Quarterly report pursuant to Section 13 or 15(d)

Note 3 - Investments in Real Estate

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Note 3 - Investments in Real Estate
9 Months Ended
Sep. 30, 2021
Notes to Financial Statements  
Real Estate Disclosure [Text Block]

Note 3 - INVESTMENTS IN REAL ESTATE

 

On March 17, 2021, the Company completed the Merger with Target. 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.

 

The Target company owned a portfolio of 19 properties subject to long-term, single-tenant, triple-net sale leaseback and build-to-suit properties for the cannabis industry. The Merger was accounted for as an asset acquisition in accordance with ASC 805, Business Combinations. Upon acquisition, the purchase price was allocated to the assets acquired, including identifiable intangible assets, and liabilities assumed from the Target at their relative fair values at the date of the completion of the Merger and the Merger related transaction costs were capitalized to the basis of the assets acquired. The purchase price allocation is summarized as follows (in thousands):

 

Land

  $ 9,248  

Building and Improvements

    78,523  

In-Place Leases

    25,595  

Cash

    64,355  

Other Assets

    154  

Security Deposits Payable

    (1,658 )

Tenant Improvements Payable

    (4,384 )

Accounts Payable, Accrued Expenses and Other Liabilities

    (2,015 )

Total purchase price, including transaction costs

  $ 169,818  

 

The Company acquired the following properties during the nine months ended September 30, 2021 (dollars in thousands):

 

 

Tenant

 

Market

 

Closing Date

 

Real Estate

   

In-Place Lease

Costs

   

Transaction

Costs

   

Total

 

Trulieve

 

Pennsylvania

 

March 17, 2021

  $ 32,776     $ 12,098     $ 783     $ 45,657  (1)

Columbia Care

 

Massachusetts

 

March 17, 2021

    13,562       4,042       342       17,946  

Columbia Care

 

Illinois

 

March 17, 2021

    11,144       3,047       276       14,467  

Curaleaf

 

Connecticut

 

March 17, 2021

    2,876       433       64       3,373  

PharmaCann

 

Massachusetts

 

March 17, 2021

    2,047       356       47       2,450  

Curaleaf

 

Arkansas

 

March 17, 2021

    2,116       314       47       2,477  

Curaleaf

 

Ohio

 

March 17, 2021

    3,289       571       75       3,935  

Curaleaf

 

Illinois

 

March 17, 2021

    1,700       252       38       1,990  

Curaleaf

 

Illinois

 

March 17, 2021

    3,298       564       75       3,937  

Columbia Care

 

Illinois

 

March 17, 2021

    1,192       202       27       1,421  

Curaleaf

 

North Dakota

 

March 17, 2021

    2,133       348       48       2,529  

Columbia Care

 

Massachusetts

 

March 17, 2021

    2,276       366       51       2,693  

Curaleaf

 

Illinois

 

March 17, 2021

    1,005       174       23       1,202  

PharmaCann

 

Massachusetts

 

March 17, 2021

    805       268       21       1,094  (2)

Curaleaf

 

Pennsylvania

 

March 17, 2021

    2,185       362       50       2,597  

PharmaCann

 

Pennsylvania

 

March 17, 2021

    1,289       251       30       1,570  

Columbia Care

 

California

 

March 17, 2021

    3,702       1,051       92       4,845  

Curaleaf

 

Pennsylvania

 

March 17, 2021

    1,881       314       43       2,238  

Curaleaf

 

Illinois

 

March 17, 2021

    583       97       13       693  

Subtotal of Merger properties

    89,859       25,110       2,145       117,114  
                                         

Mint

 

Massachusetts

 

April 1, 2021

    1,600               -       1,600  

Mint

 

Arizona

 

June 24, 2021

    2,710               -       2,710  (3)

Revolutionary

 

Massachusetts

 

June 30, 2021

    42,275               585       42,860  (4)

Total

  $ 136,444     $ 25,110     $ 2,730     $ 164,284  

 

(1) Includes $4.6 million of tenant improvement reimbursement commitments which were funded after the merger.

(2) Excludes $806,540 of tenant improvement reimbursement commitments which were previously included that we do not expect to be funded as of September 30, 2021.

(3) Includes $310,035 of tenant improvement reimbursement commitments which have been fully funded.

(4) Includes $40.1 million in cash and 88,200 OP units issued in connection with the purchase of the property. The Company is required to issue 132,727 OP Units pursuant to a contribution agreement if certain conditions are met.

 

The Company’s current properties also include:

 

Tenant

 

Market

 

Closing Date

 

Real

Estate

   

Costs

   

Total

 

Acreage

 

Pennsylvania

 

October 24, 2019

  $ 9,823     $ 336     $ 10,159  

Acreage

 

Massachusetts

 

October 24, 2019

    9,682       106       9,788  

Acreage

 

Connecticut

 

October 30, 2019

    800       126       926  

Cresco Labs

 

Illinois

 

December 11, 2019

    50,000       678       50,678  

Curaleaf

 

Florida

 

August 4, 2020

    53,763       1,237       55,000  
            $ 124,068     $ 2,483     $ 126,551  

 

Depreciation expense was approximately $4.5 million and $1.7 million for the nine months ended September 30, 2021 and 2020, respectively. Depreciation expense was approximately $2.0 million and $732,000 for the three months ended September 30, 2021 and 2020, respectively.

 

Amortization of the Company’s acquired in- place leases was approximately $1.1 million and $0 for the nine months ended September 30, 2021 and 2020. Amortization expense was approximately $503,000 and $0 for the three months ended September 30, 2021 and 2020, respectively.

 

Future amortization of the Company’s acquired in-place leases as of September 30, 2021, is as follows (in thousands):

 

Year

 

Amortization Expenses

 

2021 (three months ending December 31)

  $ 502  

2022

    2,013  

2023

    2,013  

2024

    2,013  

2025

    2,013  

Thereafter

    15,950  

Total

  $ 24,504  

 

Future contractual minimum rent under the Company’s operating leases as of September 30, 2021 for future periods is summarized as follows (in thousands):

 

Year

 

Contractual Minimum

Rent

 

2021 (three months ending December 31)

  $ 8,206  

2022

    34,966  

2023

    36,793  

2024

    37,746  

2025

    38,725  

Thereafter

    442,813  

Total

  $ 599,249  

 

 

In connection with the Merger, the Company issued warrants to purchase up to 602,392 shares of the Company’s common stock at an exercise price of $24.00 per share. All or any portion of the warrants may be exercised in whole or in part at any time and from time to time on or before July 15, 2027. As of September 30, 2021, 602,392 warrants are exercisable. The Company calculated the fair value of the warrants using the Black-Scholes model, and the fair value of the warrants was determined to be approximately $4.8 million. Expected volatilities were based on historical daily volatilities of publicly traded guideline companies. The risk-free interest rate for the expected term of the warrants was based on the U.S. Treasury yield. The expected volatility was 59.4% and the expected life was 6.33 years. The dividend yield on common stock and risk-free interest rate were 3.7% and 1.1%, respectively.