Real Estate Archives - Green Market Report

Debra BorchardtDebra BorchardtDecember 13, 2018
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Harvest Health & Recreation, Inc. (CSE: HARV)  has formed a joint venture with Aina We Would (AWW), LLC for a real estate investment vehicle that plans to provide funding to purchase cannabis-related real estate assets. In addition to a Harvest subsidiary, AWW is made up of two family offices, Aina Advisors LLC and Stadlen Family Holdings, LLC.

Aina and Stadlen have both committed to fund or arrange up to $100 million to fund projects for the joint venture. The statement said that AWW plans to buy, develop and finance new construction projects, engage in land purchases, capital improvements and sale-leasebacks to Harvest and other operators in the cannabis industry.

As a part of the arrangement, Harvest will have the opportunity to get lease rates below current market providers and then source permanent financing for the properties it acquires. Harvest may also use AWW for its construction and real estate development needs.

In addition, Harvest said that it was has committed to lending AWW a minimum of up to $30 million in short-term financing to permit AWW to seek out acquisition projects. The company said that the goal of the short-term financing was so that they could move quickly on projects.  These funds will be replaced by permanent financing provided or sourced by Stadlen and Aina.

“AWW gives Harvest an excellent funding option for the development of cultivations, manufacturing facilities, and dispensaries,” said Harvest President Steve Gutterman.  “This new vehicle, combined with the approximate $290 million we raised in conjunction with our recent debt and equity financing transactions, affiliate roll-up and recently completed acquisitions leading up to and following our listing on the CSE, gives us one of the strongest balance sheets in the industry.”

Harvest owns more than 40 cannabis licenses with a domestic footprint that includes real estate, equipment and other assets in 11 states, including Arizona, Arkansas, California, Colorado, Florida, Maryland, Massachusetts, Nevada, North Dakota, Ohio and Pennsylvania.

“Real estate is the lifeblood of the cannabis economy and a huge piece of any company’s bottom line,” said Harvest Executive Chairman, Jason Vedadi. “With this partnership, AWW has been structured to turn a significant cost center into a potential profit driver and to become a potentially attractive source of financing for Harvest’s expected expansion.”


Debra BorchardtDebra BorchardtNovember 8, 2018
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Cannabis REIT Innovative Industrial Properties (NYSE: IIPR) reported that its revenue increased by 150% to $3.9 million for the third quarter ending September 2018 versus $1.6 million for the same time period last year. The company also delivered a net income of $1.5 million or $0.21 per diluted share. The adjusted funds from operations, a measure typical of REITs was $2.6 million or $0.38 per share.

According to the company statement, the increases were due to the company’s acquisition of new properties and the annual escalation of base rent for two of the leases. The statement said that “Base rent under the lease with the PharmaCann subsidiary for one of the Massachusetts properties is abated until November 30, 2018, and base rent under the lease with GPI at the Michigan property was deferred until November 2, 2018.”

IIPR is also one of the few cannabis companies that pay a dividend and this quarter was no different. It is paying out its sixth consecutive dividend of $0.35 per share. This is a 40% jump over the second quarter dividend.

After The Quarter

After the quarter ended,  the company acquired an approximately 58,000 square foot industrial property in Colorado for $11.25 million (excluding transaction costs) and entered into a long-term, triple-net lease with TGS for continued operation as a cannabis cultivation facility.

In addition to acquiring the Colorado property, IIPR completed an underwritten public offering of 2,990,000 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional 390,000 shares, resulting in net proceeds of approximately $113.9 million.

Portfolio Update

As of November 7, 2018, IIPR owned 10 properties located in Arizona, Colorado, Maryland, Massachusetts, Michigan, Minnesota, New York and Pennsylvania, totaling approximately 952,000 rentable square feet (including approximately 114,000 rentable square feet under development), which were 100% leased with a weighted-average remaining lease term of approximately 14.7 years.

IIPR has invested approximately $121.5 million and has committed an additional approximately $15.9 million to reimburse certain tenants and sellers for completion of construction and tenant improvements at the properties. The average current yield on invested capital is approximately 15.4% for these ten properties.


Jack SmithJack SmithMarch 29, 2018
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Innovative Industrial Properties Inc. (IIPR) reported fourth-quarter earnings of 7 cents a share and highlighted the steps it has taken since becoming a publicly traded company, perhaps paving the way for more small and mid-cap cannabis companies to do the same.

Innovative, which trades on the New York Stock Exchange under the ticker “IIPR,” said in a statement it earned 7 cents a share on $2.3 million in revenue. The commercial real estate company also said that adjusted funds from operations (AFFO), a widely used measure for real estate organizations, was 23 cents a share in the quarter.

During the quarter, Innovative said it acquired a medical-use cannabis cultivation and processing facility in Arizona with a subsidiary of The Pharm in a sale-leaseback deal. The total amount spent was $18 million, including $15 million for the purchase.

It also acquired two other medical-use cannabis cultivation facilities with similar transactions, signing deals with Vireo Health for facilities in New York and Minnesota. The combined cost for the two facilities was $8.4 million, including $1 million spent on tenant improvement costs.

The acquisitions bring Innovative’s property portfolio to five, spread across the country. Totaling 617,000 square feet, all of the properties are 100 percent leased. The average length left on the leases is approximately 14.7 years, the company noted in the statement.

As of the end of the year, Innovative said it had invested $68.3 million in the properties, with an additional $5 million for tenant improvements at the various properties.

The company also noted its fourth-quarter dividend was 25 cents a share, a 67 percent sequential increase. The dividend was paid on Jan. 16, 2018 to shareholders on record as of Dec. 29, 2017.

Innovative’s shares yield 3.77 percent at current levels, significantly more than the 2.77 percent yield on a 10-year U.S. Treasury bond.

San Diego-based Innovative also said that it had sold an additional 3.22 million shares in a public offering after the quarter closed, giving the company an additional $79.3 million to be used for general corporate purchases.

Innovative shares closed at $26.32 on Wednesday, up 1.9 percent. Shares of the company have fallen nearly 30 percent since the start of the year.


Debra BorchardtDebra BorchardtMarch 13, 2018
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Arizona-based Zoned Properties Inc. (ZDPY) reported its fourth quarter and full year results with revenue dropping slightly in the quarter as the company sold a building in Tempe, AZ in March. Revenue fell by 2% to $533,000 versus last year’s $543,000.

Net income was $189,000 or one cent per diluted share versus last year’s net loss of $166,000 or one cent per share. Income from operations was $204,000 for the fourth quarter, an improvement over last year’s loss from operations of $109.000.

For the full year, revenue increased 14% to $2.1 million over last year’s $1.9 million. The company recorded a one-time gain of $832,000 for the sale of a property. Net income for the full year was $1.4 million versus last year’s loss of $501,000. The company delivered net income of seven cents per share over last year’s loss of three cents per share. At the end of December, Zone Properties had cash of $824,000 versus last year’s cash position of $366,000 at the end of 2016.

“At the start of 2017 we expressed our optimism about achieving profitability through increased monthly rental revenue streams and lower operating expenses, and we achieved those goals with revenue growth of 14% and a reduction in our operating expenses of more than 30% to drive net income of $1.4 million and positive cash from operations for the full year,” commented Bryan McLaren, Chief Executive Officer of Zoned Properties. “Our 2017 accomplishments not only drove impressive financial results but also laid the groundwork for us to further invest in other projects to replicate our successes and further drive value for our shareholders.”

In a letter to shareholders, McLaren said he planned to diversify the company through its Strategic Advisory Services which would advise clients in the early stages of their projects. The idea being that it would give Zoned the ability to shape property development plans, which would increase the chances of success and secure a longer-term role for the company with that property. He also noted that the company would secure “non-toxic sources of capital.” McLaren stated that the portfolio of debt-free properties was increasing in value and that Zoned could leverage those assets to secure lower-cost debt.

 

In the letter, McLaren stated, “To date, we are working with multiple operators in a number of states, some of which have not yet been announced. By taking a relationship approach for the projects we choose to invest our time and resources, we have the ability to establish a foundation for long-term results for years to come.”

The stock was lately trading at 70 cents, down from its 52-week high of $1.80.

Zoned Properties is a strategic real estate development firm whose primary mission is to identify, develop, and lease sophisticated, safe, and sustainable properties in emerging industries, including the licensed medical marijuana industry. The company focuses on the strategic development of commercial properties that face unique zoning challenges; identifying solutions that could potentially have a major impact on cash flow and property value. Zoned Properties targets commercial properties that can be acquired and re-zoned or permitted for specific purposes. Zoned Properties does not actually “touch the plant” and remains a landlord.


StaffStaffDecember 18, 2017
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New York Stock Exchange-listed REIT Innovative Industrial Properties (IIPR) closed on a previously announced property in Arizona for $15 million. The Pharm, LLC operates the 358,000 square foot greenhouse and industrial space.

The Pharm is one of the largest wholesalers of medical-use cannabis in the state of Arizona and is expected to complete some tenant improvements to the building. IIPR will reimburse The Pharm up to $3 million for those improvements, which would bring the total investment in the building to $18 million.

“We are very pleased to introduce The Pharm as our newest tenant, and to be able to creatively structure a real estate transaction to meet their capital needs for planned expansion in the Arizona market and beyond,” said Ben Regin, Director of Investments and Finance at IIPR. “We believe that The Pharm’s highly experienced, multi-disciplinary management team is well positioned to continue to grow its market share in a rapidly expanding Arizona medical-use cannabis market, in addition to carrying its highly successful program to new markets in other states.”

The Pharm will use the property to cultivate and process medical marijuana. The initial lease if for 15 years with an initial annualized aggregate base rent of $2,520,000, payable monthly. In connection with the execution of the lease, The Pharm subsidiary also deposited with the Company a security deposit of $630,000.

“Innovative Industrial Properties collaborated with us closely throughout this transaction, providing creative solutions to address our specific capital needs,” said Randy Smith, Founder and Chief Executive Officer of The Pharm. “We are thrilled to have a great real estate partner like Innovative Industrial Properties that provides us the key capital we need to drive our strong growth and execution on strategic priorities.”

IIPR stock has increased 48% for the past year according to Yahoo Finance, versus the S&P 500 which has risen 18%. It is one of the few cannabis companies that pays a dividend giving this stock a 2.4% yield.


Debra BorchardtDebra BorchardtOctober 9, 2017
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3min11730

Zoned Properties (ZDPY) released a company presentation on Monday that shows that the company has moved from an annual loss of $501,576 in 2016 to a year-to-date gain of $1 million. Zoned Properties develops and leases properties in emerging industries, including licensed medical marijuana.

The company is coming from a position of strength uncommon among many pot stocks with a solid balance sheet of $9.6 million in assets and $2.2 million in liabilities, but no warrants and no convertible debt. The company currently has six properties in its portfolio with five locations in Arizona and one in Colorado.

Part of the turn in fortunes for Zoned Properties for 2017 was the one-time net gain from the sale of a property in Tempe Arizona for $831,753. The book value for the company as of June 30 is $9.4 million and the market value is $23.7 million.

The stock though hasn’t performed as well as the company’s balance sheet. It has plunged 48% over the past year from a 52-week high of $3.88 to a low of 50 cents. The stock started to recover following the company’s second-quarter earnings release in August. In that release, the company noted that its revenue had increased 23% to $505,000 from the previous year’s second-quarter earnings of $410,000. Operating expenses also declined 32% to $355,000 from the previous year’s second quarter expenses of $524,000. The net income was also positive at $118,000 versus the previous year’s loss of $173,000.

Zoned also announced last week that it increased the space being leased by its tenant in Tempe Arizona. “Expansion at the Tempe Property will drive increased revenue and profitability in the coming quarters as increased monthly rent payments take effect,” commented Bryan McLaren, Chief Executive Officer of Zoned Properties. “Our anchor tenant now occupies more than 50% of the 60,000 square feet of total rentable space under long-term lease agreements with guaranteed rent escalators throughout their terms.”

So, while Zoned Properties is humming along in the Arizona market, some investors may be wanting to see if they’ll be expanding beyond the state and pursuing properties in other bigger markets. The real estate space in the cannabis industry is becoming crowded very quickly. It may be that the stock will respond as Zoned expands their footprint further away from the Arizona market.


StaffStaffOctober 3, 2017
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3min8910

New York Stock Exchange-listed Innovative Industrial Properties Inc. (IIPR) announced that it filed for a public offering of Series A Cumulative Redeemable Preferred Stock that would trade under the symbol IIPRPrA. The proceeds from the offering will be used to support the company’s investment strategy of finding specialized industrial facilities that are used to cultivate medical marijuana.

Ladenburg Thalman (LTS)  is acting as the book-runner and National Securities Corporation (NHLD) is acting as the co-manager for the offering.  The company said in a statement that it will grant the underwriters a 30-day option to buy additional shares to cover over-allotments. A copy of the preliminary prospectus for the offering may be obtained, when available, from Ladenburg Thalmann & Co. Inc., 570 Lexington Avenue, 11th Floor, New York, NY 10022, or by email at prospectus@ladenburg.com.

Innovative Industrial Properties recently declared a quarterly dividend of 15 cents. It is one of the few, if not the only, cannabis stocks to pay a regular dividend. This 60 cents annual dividend gives the company a yield of 3.2% on an approximate price of $18.69 per share.

According to Yahoo Finance, there are two analysts covering the stock and both have a buy rating. The average target price is $21.75. The company is down 2.4% for the past year, but in the last six months, the stock has climbed over 9%. The 52-week low is $14.50, while the high is $20.52.

On the last earnings call, CEO Paul Smithers said, “We’re in advanced discussions regarding a number of potential acquisitions with a pipeline of approximately $100 million spanning a number of states including Arizona, Illinois, Maryland, Massachusetts, Ohio, and Pennsylvania to name a few.”

Executive Chairman Alan Gold added, “This nascent industry that has witnessed amazing growth with state-regulated medical-use cannabis markets, now comprising a majority of the United States. We are very optimistic about the future of this industry and our ability to deliver an enduring value to our tenant partners in providing tailored real estate solutions that meet their key operational and capital needs.”

 

 

 

 


Melissa EbanksMelissa EbanksSeptember 27, 2017
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In November of 2012, twelve years after legalizing medical marijuana, Colorado voters approved a measure to legalize recreational marijuana use. The state adopted a model that allowed only existing marijuana dispensaries to convert to retail establishments.

New research from the Wisconsin School of Business at the University of Wisconsin–Madison reveals that property values in the immediate vicinity of Denver’s retail marijuana establishments increased by more than 8% since the law took effect on January 1, 2014.

Moussa Diop, Wisconsin School of Business assistant professor of real estate & urban land economics, along with James Conklin of the University of Georgia and Herman Li of California State University, say the relationship between the price of houses and retail conversions is particularly important with voters in four states legalizing recreational marijuana use last November and others likely to follow.

“The presence of retail marijuana establishments clearly had a short-term positive impact on nearby properties in Denver,” says Diop. “This suggests that in addition to the sales and business taxes generated from the retail marijuana industry, municipalities may experience an increase in property taxes. It’s an important piece of the puzzle as more and more voters and policy-makers look for evidence about the effects of legalizing recreational marijuana, as the issue is taken up by state legislatures across the country.”

Single family residences within 0.1 miles of a retail marijuana establishment saw an increase in value of approximately 8.4 percent compared to those located slightly further—between 0.1 miles and 0.25 miles—from the site. That increase in property value was estimated to be almost $27,000 for an average house in the area.

While the study did not seek to identify the underlying drivers of what led to an increase in property values near retail conversions, the authors did identify potential explanations including: a surge in housing demand spurred by marijuana-related employment growth; lower crime rates; and additional amenities locating in close proximity to retail conversions.

The findings are in line with a 2016 study that identified a six percent increase in housing values on average in municipalities across the state of Colorado that allowed retail marijuana sales. Colorado’s model of allowing only existing medical marijuana dispensaries to convert to retail establishments was also used in Oregon and will be implemented in Nevada. Other states may follow that same procedure, as the adoption of medical marijuana laws is typically seen as a first step to broader legalization efforts.

The study relied on residential property information from the City of Denver’s Open Data Catalog and a list of retail licenses granted by the Colorado Department of Revenue, the agency responsible for administering the new law.

The paper, “Contact High: The External Effects of Retail Marijuana Establishments on House Prices” will be published in Real Estate Economics.


Ken NischKen NischSeptember 12, 2017
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Traditional brick-and-mortar retailers are facing major challenges due to ease of credit cards, federal postal services, and potentially even other types of shippers. This has made the cannabis industry essentially immune to the challenges that other physical retailers have. This doesn’t mean that marijuana retailers don’t need to be experiential or try harder, but rather it suggests that the physical store experience can be a primarily offensive direction in order to create brand awareness and dominance, versus substantially being defensive as it is for most retail today in trying to counter-impact the online business.

Also new to the cannabis category in the aspect of retail is individual vs “branded house” product. Think of the spice section in your local grocery store with red caps of the iconic McCormick brand dominating, rather than the individual flavor profiles themselves dominating. Cannabis started out with the contrary, with the flavor and experience profile of the individual product defining it rather than a dominant brand umbrella defining it. However, this contrast with cannabis where the flavor profile is the brand, and the sense of origin, etc. comes secondary, has been changing rapidly now with the growth of celebrity and lifestyle branding. Think Whoopi Goldberg, Cheech and Chong, Willie Nelson, etc. where the flavor profile is through the eyes of Willie, Whoopi, and Cheech. This represents a big change in the industry where ultimately certain brands will be common across distributors and retailers versus each individual retailer essentially creating their own “special sauce” unique to their environment. With the advent of cross retailer branding, the individual brand of the retailer will become more critical (versus relied on price or uniqueness to drive the consumer from a destination standpoint).

Important in terms of future growth will be a key and differentiated brand identity. As legalization continues to become more flexible and market driven, formats such as shop-in-shop concepts as well as event and lifestyle pop-up concepts (cannabis meets food truck, etc.) will arise. Cannabis will grow into other delivery spaces for pet, spa and treatment applications; home furnishings; and luxury accessories and consumables. Today’s fairly cut and dry approach to reception, consulting, selection and transaction will become more complicated (in a positive way), impacting everything from staffing to seasonality, to requirements for flexibility beyond today‘s primarily transactional environment.

Due to many cases of landlord reluctance, particularly national landlords, to accommodate companies within the cannabis space, they’ve often been relegated to second or third tier locations, industrial parks, or the capital intensive activity of purchasing or building a freestanding facility. The next generation of locations will most likely become part of lifestyle assortments, like adjacencies such as Lululemon, Whole Foods, the local gym, etc. with the cannabis retailer to be a welcome and lifestyle appropriate co-tenant to many of the national tenants, particularly in the wellness, leisure and food segments.

Society has already made a significant change in the perception of cannabis as a medication, and as perceptions continue to evolve in the world of cannabis through the rest of 2017, the brick-and-mortar concept has been integral to the movement. Thus, allowing the public access to these products in an entirely new type of space. The design concept of the physical environment provides the retail dispensary model an opportunity to create interactive experiences, as well as personal connections. The mental perception shift in medical and recreational clients alike will continue to open a door to societal growth and appreciation of cannabis.


Chuck EpsteinChuck EpsteinSeptember 5, 2017
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Fidelity National Title Group, a subsidiary of Fidelity National Financial, the largest title insurer in the world, has issued an underwriting bulletin to its agents in 28 states to not insure any land used “for the production or distribution of marijuana.”

According to the memo issued June 29, 2017 by Fidelity National Title, the company’s Chief Underwriting Counsel said that properties in the 28 states “that have in some capacity legalized cultivation, distribution, manufacture or sale of marijuana products” will not be insured by Fidelity.

The bulletin instructs its agents and people in company operations to include the following language in every title commitment that the company issues in the 28 states. This underwriting bulletin (coded as Fidelity National Title Insurance bulletin 2017 RC-05) states:

“Please be aware that due to the conflict between federal and state laws concerning the cultivation, distribution, manufacture or sale of marijuana, the Company (Fidelity) is not able to close or insure any transaction involving Land that is associated with these activities.”

On its web site, Fidelity National Financial describes itself as “the nation’s largest title insurance company through its title insurance underwriters – Fidelity National Title, Chicago Title, Commonwealth Land Title, Alamo Title and National Title of New York – that collectively issue more title insurance policies than any other title company in the United States.”

The bulletin recommends that if a title company sends out a “welcome” package or instructions before closing that it should include a similar statement saying the land will not insured.  The bulletin also says “the sooner we indicate our unwillingness to insure, the better all around.”

In effect, the bulletin can affect the purchase and sale of undeveloped land, commercial properties, retail stores, and houses, where marijuana has been used even in states where it is legal. In effect, the bulletin and denial of title insurance means that many properties will not be financeable in a real estate transaction.

When a commitment letter is sent to a purchaser, the Fidelity underwriting bulletin means a seller and buyer of real estate have to sign an affidavit attesting that the property was not used for any purposes related to cannabis activities.

The bulletin was issued because the company said it did not want to discover at the actual closing event that the property “is used or intended for such purposes,” which would then resulting declining the title insurance coverage. If the statement is sent to buyers before the closing Fidelity said “it should make it easier to decline earlier in the transaction and put the burden of disclosure on the parties to the transaction.”

Impact on Cannabis-Related Real Estate

Reaction to the Fidelity underwriting bulletin was strong. One title insurance executive said the memo “sounds like a game changer” in terms of how cannabis-related properties can be bought and sold.

He also speculated that the company may have been acting in response to federal pressure to stop the expansion of the cannabis industry in states where it has become decriminalized.

The title insurance executive said “this can be a way to shunt this title insurance business to a subsidiary or the re-insurance industry at a much higher cost for title insurance or to use an indemnity policy.

In a LinkedIn post on March 2017, prior to the issuance of the Fidelity underwriting bulletin, attorney Michael J. Moore, citing an earlier 2016 article written by Vince Sliwoski, wrote “in states that have legalized the plant so far, title insurance companies set up a specific exception in their policies which excludes coverage over governmental actions, such as civil and criminal forfeiture of property under the federal Controlled Substance Act. Failure of the purchaser to disclose its intended use of the property may result in the title insurance company denying liability on a claim relating to property forfeiture because of the marijuana activity on the property. It is recommended that a buyer disclose their intended use of the land. Otherwise, the title company has an argument not to pay on claims.”

Moore also said “many title insurance companies have refused to act as an escrow agent for those transactions, because of the uncertain legalities involved. They have refused to handle the transfer of funds and closing documents. Some companies will not get involved in any aspect of the closing process, while others may provide a facility for the settlement of the transaction and issue a title insurance policy. Without title companies providing escrow services, the parties to a transaction must locate neutral third parties to perform the service.”

While the insurance industry, including life, auto, home, have addressed claims and procedures in states where cannabis is legal or decriminalized, the real estate title insurance directive has more significant and expensive implications.

The Fidelity underwriting directive, however, takes the decision to not insure title for cannabis-related properties to a new level and one that may have been developed at the behest of federal authorities.



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