Newlake Cap Partners Inc

Stand by, we're about to begin. Good day and welcome to the New Lake Capital Partners Second Quarter 2022 Earnings Conference Call. Today's conference is being recorded. For opening remarks, I would now like to turn the conference over to Walter Pinto, Managing Director at KCSA Strategic Communications. Please go ahead.

Thank you, Operator. Good morning and welcome everyone to the New Lake Capital Partners Second Quarter 2022 Earnings Conference Call. I'm joined today by Anthony Canicola. President and Chief Executive Officer, Lisa Meyer, Chief Financial Officer, and Jared Annenberg, Director of Acquisitions. Before we begin, I'm going to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995. And actual results may differ materially due to a variety of risks and uncertainties and other factors. For a detailed discussion of some of the ongoing risks and uncertainties in the company's business, I refer you to the press release issued this morning and filed with the SEC on Form 8K, as well as the company's 10-Q and other reports filed periodically with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements as a result of new information, future events, or otherwise. FFO and AFFO are supplemental non-GAAP financial measures used in the real estate industry to measure and compare the operating performance of real estate companies. The reconciliation containing adjustments from GAAP net income available to common shareholders to FFO and AFFO and definitions of terms are included at the end of our press release. Please refer to the press release for more information. The company's guidance is based on current plans and assumptions and subject to the risks and uncertainties more fully described in the company's filings with the U.S. Securities and Exchange Commission. This outlook reflects management's view of current and future market conditions and including assumptions such as the pace of future acquisitions and best decisions, rental rates, occupancy levels, leasing activity, uncollectible rents, operating and general administrative expenses, weighted average diluted shares outstanding, and interest rates. With that, it's my pleasure to turn the call over to Mr. Anthony Coniglio. Please go ahead.

Thank you, Walter, and thank you again to everyone for joining our call today. We're very pleased with the achievements our team has made thus far in 2022. Amidst a challenging macro environment across all industries and a slowing of growth more recently in the cannabis sector, we were able to declare a 2022 second quarter dividend of 35 cents per share. That reflects our fifth consecutive quarterly dividend increase and $1.40 per share annualized. With the investments we made in the second quarter, We now have fully invested the proceeds from last year's IPO. Recently, we increased our credit facilities from $30 million to $90 million at very attractive interest rates. And we're very proud of these accomplishments, which we believe are a testament to our team, our model, and our disciplined approach. We recently appointed Lisa Meyer as Chief Financial Officer, and I transitioned to Chief Executive Officer, succeeding David Weinstein, who will remain on our board. On behalf of our company, I would like to congratulate our former CFO, Fred Starker, for a long and successful career and on his retirement. And we want to thank David Weinstein for leading the company through our transformative merger in March of 21 and our IPO. The board of directors and the entire New Lake team wish both of them the best and thank them for their contributions to the company. We're so excited to see Lisa join our team and bringing extensive experience providing financial leadership to various public and private entities in the real estate industry. Turning to the macro environment we're operating in, we all know there are many factors negatively impacting the economy, in particular, consumer inflation. While inflation is positive for REITs such as New Lakes, By increasing the replacement costs of our properties and creating more value for our in-place rents, we think that the persistent and elevated level of consumer inflation is having a particularly negative impact on what was already a difficult operating environment for cannabis operators. We anticipate this environment to continue for some time and see few catalysts for a reversal of the trends in the near term. This perspective certainly impacts our investment decisions, and we will continue to apply our conservative underwriting approach as we evaluate pipeline opportunities. This approach has served us well thus far, and we've collected all rent due on time since the inception of our company. While we're proud of that track record, we can tell you from decades of experience across our team in the net lease industry that difficult operating environments, such as what we're seeing across the economy, but acutely in the cannabis sector, those will result in tenant challenges that our team will work diligently to resolve as they arise. Tenant difficulties are not new in the net lease arena, and the cannabis industry certainly has not been immune to this part. Part of our strategy is to mitigate any negative impacts on the portfolio by focusing on limited license jurisdictions where we believe there will be demand for our properties. Our portfolio consists of some of the top MSOs in the industry, such as Curaleaf, Trulieve, and Cresco, to name a few. We believe our focus on high-quality operators and properties in limited licensed states will serve us well during this volatile period for this industry. Our team dialogues constantly with our tenants and works closely with them to understand the factors driving their business, particularly at our properties. While the industry is encountering significant headwinds, we continue to believe in the long-term fundamentals of the cannabis industry. Converting an $80 billion illicit cannabis market into a legal cannabis market will certainly have its ebbs and flows, but we believe the long-term trend of consumers purchasing cannabis in a regulated environment is firmly in place. Most high-growth industries encounter volatility often exacerbated by adverse economic conditions, and cannabis is no different. We'll use our collective experience in real estate, cannabis, and financial services to navigate these volatile times and deliver long-term value for our shareholders. Turning to some current performance, we're very pleased with our year-over-year growth in revenue and AFFO. Total revenue for the 2022 second quarter increased 59% year-over-year to $10.5 million, and Q2 AFFO increased approximately 80% year-over-year to $8.7 million, demonstrating the operating leverage of our business model. Our second quarter dividend was $0.35 a share, or $1.40 annualized, and our long-term expected target AFFO payout ratio remains 80% to 90%. During the second quarter, we acquired two properties from a leading publicly traded US MSO and amended an existing lease with another leading publicly traded US MSO to fund an already completed expansion. We also purchased a property with a high quality private MSO. As a result of these transactions, we've added a new publicly listed MSO tenant partner, a new private MSO partner, and we've added a new market to our portfolio, and importantly, we've taken advantage of built-in growth in our portfolio. As I mentioned earlier, it's a difficult operating environment for cannabis operators. While we've received 100% of rent on time, we're monitoring our tenants closely, particularly in markets such as Pennsylvania and Massachusetts that have seen a significant reduction in cannabis pricing driven by a meaningful increase in production capacity. This volatile price environment highlights the benefits of vertical integration, and we have indeed seen greater revenue declines for non-vertically integrated platforms. I would note that approximately 90% of our capital is invested in properties where the operator is vertically integrated in the state. We always consider price compression in our underwriting, and we utilize quarterly property-level financial information we receive to vigilantly observe financial performance at our properties, allowing us to identify emerging financial pressures. As we've observed a more difficult operating environment for cannabis operators over the past six to nine months, we have not only become more conservative on our underwriting, but we have also been focusing on strategies to mitigate risk across the portfolio. As I've said many times previously, While we're proud of our track record in collecting 100% of rent on time since inception, it's just a matter of time until we have a tenant issue to focus on. And when that time comes, our team is well prepared to address any issues that may arise in the portfolio. Before I turn the call over to Jarrett to discuss our portfolio, I'd like to comment on our pursuit to uplist our company onto a national exchange such as NASDAQ or New York. We know this is an important topic for our investors and we've been focused on it during the course of the year. While dialogue is ongoing and we continue to pursue an up list, we're obviously less optimistic today than we were when we started the process in the first quarter. We will continue our efforts, but we do want to caution investors not to expect an up list to occur without some regulatory relief or change in legal status of cannabis. With that, I'll hand it over to our Director of Acquisitions, Jarrett Annenberg, to walk through our portfolio in more detail. Jarrett, over to you. Thanks, Anthony.