Vice President of Investments

Conference Call Participants

Tom Catherwood - BTIG

Connor Mitchell - Piper Sandler

Scott Fortune - ROTH Capital

Eric Des Lauriers - Craig-Hallum Capital


Good time and invited to nan Innovative Industrial Properties, Inc. Q4 2022 Earnings Conference Call. [Operator Instructions]. Please note, today's arena is being recorded.

I would now for illustration to move nan convention complete to Brian Wolfe, General Counsel. Please spell ahead, sir.

Brian Wolfe

Thank you for joining nan call. Presenting coming are Alan Gold, Executive Chairman; Paul Smithers, President and Chief Executive Officer; Catherine Hastings, Chief Financial Officer; and Ben Regin, Chief Investment Officer.

Before we begin, I'd for illustration to punctual everyone that statements made during today's convention telephone possibly deemed forward-looking statements wrong nan meaning of nan Safe Harbor of nan Private Securities Litigation Reform Act of 1995, and existent results whitethorn disagree materially owed to a assortment of risks, uncertainties and different factors. Please mention to nan documents revenge by nan institution pinch nan SEC, specifically nan astir caller reports connected Forms 10-K and 10-Q, which place important consequence factors that could origin existent results to disagree from those contained successful nan forward-looking statements. We are not obligated to publically update aliases revise immoderate forward-looking statements, whether arsenic a consequence of caller information, early events aliases otherwise.

In addition, connected today's call, we will talk definite non-GAAP financial information, specified arsenic FFO, normalized FFO and adjusted FFO. You tin find this information, together pinch reconciliations to nan astir straight comparable GAAP financial measure, successful our net merchandise issued yesterday arsenic well arsenic successful our 8-K revenge pinch nan SEC.

I'll now manus nan telephone complete to Alan. Alan?

Alan Gold

Thank you, Brian, and welcome, everyone. Today we are pleased to talk our results for our seventh afloat twelvemonth of operations and our caller activity. As reflected by our full gross maturation of complete 35% complete 2021, nan institution performed good successful 2022, particularly successful nan discourse of nan important macroeconomic headwinds knowledgeable crossed industries and successful nan regulated cannabis manufacture successful particular. That financial capacity drove dividend maturation per stock of 24% complete 2021, totaling $7.10 of dividends declared complete nan people of 2022.

We besides closed connected a caller acquisition pinch TILT successful Pennsylvania earlier this month, arsenic good arsenic lease amendments for further existent property improvements astatine our properties successful New Jersey and New York pinch Ascend, PharmaCann and Goodness Growth. Ben will supply further item connected those transactions, and connected further portfolio activity and statistics.

As we participate 2023 we proceed to spot headwinds for nan regulated cannabis industry, driven by a number of factors that Paul will touch connected successful detail. Price compression and restrictive superior markets situation and ostentation connected inputs and building costs are driving galore companies including larger MSOs to streamline their operations. This is nary uncertainty a challenging clip for nan manufacture we serve. We are patient successful our belief of nan semipermanent maturation prospects and early of nan regulated cannabis industry, pinch longer word projections still for double-digit maturation and definite Eastern states driving maturation good successful excess of that mean pinch expected preamble of big usage programs successful nan adjacent future.

In fact, notwithstanding nan galore challenges faced by nan cannabis manufacture successful caller months, U.S. ineligible cannabis income are projected to turn 14% successful 2023.

As we noted successful our January 2023 property release, definite tenants are experiencing difficulties and person defaulted connected their obligations to salary rent. Paul will talk nan position of those situations. And we are present to reply immoderate questions you person to nan grade we can.

That said, nan immense mostly of our tenant guidelines continues to execute and we expect that these near-term challenges will lend to driving operators to beryllium much and much efficient.

As pinch immoderate industry, location will beryllium ebbs and flows and I'm proud of nan measurement our dedicated and knowledgeable squad has responded and managed done nan challenges that our manufacture has faced successful caller months.

I will now move nan telephone complete to Paul to talk licensing and manufacture dynamics. Paul?

Paul Smithers

Thanks, Alan. Before I delve into our position connected marketplace dynamics, I'd for illustration to touch connected nan properties wherever tenants person not paid rent. We're, of course, first and foremost focused connected maximizing nan worth of each of our properties, and having tenants pinch beardown teams that tin negociate their businesses successfully done nan inevitable ups and downs of this industry. We person engaged section counsel and different advisors successful these situations, commence ineligible proceedings for damages, and possession and are successful discussions pinch applicable regulatory agencies. We expect each process to beryllium different successful some long and complexity, depending connected nan quality of nan authorities licensing program, and rules and regulations governing nan cannabis licensing, arsenic good arsenic nan existent and projected authorities marketplace dynamics.

In galore states re-leasing is simply a caller conception for cannabis licensing authorities, pinch galore programs launched only successful caller years. With our seasoned squad internally, successful operation pinch our advisors crossed a spectrum of specialties, we are assured successful our expertise to successfully navigate these situations. We person commenced litigation for betterment of damages and possession against Green Peak astatine our Summit spot successful Michigan. We person besides revenge 2 actions against parallel for possession and damages astatine our Pennsylvania property, arsenic good arsenic an action astatine our Parallel Texas property, which is successful nan early stages of nan improvement process. Parallel grounded to salary rent connected nan Texas spot for nan first clip successful February, and we commenced an action against them arsenic soon arsenic they defaulted. Each of these situations is highly variable. But arsenic we advancement done re-leasing our properties, we will endeavor to stock arsenic overmuch item arsenic we can. Green Peak is existent connected their rent obligations astatine each different properties that we leased to them and Parallel is existent connected nan 2 different properties we leased to them successful Florida.

As for Kings Garden, arsenic we noted successful our operational update property merchandise successful January, they proceed to inhabit and salary rented 4 properties and are exploring a imaginable merger transaction.

Market developments. As we person discussed connected past calls, we proceed to spot value compression connected regulated cannabis products pinch that compression much pronounced successful definite states, driven by fundamentally supply/demand dynamics, nan comparatively uninhibited illicit market, challenging taxation astatine each levels of authorities and wide macroeconomic conditions.

To springiness a consciousness of nan magnitude of nan change. According to cannabis benchmarks, nan measurement weighted mean spot value of cannabis successful nan U.S. for nan past week of 2022 was $967 per pound, down astir 30% from nan aforesaid play successful 2021. As an illustration of nan illicit marketplace issues, it was reported precocious that arsenic galore arsenic 1,400 shops are operating successful New York City alone, and illegally trading cannabis products, by only 1 was really licensed and unfastened for big usage astatine nan clip nan information was released successful January.

I deliberation this gives you a consciousness of nan issues surrounding illicit income and deficiency of meaningful enforcement and nan privilege that we judge authorities and section governments request to spot connected supporting nan regulated cannabis manufacture pinch much reasonable taxation and regularisation frameworks and by taking meaningful steps successful tackling nan illicit market.

And this is surely not a New York circumstantial issue, while nan U.S. regulated cannabis marketplace reached an estimated $26 cardinal successful income successful 2021, New Frontier Data estimates nan size of nan U.S. illicit cannabis marketplace successful 2021 was astir $70 billion, an bid of magnitude astir 3x greater than nan regulated market.

Capital availability. As we person been reporting for immoderate clip now, financial markets person turned restrictive, pinch nan accelerated tightening of monetary argumentation that really accelerated done nan backmost half of past year. The effect of that restrictive situation has not dissipated successful immoderate way, particularly arsenic it pertains to superior readiness for nan regulated cannabis industry.

Capital raising crossed nan cannabis manufacture continues to beryllium highly challenged, pinch full superior raised successful 2022 down complete two-thirds compared to 2021 for U.S. regulated cannabis operators, and nan opening of this twelvemonth is showing small betterment pinch superior readiness remaining astatine multi twelvemonth lows.

Cannabis equity prices arsenic measured by nan starring cannabis ETF MSOS were besides down complete 85% arsenic of year-end 2022 since their February 2021 peak. This move is besides evident successful M&A activity pinch transaction measurement for 2022 down complete 70% versus 2021. As we noted connected our anterior calls arsenic well, superior readiness successful nan nationalist REIT markets besides diminished considerably successful 2022 pinch nan diminution steepening done nan backmost half of 2022. U.S. scope raised $41.5 cardinal successful indebtedness and equity successful 2022, compared to $133.6 cardinal successful 2021, marking nan lowest twelvemonth since 2009 successful nan depths of nan Great Recession.

Inflation and proviso concatenation issues: a continuing taxable arsenic good arsenic nan effect of ostentation connected our operators' input costs arsenic good arsenic costs per improvement projects. While we are seeing immoderate loosening of proviso concatenation issues and immoderate constricted alleviation connected pricing, we still spot extraordinarily agelong lead times for definite cardinal inputs successful our improvement projects, successful particular, electrical switchgear, which are causing important delays successful task completion. Of course, these challenges person nan effect of requiring nan usability to put up much superior to complete nan task and/or resulting successful delays successful gross procreation arsenic projects return longer to complete.

In operation pinch nan existent situation of constricted superior availability, this continues to beryllium a important obstacle for definite operators. With each of these dynamics successful play, cannabis operators crossed nan spectrum person been focused connected efficiencies, including correct sizing successful definite areas pinch prevailing marketplace conditions. This includes immoderate of nan larger operators who person announced consolidation aliases simplification successful operations successful definite states, including layoffs.

State programs. Shifting to take of authorities programs, we proceed to spot momentum successful states that span nan governmental spectrum. In November of past year, Maryland and Missouri some adopted big usage programs by celebrated vote. Meanwhile, big usage authorities is progressing to nan Minnesota Legislature and location are expectations that Ohio, Oklahoma and Pennsylvania could legalize big usage cannabis this year. In Florida, nan Smart and Safe Florida statement supporting take of an big usage cannabis programme successful nan authorities collected capable signatures to trigger reappraisal of nan connection by nan Florida Supreme Court successful anticipation of putting it distant via law amendment for voters successful November of adjacent year.

Federal legislation. In position of agelong awaited national legislation, nan cannabis manufacture continues to acquisition roadblocks successful achieving immoderate meaningful progress. The SAFE Banking Act, of course, was blocked again from some nan yearly defense spending measure and omnibus spending measure successful caller months. With nan Congress now divided, pinch Republicans Holding a slim mostly successful nan House, and nan Senate mostly being Democrat, and pinch nan factions squaring disconnected wrong each party, we proceed to spot important challenges successful successfully bringing distant meaningful national authorities addressing issues of nan cannabis industry, moreover though location is bipartisan support connected immoderate of those issues.

I'd for illustration to now move nan telephone complete to Ben to talk our portfolio and finance activity for 2022 and year-to-date 2023. Ben?

Ben Regin

Thanks, Paul. For this call, I'd for illustration to screen definite characteristics of our spot portfolio and tenant roster successful summation to discussing our finance activity successful 2022, and year-to-date. At year-end, we owned 110 properties crossed 19 states comprising 8.7 cardinal rentable quadrate feet. As noted connected our anterior calls of these 110 properties 108 properties are included successful our operating portfolio. No 1 tenant represents much than 14% of our full invested capital, and nary authorities represents much than 16% of our full invested capital.

Multistate operators dress up 85% of our full portfolio, and 55% of our operating portfolio is leased to nationalist institution tenants. The full magnitude of superior invested and committed crossed our operating portfolio equates to $272 per quadrate foot, which we judge remains importantly beneath replacement costs. To statement these statistic do not see our further investments this month, which I will talk successful immoderate detail.

For fiscal twelvemonth 2022, we person collected astir 97% of contractually owed guidelines rent and spot guidance fees from our operating portfolio. The Kings Garden defaults successful July contributed to a ample mostly of that 3% of uncollected rent. And arsenic we noted successful our update property merchandise issued successful January, Vertical, Parallel, 1 of our properties successful Pennsylvania; and Green Peak, 1 of our properties successful Michigan, constituted nan remaining equilibrium of uncollected rents successful 2022.

To recap, for nan afloat twelvemonth 2022, we acquired 9 properties and executed lease amendments to supply backing for improvements astatine 12 properties, representing a full finance committedness of astir $394 million. As you whitethorn know, we besides executed connected our first spot disposition successful Q4 of past year, trading a Pennsylvania spot that we primitively acquired successful 2019 and leased to Maitri, a backstage azygous authorities usability for $23.5 million, aliases astir $461 per quadrate foot, which is good supra our operating portfolio mean of $272 per quadrate ft and supra what we primitively paid for nan spot including funded improvements.

For this transaction, we recognized a summation connected waste of astir $3.6 million. We besides past entered into an statement to waste our properties antecedently leased to Vertical successful Needles, California earlier this period pinch seller financing to a third-party that is taking complete cannabis operations.

This month, we closed connected a waste leaseback transaction for a 58,000 quadrate ft afloat operational cannabis installation pinch TILT successful Pennsylvania for $15 million. We acquired our first spot pinch TILT successful Massachusetts successful May of past year. Concurrent pinch our closing of nan Pennsylvania transaction this month, TILT refinanced aliases retired its bequest indebtedness substantially reducing its wide leverage and extending retired nan maturity connected its superior indebtedness obligations to 2026.

And past week, we committed an further $34 cardinal of superior for improvements astatine 3 projects, each of which resulted successful a corresponding accommodation to guidelines rent that starts immediately. Those see $15 cardinal successful further backing for Ascend astatine its New Jersey facility, an further $15 cardinal for PharmaCann astatine its New York property, an further $4 cardinal to Goodness Growth astatine its New York property. We besides negotiated cross-default provisions connected each leases for each of those 3 tenants.

As Paul discussed, we initiated litigation proceedings against Parallel astatine nan properties successful Pennsylvania and successful Texas, and against Green Peak astatine 1 of our properties successful Michigan. The timing for solution aliases re-leasing of those properties is uncertain, but we will support you informed arsenic overmuch arsenic we tin arsenic we progress. We had committed astir $158 cardinal to these 3 properties, which together correspond astir 7% of our full invested and committed capital. However, Parallel’s Texas spot has been nether improvement and is yet to commence Vertical building pinch only astir $8 cardinal funded to date, including nan tract acquisition, though they person been paying afloat rent connected nan afloat magnitude of committed superior to that task since October of 2021. Therefore, astir $90 cardinal that we antecedently committed to nan Texas project, and astir $12 cardinal we antecedently committed to nan Michigan project, has not been spent connected those projects.

In position of expected further finance activity, arsenic always, forecasting finance activity successful this manufacture is challenging. As we noted successful our past fewer calls, we expect to proceed to beryllium opportunistic pinch our investments arsenic we attraction connected nan expertise to raise superior successful position we wished to beryllium reasonably favorable successful ray of nan opportunities to spot that capital.

With that, I'll move it complete to Catherine. Catherine?

Catherine Hastings

Thank you, Ben. For 2022 we generated full revenues of $276 million, an summation of 35% complete 2021. The summation was driven chiefly by nan acquisition and leasing of caller properties, and further existent property infrastructure allowances astatine our existing properties, totaling $394 cardinal successful 2022, arsenic good arsenic contractual rent escalations astatine definite properties, offset by nan antecedently disclosed non-collection of rents chiefly associated pinch nan defaulted tenants.

Rental revenues for 2022 besides included $3.2 cardinal of information deposits applied for costs of rent for leases pinch Kings Garden successful California and Sozo successful Michigan, which we antecedently disclosed. Although we person nan correct to tie upon nan information deposits that we clasp for immoderate of nan defaulted properties, we person not yet done truthful for Parallel aliases Green Peak.

As we elaborate successful our net property merchandise issued yesterday, rent postulation for our operating portfolio was 92% for nan first 2 months of 2023, 94% for Q4 of 2022, and 97% for nan afloat twelvemonth of 2022.

In 2022, we recorded nett income attributable to communal stockholders of $153 cardinal aliases $5.52 per diluted share. Net income for nan twelvemonth was impacted by $3 cardinal successful litigation related expenses incurred chiefly related to King's Garden and nan shareholder suit revenge successful 2022. Consistent pinch Q3, we've added backmost this disbursal from our calculation of FFO to normalized FFO.

Adjusted costs from operations for 2022, which adds backmost noncash stock-based compensation and noncash liking disbursal related to our unsecured elder notes to normalized FFO, was $234 cardinal aliases $8.45 per diluted share. Of course, FFO, normalized FFO and AFFO each exclude nan $3.6 cardinal summation connected waste of 1 of our Pennsylvania properties successful Q4, which was antecedently leased to Maitri.

On January 13th, we paid our quarterly dividend of $1.80 per stock to communal stockholders of grounds arsenic of December 30th. The communal banal dividends declared successful 2022 totaled $7.10 per communal share, and represented an summation of $1.38 aliases 24% complete dividends declared successful 2021. Our Board continues to target a dividend payout ratio of 75% to 85% of AFFO. For Q4, our payout ratio for nan 4th was 85%. At year-end, we had astir $2.6 cardinal successful full gross assets, and a full of astir 306 cardinal successful indebtedness consisting solely of unsecured indebtedness pinch nary maturities this year, aliases adjacent year, and 300 cardinal of that indebtedness not maturing until May of 2026. Our indebtedness to full gross assets ratio was 12% astatine 4th end, and our full fixed rate liking responsibility was a small complete $4 cardinal per quarter. We've maintained finance people in installments standing and person a indebtedness work sum ratio of complete 15x.

And pinch that, I'll move it backmost to Alan. Alan?

Alan Gold

Thanks Catherine. I'd for illustration to statement nan pursuing successful closing. We are patient believers successful nan semipermanent maturation and occurrence of nan regulated cannabis industry. And arsenic pinch immoderate industry, location will beryllium challenging times that will push manufacture participants to thrust for further ratio successful their operations and fortify their brand. We judge our accommodation are good positioned to reside those needs, pinch well-developed highly-controlled environments for accumulation of distinguishing products that are nan semipermanent driving unit for marque recognition, and nan capacity to nutrient ratio astatine scale.

And pinch our knowledgeable squad of dedicated professionals and advisors, I'm assured successful our expertise to successfully navigate nan inevitable ups and downs of this industry.

As always, we convey you sincerely arsenic semipermanent owners of our institution and for your patient support passim these years.

With that, I'd for illustration to unfastened it up for questions. Operator, tin you please unfastened nan telephone up for questions?

Question-and-Answer Session


[Operator Instructions] First mobility comes from Tom Catherwood pinch BTIG.

Tom Catherwood

Alan, admit your comments astatine nan outset. And past Ben, you touched connected it arsenic good astir nan complexities of nan ineligible and re-tenanting process for some Parallel and Green Peak and really that really differs by state. Can you thief america though, understand, possibly nan litigation process a spot better. Does eviction travel first, and past there's hearings connected damages aliases nan task is intertwined, and truthful it could return moreover longer for you to perchance get nan assets backmost nether your control?

Alan Gold

Yes, I deliberation that's a very analyzable question. And since it's really complex, I'm going to move it complete to Paul, because he tin grip those.

Paul Smithers

Well, convey you, Alan. So Tom, truthful I deliberation you're getting it. Typically, successful jurisdictions erstwhile you record unlawful detainer, possession, it gets priority. And truthful that's what we're seeing successful nan 3 jurisdictions wherever we person revenge successful Texas, Pennsylvania successful Michigan. The possession cases will beryllium heard sooner than nan damages cases. And successful each of those jurisdictions, they're separate. So we person revenge successful each of those jurisdictions for possession and we do person proceeding dates coming up successful nan adjacent 2 aliases 3 weeks successful each of these jurisdictions for possession. So, we do expect that we will get a judgement successful our favour for possession, and past we will execute instantly to get possession.

So I want to accent that we person moved arsenic quickly arsenic possible. And we person retained section counsel who are master successful their jurisdictions and nan section laws pinch respect to unlawful detainer eviction. So we're very pleased pinch nan velocity that we're capable to record these actions and we look guardant to getting possession of nan assets arsenic soon arsenic possible.

Then pursuing those possession cases, travel nan damages cases. And those typically travel a much emblematic timeline and that’s astir apt 12 to 24 months earlier we get immoderate solution connected those. So again, we're filing those pinch each owed velocity and obviously, we'll support you advised arsenic those matters develop.

Alan Gold

And nan institution is utilizing each its expertise and diligence to mitigate those damages done a assortment of processes, including re-leasing, reselling aliases trading immoderate assets that we can.

Tom Catherwood

Appreciate it. Really, really adjuvant to understand that. And past possibly Cat on nan aforesaid topic, you mentioned, not having to use nan information deposits from Parallel and Green Peak to nan backmost rent. Are you restricted connected that usage aliases is location a different strategy and attack here?

Alan Gold

Again, I deliberation this is simply a analyzable question. And it really has to do pinch nan litigation for possession. Is that right, Paul?

Paul Smithers

Yes, truthful it is, and each jurisdiction differs somewhat. But you want to beryllium careful, particularly erstwhile you're trying to get possession, you don't want to complicate nan lawsuit astatine all, because immoderate judges will look for a logic not to assistance eviction, because immoderate jurisdictions are slanted successful favour of tenancy, but that's why we're being very cautious arsenic to erstwhile we do scope nan information deposits. But remainder assured, nan information deposits are 100% successful our control. So erstwhile we consciousness and section counsel feels due to pat those information deposits, we will.

Tom Catherwood

Got it. And past you've been adding cross-default provisions into your lease amendments complete nan past -- aliases astatine slightest benignant of been publically saying that complete nan past fewer quarters. Can you supply immoderate further penetration into really those provisions activity and past possibly nan information of your leases that presently see them?

Alan Gold

I mean, I deliberation they activity erstwhile arsenic though if -- it's very simple. If personification defaults connected 1 lease, past they fundamentally person defaulted connected each their leases. And truthful there's nary picking and choosing which task they whitethorn beryllium struggling with. They're -- each their leases are astatine risk, putting nan full institution astatine risk. And truthful erstwhile companies participate into those cross-default provisions, they do them very carefully, very consciously, and pinch a awesome woody of thought and negotiation. Right now, we person -- we judge that we person complete 38% of our revenues are taxable to cross-default provisions.

Tom Catherwood

And past past 1 for me. Just going backmost done nan 4th quarter, operating an finance recap that you put retired successful mid-January, looks for illustration location were astir $157 cardinal of transactions nether PSA aliases LOI. So far, Ben I deliberation you person covered $49 cardinal of transactions that person closed this year. Some of which look to beryllium benignant of supra and beyond that original $157 cardinal if I'm reference it. How is your acquisition pipeline sizing up correct now? And past what are your thoughts connected backing that arsenic we get done 2023?

Alan Gold

Go ahead, Ben.

Ben Regin

Yes, talking astir nan pipeline successful wide obviously, there's ever ebbs and flows. But conscionable arsenic a wide comment, location continues to beryllium a tremendous magnitude of request for superior successful nan manufacture overall. So we consciousness nan pipeline is very patient and we're being very opportunistic, and thoughtful successful our attack arsenic to which of these transactions that we're evaluating that we yet want to move guardant with.


The adjacent mobility comes from Connor Mitchell pinch Piper Sandler.

Connor Mitchell

So first, obviously, location are a batch of moving pieces present pinch different tenants and properties, either defaulting aliases possibly becoming existent again. So would it beryllium imaginable for you guys conscionable to supply a little update connected nan aged backmost rent connected situations specified arsenic Kings Garden aliases Sozo successful nan repayment of nan information deposits?

Alan Gold

Well. First, we only person benignant of for illustration 28, 30 tenants. So it's not that complicated. Two, arsenic to Sozo. Sozo was granted a relief, and we utilized 3 months of information deposit. And truthful we've utilized nan information deposit they placed for that rent, truthful there's nary backmost rent owed from Sozo. They do beryllium -- they do -- they are going to beryllium required complete nan adjacent nan 12 months play of clip to switch that information deposit, and we expect them to do conscionable that.

Back rent, I mean, nan conception of backmost rent, I don't understand, I conjecture nan measurement you're reasoning astir it. And I'd for illustration to understand nan measurement you're reasoning astir it amended is I mean, because we've collected nan rents, nan rents that person been collected, those who haven't collected, they've been successful default. And past ones are successful default are Kings Garden, Green Peak and Parallel. And arsenic we discussed, we're pursuing those individual transactions. They correspond a full of -- what of our full revenue? Do we know? Do we person that…? Let maine let's activity connected that. And we'll get backmost to you connected that percent of our full gross combined.

Connor Mitchell

And past regarding Kings Garden, Parallel, they some defaulted connected developments. So, I guess, is location immoderate alteration successful really you guys are approaching these investments aliases whether you're becoming much cautious astir caller improvement investments? And astatine nan aforesaid time, really you're comparing that to nan consequence floor plan of backing incremental existing plus description s and CapEx successful that matter?

Alan Gold

Yes, I mean, I deliberation we're being -- arsenic we described our pipeline, we're being an opportunistic and cautious successful evaluating each transaction. But our business is to supply superior for this industry. And reasoning done nan measurement this manufacture works, caller authorities obtains nan support to spell up and do aesculapian cannabis, aliases moreover big usage cannabis, that those products, those buildings, those accommodation didn't beryllium before. So location is an absolute need. And that is why we are successful existence. And it is nan opportunity for america to make these, what we deliberation are supra mean returns for what we still judge is beneath mean risk. And we still person 5 aliases six developments that are still being finished. And they are proceeding very good and location -- and we still judge that, that is simply a bully business statement for us. And that's really we were capable to make pinch little than aliases astir 17% of our invested superior successful 2022, a 35% year-over-year full gross growth.

Connor Mitchell

And past possibly conscionable 1 much for me, regarding nan definitive waste statement for nan Vertical merchandise aliases property, excuse me. It seems are each successful California, truthful I guess, conscionable hoping do you guys could springiness a small spot of penetration arsenic to really you're viewing nan California marketplace nowadays compared to different markets? And whether there's immoderate penetration you tin supply arsenic to nan transaction process, and nan waste of nan Vertical property? Whether it has to do pinch nan antecedently disclosed defaulted, whether that had an impact?

Alan Gold

Well, surely it had an effect and it's surely we've been discussing and talking astir Vertical for astatine slightest a twelvemonth positive and we've been trying to fig retired nan champion attack to woody pinch nan Vertical transaction and effort not to get immoderate much committed to that transaction by providing much superior to it. And truthful we've been moving pinch nan tenant connected a assortment of bases, including helping them find replacement capital, and they recovered replacement superior and replacement superior came in. It came successful -- it was needed, for illustration nan installation needed immoderate further superior to hole immoderate of nan things that nan erstwhile proprietor didn't do astir apt successful nan champion way. And nan caller capital, caller investor, successful bid to put nan superior in, wanted to ain nan plus arsenic opposed to beryllium successful a semipermanent waste leaseback transaction.

So successful operation pinch each that, we came up to what we thought was a very imaginative measurement for america to proceed to person I deliberation a very charismatic output connected our capital. Allow this caller investor to proceed to put successful nan spot and make that a successful opportunity. And past should thing untoward proceed to hap successful that market, we'll person an plus that is -- has further finance that's been put in, not by us, and a little ground and expertise to we deliberation proceed to retrieve our investors, superior and a return connected our investors' capital.


The adjacent mobility comes from Scott Fortune pinch ROTH Capital.

Scott Fortune

Just sticking connected that note, benignant of providing colour connected nan tenants aliases imaginable buyers retired there, they're looking kindly return complete these California properties aliases perchance properties successful Pennsylvania and Michigan. Kind of we return it that these are known existing tenants that person followed equilibrium sheets and looking to adhd accumulation and return marketplace stock successful these reliable markets truthful they can. Just want to get a consciousness for nan health, aliases what are you looking for nan liking imaginable re-leasing aliases moreover buying assets? And if you want to get backmost into nan strategy that looking astatine properties whether to waste retired connected nan tougher markets aliases proceed managing by re-leasing…?

Alan Gold

Well, I mean, I deliberation that goes to nan backmost half of nan question, nan past question, which is, what's going connected successful nan California market. California marketplace still is difficult, Paul?

Paul Smithers

Yes, truthful Scott, I cognize you cognize California well. It still remains challenge. However, we are surely alert of and person tenants successful nan portfolio that cognize really to navigate nan California market. There is money to beryllium made successful nan California market, if you cognize really to do it. So, erstwhile we look astatine nan world marketplace successful California, it looks -- tin look bleak, but we do person immoderate affirmative signs. As you cognize there's been immoderate legislative betterment successful Sacramento pinch regards to taxation. There's been much backing for enforcement of nan illicit market.

So those are each positives. I mean we've besides seen immoderate stabilization of nan spot marketplace pricing. So, that's each positive. But it's still a very large achromatic marketplace successful California conscionable arsenic it is successful New York, Michigan and Massachusetts. So those are nan challenges each these ample markets do person to face. But arsenic I mentioned, it's -- if you cognize really to navigate those challenges, you could beryllium very successful successful each of these markets.

Alan Gold

And past arsenic to -- I deliberation nan mobility revolved astir arsenic an example, nan -- our [Prez] improvement plus that is taxable to a missive of intent that -- for a lease. And it is continuing to proceed, I deliberation very well. We dream to person a last lease successful nan adjacent future. And truthful we're very affirmative astir that situation. As to nan different assets, surely nan Texas plus is an plus that we don't person power of -- complete and are going to beryllium successful nan opening process, but we do judge nan onshore tract is successful a value business location. And pinch -- I deliberation it has an Amazon distribution installation nearby. So location is worth there. In summation to nan truth that we've, I deliberation we've collected -- based connected nan building of that transaction, wherever we committed complete $27 million, but only person spent $8.7 cardinal and person really collected what astir 81% of nan plus worth already successful rate flow, not to mention nan truth that we still person if we get power of nan asset, we will person nan worth of nan plus to beryllium capable to further heighten nan return to our shareholders.

As to -- we don't person power complete nan assets successful Michigan aliases successful Pennsylvania. But we judge that location will beryllium a assortment of opportunities for america to woody pinch those assets. Anything other you want to adhd Ben aliases Cat?

Ben Regin

Yes, well, I would say, Scott, astir your mobility astir really do you get immoderate of these MSOs willing successful these challenged markets, we benignant of look astatine it for illustration it's almost a monopoly board. And these are strategical acquisitions by immoderate of these MSOs that whitethorn not person a beingness successful 1 of nan states, they want a beingness and they'll look astatine opportunities done M&A possibly to get these. So, we're surely alert of which players retired location are looking for assets successful these peculiar jurisdictions. So it's thing we're moving on.

Scott Fortune

And past 1 past 1 speedy 1 for me. Without providing guidance, obviously, you guys person highlighted nan challenges successful nan near-term macro situation and uncertainty successful there. You've gotten distant from acquisition much opportunistically. You're putting up - deploying capital, astir $25 million, nan past mates of quarters, it looks for illustration you cognize $50 cardinal this 4th to date, but adjacent to benignant of task benignant of a akin complaint moving guardant present near-term? And conscionable trying to get a consciousness for erstwhile we tin spot beardown request aliases what's cardinal to statesman benignant of nan acquisition levels and benignant of picking opportunities to commencement acquiring again, benignant of what are you looking astatine for nan remainder into 2023 from those levels?

Alan Gold

Well, first of all, it's highly unfair to put immoderate benignant of fund aliases immoderate benignant of commitment, fixed nan truth that we've conscionable spent a awesome woody of clip describing really difficult to not only nan manufacture is experiencing superior raising, but besides nan existent property manufacture and really liking rates person travel -- person accrued significantly, and our costs of superior has accrued significantly.

As to -- I deliberation we've talked astir a very beardown pipeline, but a pipeline that is conditioned upon america having entree to capital, and we're exploring each sorts of avenues for capital, we judge that location is secured indebtedness superior retired there, we could beryllium looking astatine that. We could beryllium looking astatine unsecured indebtedness capital. We person immoderate different unsocial opportunities that we're looking at. And arsenic we move guardant down nan way of exploring that capital, we will lucifer money that pinch acquisitions arsenic we've done successful nan past.

So, I -- we aren't going to springiness immoderate guidance. We aren't going to springiness immoderate denotation arsenic to really overmuch further acquisitions that we're going to do. This guidance squad is highly focused connected making judge that rents are collected, that we tin recapture immoderate worth from transactions wherever we get nan assets backmost and appropriately deploying superior erstwhile we deliberation it makes nan astir sense.


Our adjacent mobility comes from Eric Des Lauriers pinch Craig-Hallum Capital Group.

Eric Des Lauriers

So conscionable benignant of a precocious level 1 for me. So arsenic we look retired complete nan past year, it's clear that value compression consequence and regulatory consequence person increased. Looking astatine New York, I deliberation it's clear that a flip from aesculapian to big usage doesn't ever equate to outsized maturation for nan existing operators. I'm conscionable wondering, connected a high-level, tin you conscionable talk astir really these developments person influenced immoderate changes to your superior allocation strategy? Or possibly it's much immoderate changes to your lease terms? You've sewage immoderate much cross-default provisions successful there, arsenic we've mentioned? Could you conscionable benignant of talk precocious level, really these developments person influenced immoderate changes to benignant of which markets you're looking at, what benignant of operator, conscionable immoderate benignant of precocious level changes to thief america understand benignant of really you're thinking, successful consequence to immoderate of these caller developments would beryllium great?

Alan Gold

No, I mean, I deliberation nan cross-default conception is thing that we are highly focused on. We haven't changed, aliases nan magnitude of our leases, we're still going down that process. We're still very willing successful caller markets that person nan expertise to limit licenses. Even though that that's nan lawsuit successful New York, we can't unit nan authorities to use nan rule to everybody. But we surely dream that they get nan connection that it's an important point to do.

We are being opportunistic, and we are focusing successful connected nan champion operators pinch nan top magnitude of superior and surely person go much, overmuch much cautious pinch immoderate caller start-ups pinch hoping to turn into their abstraction aliases turn into their improvement complete time. So, I deliberation that's nan champion we tin do. We do judge this manufacture continues to beryllium a very breathtaking industry.

Even pinch each what we talked about, pinch each nan cautionary tales, we are still looking astatine caller states specified arsenic Oklahoma, Ohio, Minnesota maybe, Kentucky, New Hampshire, possibly moreover pinch Pennsylvania having big usage and there's others that we tin look at. So there's still a awesome opportunity for america successful this manufacture complete nan long-term. And moreover gross -- aliases full revenues for nan industry, I deliberation we're up 13% aliases 14% for 2022 and are expected to proceed to turn successful 2023 and beyond. And truthful we are cautiously optimistic connected 2023, but surely very optimistic connected nan semipermanent aspects of this industry.

Eric Des Lauriers

Appreciate that color. And past past one, for maine is benignant of a follow-up here. When you look astatine some headdress rates, and nan benignant of yearly measurement up, obviously, we do person pricing down successful immoderate markets for illustration 50% year-over-year, I'm conscionable wondering really you look astatine some of those, if you spot immoderate likelihood of those kinds of softening and possibly nan quarters ahead. If we don't get immoderate worldly rebound successful prices, I'm conscionable wondering, benignant of really you are benignant of weighing nan benignant of pros and cons of much charismatic rates for you, but putting much unit connected nan tenants successful a benignant of challenging situation here. Just wondering benignant of really you consciousness astir nan headdress rates and yearly measurement up, specifically? And, yes, immoderate comments, that would beryllium great. Thanks.

A - Alan Gold

So conscionable to punctual everybody that we are -- we participate into waste leaseback transactions. So we're much focused connected our yields, and our yields continued to beryllium very, I think, accretive to our existent costs of capital, which is still very high. And arsenic agelong arsenic we proceed to person nan expertise to do accretive transactions, I deliberation we are still looking astatine perchance deploying superior successful nan future, if we tin raise superior efficaciously and costs effectively. That's really we're looking astatine it. We don't person nan business of buying from existing investors astatine immoderate headdress complaint that they want. That's not our business. We judge that headdress rates for each existent property plus classes person accrued pinch nan U.S. system successful wide summation successful rates and costs of capital.


This concludes our question-and-answer session. I would for illustration to move nan convention backmost complete to Alan Gold for immoderate closing remarks.

Alan Gold

Thank you. And first, I want to convey nan squad for each their difficult work. I mean, it's, they've done a phenomenal occupation to get america to wherever we are coming and they still person tremendous challenges and activity arsenic we move guardant passim 2023. I besides want to again, convey our stakeholders, our shareholders for their continued support. And pinch that, for illustration to extremity nan call. Thank you all.


The convention has now concluded. Thank you for attending today's presentation. You whitethorn each now disconnect.

Editor: Naga

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