8-K: NewLake Capital Partners Reports 9.3% Revenue Increase in Third Quarter 2024

NewLake Capital Partners announced a 9.3% year-over-year revenue increase for the third quarter of 2024, reaching $12.6 million.

Summary

• NewLake Capital Partners reported a solid third quarter in 2024, with revenue reaching $12.6 million, a 9.3% increase compared to the same period last year.
• Net income attributable to common stockholders was $6.4 million for the quarter.
• Funds From Operations (FFO) totaled $10.3 million, and Adjusted Funds From Operations (AFFO) reached $10.8 million.
• The company declared a third-quarter dividend of $0.43 per share, equivalent to an annual dividend of $1.72 per share, with an 84% payout ratio.
• NewLake funded approximately $2.6 million in building and tenant improvements across four properties during the quarter.
• The company collected approximately 97% of contractual rent during the quarter, including the application of an escrow deposit from one tenant.
• For the nine months ended September 30, 2024, revenue totaled $37.6 million, a 9.7% increase year-over-year, with FFO at $31.4 million and AFFO at $32.7 million.
• The company had $19.8 million in cash and cash equivalents as of September 30, 2024, with $12.2 million committed to fund building and tenant improvements.
• As of September 30, 2024, the company had $7.6 million in borrowings under its revolving credit facility, with $82.4 million available to be drawn.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, dividend growth, and a fully leased portfolio. However, there are some concerns regarding tenant payment issues, which slightly temper the overall sentiment.

Positives

• NewLake Capital Partners experienced a 9.3% year-over-year increase in revenue for the third quarter of 2024.
• The company's FFO and AFFO both showed solid year-over-year growth.
• A dividend of $0.43 per share was declared, representing an attractive annualized yield.
• The company maintains a strong financial position with significant available credit.
• The portfolio is fully leased, indicating strong demand for their properties.
• The company has a low general and administrative expense ratio of 1.5%.

Negatives

• One tenant, Revolutionary Clinics, only paid 50% of their contractual rent for the three months ended September 30, 2024, and continued this trend into October 2024.
• Calypso Enterprises did not pay its September and October contractual rent, requiring the application of an escrow deposit to cover the September rent.
• The company suspended funding of a $1.0 million improvement allowance for Calypso until all outstanding rent is paid and the escrow deposit is replenished.

Risks

• The company faces risks associated with tenant non-payment, as demonstrated by the issues with Revolutionary Clinics and Calypso Enterprises.
• The cannabis industry is subject to regulatory changes and market fluctuations, which could impact the company's performance.
• The company's financial performance is dependent on the ability of its tenants to operate successfully and meet their lease obligations.
• The company's growth is dependent on the continued expansion of the cannabis industry and the availability of capital.

Future Outlook

The company remains optimistic about cannabis reform and the prospects for growth, citing the president-elect's support for adult use, Schedule 3, and federal decriminalization.

Management Comments

• Anthony Coniglio, NewLake's President and CEO, stated that the company is pleased to have delivered another solid quarter of results.
• Anthony Coniglio also expressed optimism about cannabis reform and the prospects for growth as they supply capital to the industry.

Industry Context

The announcement comes as the cannabis industry continues to evolve, with increasing acceptance and potential for federal regulatory changes. NewLake's focus on providing real estate capital to state-licensed operators positions them to benefit from this growth.

Comparison to Industry Standards

• NewLake's AFFO multiple of 9.4x is lower than non-cannabis REIT peers at 14.3x and cannabis mortgage REIT peers at 11.6x, suggesting it may be undervalued.
• NewLake's dividend yield of 10.1% is higher than non-cannabis REIT peers at 5.3% and cannabis mortgage REIT peers at 13.0%, indicating a strong return for investors.
• The company's debt to equity ratio of 1.9% is significantly lower than non-cannabis REIT peers at 77.2% and cannabis mortgage REIT peers at 45.2%, highlighting a conservative approach to leverage.
• Compared to Innovative Industrial Properties (IIPR), a major competitor in the cannabis REIT space, NewLake has a lower AFFO multiple (9.4x vs 11.6x) and a higher dividend yield (10.1% vs 7.3%).
• NewLake's portfolio is 100% leased, which is a positive indicator compared to some other REITs that may have vacancy issues.

Stakeholder Impact

• Shareholders will benefit from the increased revenue, profitability, and dividend payments.
• Employees will be impacted by the company's overall performance and growth.
• Tenants will be impacted by the company's financial stability and ability to provide capital for improvements.
• Creditors will be impacted by the company's ability to meet its debt obligations.

Next Steps

• Management will host a conference call and webcast on November 14, 2024, to discuss the quarterly results.
• The company will continue to monitor tenant performance and address any payment issues.
• NewLake will continue to seek opportunities for growth and expansion in the cannabis real estate market.

Key Dates

Keywords

cannabis real estate, REIT, real estate investment, cannabis industry, triple-net lease, FFO, AFFO, dividend, sale-leaseback, capital