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):

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

⁽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:

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):

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

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.