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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to ________
Commission file number 000-56327
NewLake Capital Partners, Inc.
(Exact name of registrant as specified in its charter)
| | | | | |
Maryland | 83-4400045 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
50 Locust Avenue, First Floor, New Canaan CT 06840 | 203-594-1402 |
(Address of principal executive offices) | (Registrants Telephone number) |
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
None | | None | | None |
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $0.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer x | Smaller reporting company x |
Emerging Growth Company x | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes o No x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No x
The number of shares of the registrant’s Common Stock, par value $0.01 per share, outstanding as of November 8, 2022 was 21,403,817.
NewLake Capital Partners, Inc.
FORM 10-Q
September 30, 2022
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
NEWLAKE CAPITAL PARTNERS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Assets: | (Unaudited) | | (Audited) |
| | | |
Real Estate | | | |
Land | $ | 21,146 | | | $ | 15,649 | |
Building and Improvements | 375,051 | | | 272,432 | |
Total Real Estate | 396,197 | | | 288,081 | |
Less Accumulated Depreciation | (16,757) | | | (9,155) | |
Net Real Estate | 379,440 | | | 278,926 | |
Cash and Cash Equivalents | 45,023 | | | 127,097 | |
Loans Receivable | 5,000 | | | 30,000 | |
In-Place Lease Intangible Assets, net | 22,492 | | | 24,002 | |
Other Assets | 2,667 | | | 858 | |
| | | |
Total Assets | $ | 454,622 | | | $ | 460,883 | |
| | | |
Liabilities and Equity: | | | |
| | | |
Liabilities: | | | |
| | | |
Accounts Payable and Accrued Expenses | $ | 1,967 | | | $ | 1,404 | |
Revolving Credit Facility | 1,000 | | | — | |
Loan Payable, net | 1,980 | | | 3,759 | |
Dividends and Distributions Payable | 8,064 | | | 6,765 | |
Security Deposits Payable | 7,310 | | | 6,047 | |
Interest Reserve | — | | | 2,144 | |
Rent Received in Advance | 862 | | | 1,429 | |
Other Liabilities | 276 | | | — | |
| | | |
Total Liabilities | 21,459 | | | 21,548 | |
| | | |
Commitments and Contingencies | | | |
| | | |
Equity: | | | |
| | | |
Preferred Stock, $0.01 Par Value, 100,000,000 Shares Authorized, 0 and 0 Shares Issued and Outstanding, Respectively | — | | | — | |
Common Stock, $0.01 Par Value, 400,000,000 Shares Authorized, 21,403,817 and 21,235,914 Shares Issued and Outstanding, Respectively | 214 | | | 213 | |
Additional Paid-In Capital | 456,352 | | | 450,916 | |
Accumulated Deficit | (30,811) | | | (23,574) | |
| | | |
Total Stockholders' Equity | 425,755 | | | 427,555 | |
| | | |
Noncontrolling Interests | 7,408 | | | 11,780 | |
| | | |
Total Equity | 433,163 | | | 439,335 | |
| | | |
Total Liabilities and Equity | $ | 454,622 | | | $ | 460,883 | |
The accompanying notes are an integral part of the consolidated financial statements
NEWLAKE CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenue: | | | | | | | |
| | | | | | | |
Rental Income | $ | 11,639 | | | $ | 8,048 | | | $ | 30,317 | | | $ | 19,083 | |
Interest Income from Loans | 434 | | | — | | | 2,301 | | | — | |
| | | | | | | |
Total Revenue | 12,073 | | | 8,048 | | | 32,618 | | | 19,083 | |
| | | | | | | |
Expenses: | | | | | | | |
| | | | | | | |
Depreciation and Amortization Expense | 3,630 | | | 2,464 | | | 9,113 | | | 5,601 | |
General and Administrative Expenses: | | | | | | | |
Compensation expense | 760 | | | 805 | | | 3,898 | | | 2,209 | |
Stock-Based Compensation | 280 | | | 816 | | | 1,201 | | | 1,820 | |
Professional fees | 279 | | | 574 | | | 1,486 | | | 1,351 | |
Other general and administrative expenses | 414 | | | 631 | | | 1,249 | | | 1,009 | |
Total general and administrative expenses | 1,733 | | | 2,826 | | | 7,834 | | | 6,389 | |
| | | | | | | |
Total Expenses | 5,363 | | | 5,290 | | | 16,947 | | | 11,990 | |
| | | | | | | |
Loss on Sale of Real Estate | — | | | — | | | (60) | | | — | |
| | | | | | | |
Income From Operations | 6,710 | | | 2,758 | | | 15,611 | | | 7,093 | |
| | | | | | | |
Other Income (Expenses): | | | | | | | |
Interest Income | 7 | | | 21 | | | 103 | | | 40 | |
Interest Expense | (94) | | | — | | | (167) | | | — | |
| | | | | | | |
Total Other Income (Expense) | (87) | | | 21 | | | (64) | | | 40 | |
| | | | | | | |
Net Income | 6,623 | | | 2,779 | | | 15,547 | | | 7,133 | |
| | | | | | | |
Preferred Stock Dividends | — | | | — | | | — | | | (4) | |
| | | | | | | |
Net Income Attributable to Noncontrolling Interests | (113) | | | (82) | | | (262) | | | (236) | |
| | | | | | | |
Net Income Attributable to Common Stockholders and Participating Securities | $ | 6,510 | | | $ | 2,697 | | | $ | 15,285 | | | $ | 6,893 | |
| | | | | | | |
Net Income per Common Share - Basic | $ | 0.30 | | | $ | 0.14 | | | $ | 0.71 | | | $ | 0.44 | |
| | | | | | | |
Net Income per Common Share - Diluted | $ | 0.30 | | | $ | 0.14 | | | $ | 0.71 | | | $ | 0.44 | |
| | | | | | | |
Weighted Average Shares of Common Stock Outstanding - Basic | 21,428,905 | | 19,410,307 | | 21,417,149 | | 15,588,544 |
| | | | | | | |
Weighted Average Shares of Common Stock Outstanding - Diluted | 21,802,487 | | 19,555,867 | | 21,815,763 | | 15,637,064 |
The accompanying notes are an integral part of the consolidated financial statements
NEWLAKE CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Noncontrolling Interest | | Total Equity |
| Shares | | Par | | | | |
| | | | | | | | | | | |
Balance as of December 31, 2021 | 21,235,914 | | $ | 213 | | | $ | 450,916 | | | $ | (23,574) | | | $ | 11,780 | | | $ | 439,335 | |
| | | | | | | | | | | |
Conversion of Vested RSUs to Common Stock | 88,182 | | 1 | | | 125 | | | — | | | (126) | | | — | |
| | | | | | | | | | | |
Conversion of OP Units to Common Stock | 79,721 | | — | | | 1,586 | | | — | | | (1,586) | | | — | |
| | | | | | | | | | | |
Stock-Based Compensation | — | | — | | | 1,201 | | | — | | | — | | | 1,201 | |
| | | | | | | | | | | |
Dividends to Common Stock | — | | — | | | — | | | (22,410) | | | — | | | (22,410) | |
| | | | | | | | | | | |
Dividend Equivalents to Restricted Stock Units | — | | — | | | — | | | (112) | | | — | | | (112) | |
| | | | | | | | | | | |
Distributions to OP Unit Holders | — | | — | | | — | | | — | | | (398) | | | (398) | |
| | | | | | | | | | | |
Adjustment for Noncontrolling Interest Ownership in Operating Partnership | — | | — | | | 2,524 | | | — | | | (2,524) | | | — | |
| | | | | | | | | | | |
Net Income | — | | — | | | — | | | 15,285 | | | 262 | | | 15,547 | |
| | | | | | | | | | | |
Balance as of September 30, 2022 | 21,403,817 | | $ | 214 | | | $ | 456,352 | | | $ | (30,811) | | | $ | 7,408 | | | $ | 433,163 | |
The accompanying notes are an integral part of the consolidated financial statements
NEWLAKE CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Noncontrolling Interest | | Total Equity |
| | Shares | | Par | | | | |
| | | | | | | | | | | | | |
Balance as of December 31, 2020 | $ | 61 | | | 7,758,145 | | $ | 78 | | | $ | 151,778 | | | $ | (17,154) | | | $ | 6,266 | | | $ | 141,029 | |
| | | | | | | | | | | | | |
Net Proceeds from the Issuance of Common Stock | — | | | 5,777,882 | | 58 | | | 133,027 | | | — | | | — | | | 133,085 | |
| | | | | | | | | | | | | |
Issuance of Common Stock for Merger Transaction | — | | | 7,699,887 | | 77 | | | 162,776 | | | — | | | — | | | 162,853 | |
| | | | | | | | | | | | | |
Issuance of Warrants for Merger Transaction | — | | | — | | — | | | 4,820 | | | — | | | — | | | 4,820 | |
| | | | | | | | | | | | | |
Redemption of Series A Preferred Stock | (61) | | | — | | — | | | — | | | (64) | | | — | | | (125) | |
| | | | | | | | | | | | | |
Issuance of 88,200 OP Units for Property Acquisition | — | | | — | | — | | | — | | | — | | | 2,205 | | | 2,205 | |
| | | | | | | | | | | | | |
Stock-Based Compensation | — | | | — | | — | | | 1,820 | | | — | | | — | | | 1,820 | |
| | | | | | | | | | | | | |
Dividends to Preferred Stock | — | | | — | | — | | | — | | | (4) | | | — | | | (4) | |
| | | | | | | | | | | | | |
Dividends to Common Stock | — | | | — | | — | | | — | | | (11,002) | | | — | | | (11,002) | |
| | | | | | | | | | | | | |
Dividend Equivalents to Restricted Stock Units | — | | | — | | — | | | — | | | — | | | (90) | | | (90) | |
| | | | | | | | | | | | | |
Distributions to OP Unit Holders | — | | | — | | — | | | — | | | — | | | (281) | | | (281) | |
| | | | | | | | | | | | | |
Adjustment for Noncontrolling Interest Ownership in Operating Partnership | — | | | — | | — | | | (3,399) | | | — | | | 3,399 | | | — | |
| | | | | | | | | | | | | |
Net Income | — | | | — | | — | | | — | | | 6,897 | | | 236 | | | 7,133 | |
| | | | | | | | | | | | | |
Balance as of September 30, 2021 | $ | — | | | 21,235,914 | | $ | 213 | | | $ | 450,822 | | | $ | (21,327) | | | $ | 11,735 | | | $ | 441,443 | |
The accompanying notes are an integral part of the consolidated financial statements
NEWLAKE CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Noncontrolling Interest | | Total Equity |
| Shares | | Par | | | | |
| | | | | | | | | | | |
Balance as of June 30, 2022 | 21,318,637 | | $ | 213 | | | $ | 456,083 | | | $ | (29,395) | | | $ | 7,422 | | | $ | 434,323 | |
| | | | | | | | | | | |
Conversion of Vested RSUs to Common Stock | 85,180 | | 1 | | | (1) | | | — | | | — | | | — | |
| | | | | | | | | | | |
Stock-Based Compensation | — | | — | | | 280 | | | — | | | — | | | 280 | |
| | | | | | | | | | | |
Dividends to Common Stock | — | | — | | | — | | | (7,919) | | | — | | | (7,919) | |
| | | | | | | | | | | |
Dividend Equivalents to Restricted Stock Units | — | | — | | | — | | | (7) | | | — | | | (7) | |
| | | | | | | | | | | |
Distributions to OP Unit Holders | — | | — | | | — | | | — | | | (137) | | | (137) | |
| | | | | | | | | | | |
Adjustment for Noncontrolling Interest Ownership in Operating Partnership | — | | — | | | (10) | | | — | | | 10 | | | — | |
| | | | | | | | | | | |
Net Income | — | | — | | | — | | | 6,510 | | | 113 | | | 6,623 | |
| | | | | | | | | | | |
Balance as of September 30, 2022 | 21,403,817 | | $ | 214 | | | $ | 456,352 | | | $ | (30,811) | | | $ | 7,408 | | | $ | 433,163 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Noncontrolling Interest | | Total Equity |
| | Shares | | Par | | | | |
| | | | | | | | | | | | | |
Balance as of June 30, 2021 | $ | — | | | 17,329,964 | | $ | 173 | | | $ | 359,514 | | | $ | (19,455) | | | $ | 8,877 | | | $ | 349,109 | |
| | | | | | | | | | | | | |
Net Proceeds from the Issuance of Common Stock | — | | | 3,905,950 | | 40 | | | 93,467 | | | — | | | — | | | 93,507 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Stock-Based Compensation | — | | | — | | — | | | 816 | | | — | | | — | | | 816 | |
| | | | | | | | | | | | | |
Dividends to Common Stock | — | | | — | | — | | | — | | | (4,628) | | | — | | | (4,628) | |
| | | | | | | | | | | | | |
Dividend Equivalents to Restricted Stock Units | — | | | — | | — | | | — | | | 59 | | | (90) | | | (31) | |
| | | | | | | | | | | | | |
Distributions to OP Unit Holders | — | | | — | | — | | | — | | | — | | | (109) | | | (109) | |
| | | | | | | | | | | | | |
Adjustment for Noncontrolling Interest Ownership in Operating Partnership | — | | | — | | — | | | (2,975) | | | — | | | 2,975 | | | — | |
| | | | | | | | | | | | | |
Net Income | — | | | — | | — | | | — | | | 2,697 | | | 82 | | | 2,779 | |
| | | | | | | | | | | | | |
Balance as of September 30, 2021 | $ | — | | | 21,235,914 | | $ | 213 | | | $ | 450,822 | | | $ | (21,327) | | | $ | 11,735 | | | $ | 441,443 | |
NEWLAKE CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| | | | | | | | | | | |
| For the Nine Months Ended |
| September 30, 2022 | | September 30, 2021 |
Cash Flows from Operating Activities: | | | |
Net Income | $ | 15,547 | | | $ | 7,133 | |
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | | | |
Stock-Based Compensation | 1,201 | | | 1,820 | |
Loss on Sale of Real Estate | 60 | | | — | |
Depreciation and Amortization Expense | 9,113 | | | 5,601 | |
Amortization of debt issuance costs | 72 | | | — | |
Non-cash financing expense | 20 | | | — | |
Changes in Assets and Liabilities | | | |
Prepaid Expenses and Other Assets | (1,618) | | | 232 | |
Accounts Payable and Accrued Expenses | 577 | | | (1,814) | |
Security Deposits Payable | 1,263 | | | 2,179 | |
Interest Reserve | (2,144) | | | — | |
Rent Received in Advance | (567) | | | 623 | |
Net Cash Provided by Operating Activities | 23,524 | | | 15,774 | |
| | | |
Cash Flows from Investing Activities: | | | |
Cash Acquired from Merger Transaction | — | | | 64,355 | |
Payment of Merger Related Transaction Costs | — | | | (2,144) | |
Reimbursements of Tenant Improvements | (43,518) | | | (8,449) | |
Investment in Loans Receivable | (5,000) | | | — | |
Acquisition of Real Estate | (35,419) | | | (44,650) | |
Disposition of Real Estate | 761 | | | — | |
Net Cash (Used in) Provided by Investing Activities | (83,176) | | | 9,112 | |
| | | |
Cash Flows from Financing Activities: | | | |
Proceeds from Issuance of Common Stock, Net of Offering Costs | — | | | 133,085 | |
Preferred Stock Dividends Paid | — | | | (4) | |
Common Stock Dividends Paid | (21,074) | | | (9,298) | |
Restricted Stock Units Dividend Equivalents Paid | (147) | | | (84) | |
Distributions to OP Unit Holders | (401) | | | (266) | |
Redemption of Preferred Stock | — | | | (125) | |
Borrowings from revolving line of credit | 1,000 | | | — | |
Payment of Loan Payable | (1,800) | | | — | |
Net Cash (Used in) Provided by Financing Activities | (22,422) | | | 123,308 | |
| | | |
Net Increase (Decrease) in Cash and Cash Equivalents | (82,074) | | | 148,194 | |
| | | |
Cash and Cash Equivalents - Beginning of Period | 127,097 | | | 19,617 | |
| | | |
Cash and Cash Equivalents - End of Period | $ | 45,023 | | | $ | 167,811 | |
| | | |
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | | | |
Accrual for Dividends and Distributions Payable | $ | 8,064 | | | $ | 268 | |
| | | |
Real Estate Assets, In-Place Leases, Other Assets and Liabilities Acquired through the Issuance of Common Stock and Warrants | $ | — | | | $ | 103,319 | |
Issuance of 88,200 OP Units for Property Acquisition | $ | — | | | $ | 2,205 | |
Operating lease liability for obtaining right of use asset | $ | 277 | | | $ | — | |
Conversion of Mortgage Loan Receivable to Real Estate | $ | 30,000 | | | $ | — | |
The accompanying notes are an integral part of the consolidated financial statements
NEWLAKE CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 1 - Organization
NewLake Capital Partners, Inc. (the “Company”), a Maryland corporation, was formed on April 9, 2019, under the Maryland General Corporation Law, as GreenAcreage Real Estate Corp. (“GARE”). The Company is an internally managed Real Estate Investment Trust (“REIT”) focused on providing long-term, single-tenant, triple-net sale-leaseback and build-to-suit transactions for the cannabis industry. The Company’s year-end is December 31. On March 17, 2021, GARE completed a merger (the “Merger”) with another company (the “Target”) that owned a portfolio of cultivation facilities and dispensaries utilized in the cannabis industry, and renamed itself “NewLake Capital Partners, Inc.” The Merger was completed through the issuance of 7,699,887 shares of common stock valued at $21.15 per share and warrants to purchase up to 602,392 shares of the Company’s common stock valued at approximately $4.8 million. The Company also incurred approximately $2.1 million in merger-related transaction costs. The consideration issued was based upon the relative value of the two entities, such that the shareholders of the Company and the Target, immediately prior to the Merger, owned 56.79% and 43.21%, respectively, of the outstanding post-merger common stock of the Company. The Company issued warrants to Target shareholders based on the pre-merger options outstanding, using the equivalent proportion described in the previous sentence. Upon completion of the Merger, the Company owned 24 properties across nine states. The Merger was treated as an asset acquisition, and the Company was treated as the accounting acquirer. In connection with the Merger, the Company also entered into various arrangements and agreements with certain of our significant stockholders, including director nomination rights.
The Company conducts its business through its subsidiary, NLCP Operating Partnership LP, a Delaware limited partnership (the “Operating Partnership” or “OP”). The Company holds an equity interest in the Operating Partnership and is the sole general partner. Subsequent to the Merger, the name of the Operating Partnership was changed from GreenAcreage Operating Partnership LP to NLCP Operating Partnership LP.
On August 13, 2021, the Company completed its initial public offering ("IPO") of 3,905,950 shares of common stock, with a par value $0.01 per share. The public offering price was $26.00 per share for gross proceeds of approximately $102.0 million, before deducting placement agent fees and offering expenses. Net proceeds were approximately $93.5 million. The Company's common stock trades on the OTCQX® Best Market operated by the OTC Markets Group, Inc., under the symbol “NLCP”.
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company, the Operating Partnership, as well as wholly owned subsidiaries of the Operating Partnership’s and variable interest entities ("VIEs") in which the Company is considered the primary beneficiary. The accompanying unaudited financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. In managements opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows have been made. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the operating results for the full year or any future period. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, and filed with the Securities and Exchange Commission (“SEC”) on March 18, 2022.
NEWLAKE CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies (continued)
Substantially all of the Company's asset are held by and all of its' operations are conducted through the Operating Partnership. The Company is the sole managing general partner of the Operating Partnership. Noncontrolling investors in the Operating Partnership are included in Noncontrolling Interest in the Company's consolidated financial statements. Refer to Note 7 for details. The Operating Partnership is a variable interest entity (“VIE”) because the holders of limited partnership interests do not have substantive kick-out rights or participating rights. Furthermore, the Company is the primary beneficiary of the Operating Partnership because it has the obligation to absorb losses and the right to receive benefits from the Operating Partnership and the exclusive power to direct the activities of the Operating Partnership. As of September 30, 2022 and December 31, 2021, the assets and liabilities of the Company and the Operating Partnership are substantially the same, as the Company does not have any significant assets other than its investment in the Operating Partnership.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management will adjust such estimates when facts and circumstances dictate. Such estimates include, but are not limited to, useful lives for depreciation of property, the fair value of property and in-place lease intangibles acquired, and the fair value of stock-based compensation. Actual results could differ from those estimates.
Reclassification
Certain prior year balances have been reclassified to conform to our current year presentation.
Significant Accounting Policies
There have been no significant changes to our accounting polices included in Note 2 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2021.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses, which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, companies will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, which among other updates, clarifies that receivables arising from operating leases are not within the scope of this guidance and should be evaluated in accordance with Topic 842. This standard will be effective for the Company as of January 1, 2023. The Company does not anticipate this standard will have a material impact on our consolidated financial statements due to the limited nature of financial assets held by the Company subject to ASU 2016-13.
NEWLAKE CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 3 - Real Estate
As of September 30, 2022, the Company owned 31 properties located in 12 states. The following table presents the Company's real estate portfolio as of September 30, 2022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tenant | | Market | | Site Type | | Land | | Building and Improvements | | Total Real Estate | | Accumulated Depreciation | | Net Real Estate |
Acreage | | Connecticut | | Dispensary | | $ | 395 | | | $ | 534 | | | $ | 929 | | | $ | (53) | | | $ | 876 | |
Acreage | | Massachusetts | | Cultivation | | 481 | | | 9,310 | | | 9,791 | | | (816) | | | 8,975 | |
Acreage | | Pennsylvania | | Cultivation | | 952 | | | 9,209 | | | 10,161 | | | (778) | | | 9,383 | |
Ayr Wellness, Inc. | | Nevada | | Cultivation | | 1,002 | | | 12,577 | | | 13,579 | | | (109) | | | 13,470 | |
Ayr Wellness, Inc. | | Pennsylvania | | Cultivation | | 2,964 | | | 11,565 | | | 14,529 | | | (116) | | | 14,413 | |
Bloom Medicinal | | Missouri | | Cultivation | | 598 | | | 11,167 | | | 11,765 | | | (50) | | | 11,715 | |
Calypso Enterprises | | Pennsylvania | | Cultivation | | 1,486 | | | 28,514 | | | 30,000 | | | (167) | | | 29,833 | |
Columbia Care | | California | | Dispensary | | 1,082 | | | 2,692 | | | 3,774 | | | (133) | | | 3,641 | |
Columbia Care | | Illinois | | Dispensary | | 162 | | | 1,053 | | | 1,215 | | | (50) | | | 1,165 | |
Columbia Care | | Illinois | | Cultivation | | 801 | | | 10,560 | | | 11,361 | | | (508) | | | 10,853 | |
Columbia Care | | Massachusetts | | Dispensary | | 108 | | | 2,212 | | | 2,320 | | | (118) | | | 2,202 | |
Columbia Care | | Massachusetts | | Cultivation | | 1,136 | | | 12,690 | | | 13,826 | | | (809) | | | 13,017 | |
Cresco Labs | | Illinois | | Cultivation | | 276 | | | 50,456 | | | 50,732 | | | (3,921) | | | 46,811 | |
Curaleaf | | Connecticut | | Dispensary | | 184 | | | 2,748 | | | 2,932 | | | (141) | | | 2,791 | |
Curaleaf | | Florida | | Cultivation | | 388 | | | 75,595 | | | 75,983 | | | (3,626) | | | 72,357 | |
Curaleaf | | Illinois | | Dispensary | | 69 | | | 525 | | | 594 | | | (28) | | | 566 | |
Curaleaf | | Illinois | | Dispensary | | 65 | | | 959 | | | 1,024 | | | (53) | | | 971 | |
Curaleaf | | Illinois | | Dispensary | | 606 | | | 1,128 | | | 1,734 | | | (61) | | | 1,673 | |
Curaleaf | | Illinois | | Dispensary | | 281 | | | 3,072 | | | 3,353 | | | (161) | | | 3,192 | |
Curaleaf | | North Dakota | | Dispensary | | 779 | | | 1,395 | | | 2,174 | | | (80) | | | 2,094 | |
Curaleaf | | Ohio | | Dispensary | | 574 | | | 2,788 | | | 3,362 | | | (170) | | | 3,192 | |
Curaleaf | | Pennsylvania | | Dispensary | | 877 | | | 1,041 | | | 1,918 | | | (71) | | | 1,847 | |
Curaleaf | | Pennsylvania | | Dispensary | | 216 | | | 2,011 | | | 2,227 | | | (105) | | | 2,122 | |
Greenlight | '(1) | Arkansas | | Dispensary | | 238 | | | 1,919 | | | 2,157 | | | (101) | | | 2,056 | |
Mint | | Arizona | | Cultivation | | 2,400 | | | 9,032 | | | 11,432 | | | — | | | 11,432 | |
Mint | | Massachusetts | | Cultivation | | 380 | | | 1,569 | | | 1,949 | | | — | | | 1,949 | |
Organic Remedies | | Missouri | | Cultivation | | 204 | | | 20,615 | | | 20,819 | | | (825) | | | 19,994 | |
PharmaCann | | Massachusetts | | Dispensary | | 411 | | | 1,701 | | | 2,112 | | | (158) | | | 1,954 | |
PharmaCann | | Pennsylvania | | Dispensary | | 44 | | | 1,271 | | | 1,315 | | | (61) | | | 1,254 | |
Revolutionary Clinics | | Massachusetts | | Cultivation | | 926 | | | 41,934 | | | 42,860 | | | (1,559) | | | 41,301 | |
Trulieve | | Pennsylvania | | Cultivation | | 1,061 | | | 43,209 | | | 44,270 | | | (1,929) | | | 42,341 | |
| | | | | | | | | | | | | | |
Total Real Estate | | | | $ | 21,146 | | | $ | 375,051 | | | $ | 396,197 | | | $ | (16,757) | | | $ | 379,440 | |
NEWLAKE CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 3 – Real Estate (continued)
(1) GL Partners, Inc. (Greenlight) took over as tenant however Curaleaf remains the guarantor subject to certain conditions in the lease agreement.
Real Estate Acquisitions
During the nine months ended September 30, 2022, the Company invested approximately $65.4 million to acquire four cultivation facilities. The following table presents the real estate acquisitions for the nine months ended September 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | |
Tenant | Market | Site Type | Closing Date | Real Estate Acquisitions | |
Bloom Medicinal | Missouri | Cultivation | April 1, 2022 | $ | 7,301 | | (1) |
Ayr Wellness, Inc. | Pennsylvania | Cultivation | June 30, 2022 | 14,529 | | |
Ayr Wellness, Inc. | Nevada | Cultivation | June 30, 2022 | 13,579 | | |
Calypso Enterprises | Pennsylvania | Cultivation | August 5, 2022 | 30,000 | | (2) |
Total | | | | $ | 65,409 | | |
(1)Includes $5.0 million of TI funded at closing of the property.
(2)The Company entered into a $30.0 million mortgage loan on October 29, 2021, which converted to a 20-year sale-leaseback on August 5, 2022.
Tenant Improvements Funded
During the nine months ended September 30, 2022, the Company funded approximately $43.5 million of tenant improvements. The following table presents the tenant improvements funded for the nine months ended September 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Tenant | Market | Site Type | Closing Date | | TI Funded | | Unfunded Commitments | |
Curaleaf | Florida | Cultivation | August 4, 2020 | | $ | 20,983 | | (1) | $ | — | | |
Mint | Massachusetts | Cultivation | April 1, 2021 | | 349 | | | — | | (4) |
Mint | Arizona | Cultivation | June 24, 2021 | | 5,906 | | (2) | 3,063 | | |
PharmaCann | Massachusetts | Dispensary | March 17, 2021 | | 25 | | | — | | |
Trulieve | Pennsylvania | Cultivation | March 17, 2021 | | 7,046 | | (3) | — | | |
Organic Remedies | Missouri | Cultivation | December 20, 2021 | | 4,745 | | | 282 | | |
Bloom Medicinal | Missouri | Cultivation | April 1, 2022 | | 4,464 | | | 752 | | (5) |
Ayr Wellness, Inc. | Pennsylvania | Cultivation | June 30, 2022 | | — | | | 750 | | |
| | | | | $ | 43,518 | | | $ | 4,847 | | |
(1)On June 16, 2022, the Company funded the expansion of an existing property.
(2)The tenant has been paying rent on the remaining commitment since July 2022 in accordance with the lease agreement.
(3)The tenant had been paying rent on the TI since December 2021 in accordance with the lease agreement. As of May 2022, the TI had been fully funded.
(4)Does not include approximately $2.7 million of commitments that the Company was released from its' commitment to fund subsequent to September 30, 2022.
(5)The $0.8 million of unfunded commitments does not include a $16.5 million option but not obligation to acquire an adjacent property from an existing tenant.
Disposal of Real Estate
On March 21, 2022, the Company sold one of our PharmaCann Massachusetts properties for approximately $0.8 million. The Company recognized a loss on sale of the property of $60 thousand. The Company continues to collect the rent that would have been received from the PharmaCann Massachusetts property through increased lease payments from each of the remaining properties operated by PharmaCann in our portfolio.
NEWLAKE CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 3 – Real Estate (continued)
Construction in Progress
Construction in progress was $10.6 million and $13.1 million on September 30, 2022 and December 31, 2021, respectively, and is included in "Buildings and Improvements" in the accompanying consolidated balance sheet.
Depreciation and Amortization
Depreciation expense for the three months ended September 30, 2022 and 2021, was $3.1 million and $2.0 million, respectively and for the nine months ended September 30, 2022 and 2021 it was $7.6 million and $4.5 million, respectively.
Amortization of the Company’s acquired in-place lease intangible assets for the three months ended September 30, 2022 and 2021 was approximately $0.5 million and $0.5 million, respectively and was approximately $1.5 million and $1.1 million, respectively, for the nine months ended September 30, 2022 and 2021. The acquired in-place lease intangible assets have a weighted average remaining amortization period of 11.4 years.
Depreciation and Amortization
The following table presents the future amortization of the Company’s acquired in-place leases as of September 30, 2022 (in thousands):
| | | | | |
Year | Expense |
2022 (three months ending December 31, 2022) | $ | 503 | |
2023 | 2,013 | |
2024 | 2,013 | |
2025 | 2,013 | |
2026 | 2,013 | |
Thereafter | 13,937 | |
Total | $ | 22,492 | |
The following table presents the future contractual minimum rent under the Company’s operating leases as of September 30, 2022 (in thousands):
| | | | | |
Year | Rent |
2022 (three months ending December 31, 2022) | $ | 12,014 | |
2023 | 48,858 | |
2024 | 50,153 | |
2025 | |