Innovative Industrial Properties (IIPR) Q4 2020 Earnings Call Transcript

Revolutionary Industrial Properties (NYSE:IIPR)
This autumn 2020 Earnings Name
Feb 25, 2021, 1:00 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Contributors

Ready Remarks:

Operator

Hey, and welcome to the Revolutionary Industrial Properties, Inc. FY This autumn 2020 earnings convention name. [Operator instructions] I’d now like to show the convention over to your host at the moment, Brian Wolfe. Mr.

Wolfe, please go forward.

Brian Wolfe — Vice President, Secretary, and Common Counsel

Thanks for becoming a member of the decision. Presenting at the moment are Alan Gold, government chairman; Paul Smithers, president and chief government officer; Catherine Hastings, chief monetary officer; and Ben Regin, vp of investments. Earlier than we start, I would wish to remind everybody that statements made throughout at the moment’s convention name could also be deemed forward-looking statements inside the that means of the protected harbor of the Personal Securities Litigation Reform Act of 1995, and precise outcomes could differ materially because of a wide range of dangers, uncertainties and different elements. For an in depth dialogue of a number of the ongoing dangers and uncertainties of the corporate’s enterprise, I refer you to the information launch issued yesterday and filed with the SEC on Type 8-Okay in addition to the corporate’s stories filed periodically with the SEC.

The corporate disclaims any intention or obligation to replace or revise any forward-looking statements, whether or not because of new data, future occasions or in any other case. I am going to now hand the decision over to Alan. Alan?

Alan Gold — Govt Chairman

Thanks, Brian and welcome, everybody. In the present day, we stay up for offering a recap of our outcomes via the again half of 2020 and into 2021. And our views on the continued evolution of the trade, we’re so proud to serve. There’s actually lots to recap, each from our firm’s actions and the regulated hashish trade as a complete.

Firstly, we’re thrilled to see on show the nice minds of our nation and the world, attaining what many consider to be the not possible. A number of units of extremely efficient vaccines prepared for distribution in lower than one yr from the onset of this pandemic, a really outstanding testomony to the ingenuity of our scientists, and one which we hope brings the sunshine on the finish of the tunnel that a lot faster. With all of the challenges that we’ve confronted as a society during the last yr, the regulated hashish trade has demonstrated a robust and sustained resilience throughout the USA in arguably the primary main financial disruption that this very younger trade has confronted. As we’ve highlighted on prior calls, with the regulated hashish industries designated as important companies within the overwhelming majority of state and native jurisdictions, our tenant operators have been notably adept at modifying their operations on this new surroundings in methods to make sure continued, compassionate, individualized service to their sufferers and prospects, and in an surroundings designed to maximise the protection and well being of sufferers, prospects and workers.

And because the nation and the world as a complete has suffered via not solely a well being disaster but additionally one of many quickest and deepest financial contractions in latest historical past, the USA regulated hashish trade continued on its great progress path, rising over 50% yearly from simply over $13 billion in gross sales in 2019 to an estimated $20 billion in 2020. And whereas the overwhelming majority of companies have been retrenching on this unprecedented time, skilled, well-positioned regulated hashish operators proceed to develop their footprints and deepen their operations. We have been proud to proceed to accomplice with them in 2020 as their go-to actual property accomplice, a yr by which we made 20 new property acquisitions and extra investments in our present portfolio totaling over $620 million. As of at the moment, we personal 67 properties in 17 states, totaling 5.8 million sq. toes that are 100% leased on a long-term foundation to high-quality licensed hashish operators.

Now the one property that was not leased in our portfolio at year-end was our Los Angeles, California property. And as famous in our press launch issued yesterday, Holistic Industries, our long-term tenant accomplice in Massachusetts, Maryland, Michigan and Pennsylvania, acquired the operational licenses for this property in early January, and we executed a long-term lease with them for your entire property. Apart from our Los Angeles property, our tenants have paid all contractual hire due within the fourth-quarter 2020 and the primary two months of 2021, aside from one tenant in our Southern California portfolio having paid partial hire via that interval. And we’ve executed no hire deferrals for any tenant since July of final yr which we consider is a testomony to the standard of our tenant base and their means to adapt to this new regular, along with the distinctive resiliency of the regulated hashish trade as a complete.

Reflecting the energy and resiliency of our tenant companions, we paid a quarterly widespread dividend of $1.24 per share to stockholders on January 15, representing a 24% enhance over fourth-quarter 2019 dividend and our ninth dividend enhance since our IPO in December 2016. On the financing entrance, I’d additionally wish to personally thank all of our stockholders, our long-term firm house owners for his or her steadfast assist, offering us over $1 billion in internet proceeds during the last yr to assist our tenant companions of their continued enlargement initiatives, whereas forging new tenant partnerships with top-tier operators within the trade. Catherine may even present extra element relating to our monetary outcomes and capital elevating exercise. And naturally, regulatory developments within the hashish trade are additionally prime of thoughts.

With the continued sturdy majority assist throughout practically each demographic for legalizing hashish, in November, the momentum we’ve seen over the previous decade on the state stage continued as fivenew states handed measures to legalize medical or grownup use hashish leading to 36 states having legalized medical-use hashish and 15 states additionally having legalized grownup use hashish. We’re carefully monitoring the various proposals in Congress relating to hashish laws, and Paul will present further element on that entrance. Now earlier than I flip the decision over to Paul, I wish to reiterate our deep appreciation for you, our long-term house owners, in your assist all through these 4 transformative years of our firm, and we stay up for serving you on this superb high-growth trade for a few years to come back. With that, I would like to show the decision over to Paul, who will present further element on the latest legislative developments of the hashish trade.

Paul?

Paul Smithers — President and Chief Govt Officer

Thanks, Alan. For this name, I plan to offer an replace on the regulated hashish trade together with: one, state developments from the newest election cycle; two, our views on the federal regulatory surroundings; and three, latest dynamics of the trade throughout this well being disaster and at the side of latest election outcomes. As talked about on our final name, I would wish to additionally preface this dialogue, noting that laws and trade developments are evolving quickly. And whereas we wish to give you a normal present panorama, there will be no assurance that this panorama is not going to considerably change.

First, state outcomes from the newest elections in November. As we mentioned in prior calls, pre-pandemic 2020 was shaping as much as be one other watershed yr on the state legalization entrance. Nevertheless, shelter-in-place orders tremendously impacted the flexibility of organizers to collect enough signatures in particular person. And consequently, a lot of initiatives needed to be postponed.

Even within the face of such challenges, fivenew state measures to legalize medical or adult-use hashish handed in November, with approvals of adult-use packages in Arizona, New Jersey and Montana in addition to approval of a medical-use program in Mississippi. And noteworthy, South Dakota voters accepted each adult-use and medical-use packages in November, a primary for a state to approve each packages on the identical time. In just some years’ time, these packages alone are anticipated so as to add over $3 billion in revenues to the U.S. totals.

Moreover, with quite a few adult-use and medical-use packages in place throughout the USA, states with new packages have a number of fashions from which to decide on, and we anticipate that these experiences will allow new states to successfully implement new packages over considerably shorter time intervals than has been traditionally the case. In 2021, we’re monitoring at least 11 further states which will probably transfer ahead towards establishing new packages together with on the medical aspect, Texas, South Carolina, Alabama, Kentucky, Kansas and Nebraska. And on the grownup aspect, New York, Connecticut, New Mexico, Rhode Island and Virginia. In fact, these embrace a number of the most populous states and great future potential for the trade.

With 36 states and D.C. having legalized hashish for medical use and 15 states having legalized hashish for grownup use, this continued speedy adoption throughout states is mirrored of the 90% plus assist seen amongst U.S. residents for medical-use hashish and the overwhelming majority assist of U.S. residents for adult-use hashish legalization as proven in ballot after ballot.

Second, our views on the present federal regulatory surroundings. With the clear dramatic shift of in style opinion within the final decade, years of expertise of state-run medical and adult-use packages, and continued rollouts of recent state packages, we’re of the opinion that nationwide hashish reform is that a lot nearer. And as everyone knows, the newest federal election cycle introduced a altering of the guard when it comes to a Democratic White Home, a 50-50 Senate with a tiebreaker to vp, Kamala Harris, together with the persevering with majority Democratic management of the Home. That mentioned, there are quite a few competing agenda gadgets of the brand new administration and Congress in 2021, most notably getting the COVID well being disaster below management, accelerating vaccine administration and supporting the economic system and dealing households.

There are quite a few cannabis-related payments pending in Congress at totally different phases of assessment. Just a few of the extra notable payments embrace the MORE Act handed by the Home in December, with a give attention to descheduling hashish and social fairness. The SAFE Banking Act which would supply further security to monetary establishments in serving state compliant licensed hashish operators. The STATES Act which might defend states to enact their very own hashish insurance policies, free from federal interference, and payments targeted on mitigating the draconian tax impression of IRS Code Part 280E for hashish operators.

It goes with out saying that predicting federal laws together with each the content material and timing, because it pertains to any subject is difficult, and specifically, with respect to hashish. That mentioned, with the close to common designation of hashish throughout the state packages as important throughout this COVID pandemic together with in style assist that basically spans all sorts of demographics and celebration affiliations we do consider that there will likely be modifications on the horizon. We’re carefully monitoring the standing of the payments in Congress and the evolving dynamics of each Congress and the administration together with the senate voting dynamics. In our view, and naturally, that is simply our view, we see sure payments just like the SAFE Act, the place payments had addressed the 280 tax difficulty as maybe near-term and payments such because the STATES Act additional on the horizon.

Lastly, relating to trade dynamics within the second half of 2020 and persevering with into this yr. The hashish trade basically, and our tenants specifically, proceed to exhibit a singular resiliency all through the well being and financial challenges we’ve confronted as a rustic over the previous yr. In 2020, a yr unprecedented in latest U.S. historical past when it comes to financial decline, the authorized hashish market was projected to have grown over 50% from the prior yr, fueled by the introduction of recent state packages, sustained progress and continued transition from the illicit market to the regulated market in established state packages and continued acceptance and adoption by residents together with a robust and rising recognition of hashish’ therapeutic worth throughout a big selection of medical circumstances.

With this sustained progress in demand, the enlargement throughout states of regulated hashish packages and the latest outcomes of the federal election cycle, best-in-class operators together with lots of our tenants, have targeted in latest months on further capital elevating and M&A exercise to place themselves to take full benefits of the alternatives that they see within the months and years forward. On the M&A aspect for our tenants, we’re attracting quite a few latest bulletins since early December together with offers like our tenant, Cresco’s $213 million introduced plan to amass Bluma Wellness and our tenant Columbia Care’s announcement to amass our different tenant, Inexperienced Leaf, for $240 million in money and inventory. This has been the development of the final a number of months which included our tenant Curaleaf’s acquisition of our different tenant Grassroots in Illinois, North Dakota and Pennsylvania, and our tenant Columbia Care’s acquisition of our different tenant, the Inexperienced Resolution, in Colorado in 2020. We’ve seen this development actually speed up in December and January, and we anticipate to see this continued consolidation as the highest operators proceed to achieve market share.

We’re additionally seeing an amazing stage of capital elevating exercise which we consider is a mirrored image of the resilience and superb progress of this trade. The broad based mostly public acceptance and assist of the regulated hashish trade, particularly medical-use hashish throughout the USA and modifications within the composition of the federal authorities on this election cycle which will hasten federal regulatory modifications. In reality, in January alone, North American hashish firms closed or introduced greater than $1.6 billion in capital raises, an quantity that’s virtually double the earlier file for that point interval. And naturally, the lion’s share of that capital elevating went to top-tier operators together with lots of our tenants which we consider supplies a significant additional enhancement to the credit score high quality of our tenant base.

I am going to now flip the decision over to Ben, who will stroll you thru our latest acquisitions and follow-on investments in addition to some further shade on our total portfolio. Ben?

Ben Regin — Vice President of Investments — Analyst

Thanks, Paul. Since October 1, we made fiveacquisitions in 4 states, representing a mixture of enlargement of our present actual property partnerships with prime operator and institution of recent tenant relationships. As of at the moment, we personal 67 properties throughout 17 states, representing roughly 5.8 million sq. toes together with roughly 2 million sq. toes below improvement or redevelopment, with a weighted common remaining lease time period in extra of 16 years. Just like previous calls, I plan to the touch on every of our acquisitions by state and likewise present some details about every tenant and our portfolio total within the state.

I additionally plan to offer some further element on our tenant roster and total portfolio. We’ve been pretty lively in California in latest months with our two transactions with Kings Backyard and the releasing of our Los Angeles property, the one property that was not leased on our total portfolio. California’s regulated hashish market is among the largest on the planet, with roughly $5.6 billion in gross sales in 2020 and is anticipated to proceed to characterize over 20% of the general U.S. market in 2025.

Kings Backyard is among the prime operators in California, constantly rating within the prime fiveof flower and focus gross sales within the state, and as it’s possible you’ll recall, was one of many first hashish operators to begin common quarterly dividends to its shareholders in June 2020, a outstanding achievement for an organization persevering with on its speedy enlargement path. With our two transactions in November 2020 and earlier this month, we now leased six properties to Kings Backyard, representing effectively over 0.5 million sq. toes together with initiatives below improvement and a complete funding of practically $150 million together with commitments to fund future improvement and redevelopment. We’re proud companions of Michael King and his nice crew and stay up for supporting them via the event and redevelopment of state-of-the-art services to dramatically develop manufacturing capability and proceed to ship the highest-quality product that they’re identified for. And as we beforehand introduced, we’re thrilled to crew with Holistic Industries as our new tenant accomplice at our property in Los Angeles.

Holistic has been a tenant accomplice of ours since 2017, and I am going to go into extra element on our footprint with them slightly later. Transferring on to Florida. We acquired a property comprising roughly 295,000 sq. toes of business area and entered right into a long-term lease with Harvest Well being and Recreation, with our complete funding within the acquisition and tenant enhancements on the property anticipated to be about $35 million within the combination. Harvest is a number one vertically built-in U.S.

multistate operator, with licensed operations in 9 states together with 38 retail areas, 12 cultivation and processing areas and over 1,100 workers throughout its operations. We’re thrilled so as to add Harvest to our tenant roster and stay up for supporting them of their enlargement of manufacturing capability at this facility. Florida is the biggest medical-use hashish market in the USA, closing in on 0.5 million certified sufferers. Together with the Harvest property, we personal and leased 4 properties in Florida, totaling about 1 million sq. toes to tenants Trulieve, Parallel and Harvest, representing a complete funding of slightly over $150 million together with commitments to fund future enhancements.

We can’t be extra thrilled with our tenant base and the general alternative in Florida. Now to Massachusetts. In December, we expanded our footprint in Massachusetts with the acquisition and lease to 4Front Ventures of an industrial facility for cultivation, processing and shelling out. Concurrently, with that shut, we acquired one other property and executed a long-term lease with 4Front in Washington, with our complete investments throughout each properties being $33 million and comprising about 181,000 sq. toes.

We’re excited to carry 4Front in as a brand new tenant accomplice, a number one MSO with licensed operations and companies in California, Illinois, Massachusetts and Washington. Together with our 4Front transaction, we personal six properties in Massachusetts, representing a complete funding of slightly over $185 million, comprising roughly 647,000 sq. toes with tenants 4Front, Ascend Wellness, Cresco Labs, Holistic, PharmaCann and Trulieve, an distinctive roster of main MSOs. As famous, our 4Front transaction marks our first acquisition and lease within the state of Washington. Washington is a comparatively well-developed, mature market with leisure hashish gross sales of over $1 billion in 2019.

And we consider that 4Front has differentiated itself in its cost-effective, high-quality cultivation and manufacturing. We’re excited to accomplice with a tenant of this high quality within the state. Lastly, on the investments entrance, I want to contact on the follow-on investments we have made in our present properties which we consider is a key differentiator of our mannequin with the pliability to develop to fulfill our tenant companions’ must develop on the acceptable instances. Since October of final yr, we’ve executed a $25 million follow-on funding with Inexperienced Thumb in Ohio, a $31 million follow-on funding with PharmaCann in New York, follow-on investments with Holistic, totaling $7 million in Massachusetts and Pennsylvania and a $7 million follow-on funding with LivWell in Michigan along with others.

This exemplifies our mission to be the important thing supplier of progress capital to our tenants, being there to supply funding options for his or her enlargement on the time and on the phrases that present them optimum, non-dilutive capital to seize that market alternative. Lastly, I want to contact on our most important tenants as a short replace. These prime 10 tenants account for over three-quarters of our contractual hire as of at the moment. These tenants so as of focus embrace PharmaCann, Kings Backyard, Ascend Wellness, Cresco Labs, Inexperienced Thumb Industries, Holistic, Parallel, Curaleaf, Inexperienced Leaf and Trulieve.

As you already know, PharmaCann is the place we began, having executed our sale-leaseback with them for his or her property in New York in December 2016 shortly after we accomplished our IPO. Since then, we’ve partnered with PharmaCann in quite a few transactions to facilitate their continued enlargement with fiveproperties positioned in Illinois, Massachusetts, New York, Ohio and Pennsylvania with our complete funding together with future commitments to fund further enhancements, totaling about $167.5 million. With licenses in eight states and one of many largest privately owned, vertically built-in hashish firms within the U.S., we’re proud to accomplice with PharmaCann over the 4 plus years and assist them of their strategic progress in markets representing great progress alternatives. Kings Backyard.

I mentioned in some element our tenant accomplice, Kings Backyard, because it pertains to latest funding exercise, so I will not go into a lot further element right here. However evidently, we’re thrilled to crew with Kings Backyard in California, one of many prime operators within the largest regulated hashish market on the planet. Ascend Wellness. We’ve been Ascend’s actual property accomplice since 2018 and have partnered with Ascend on three properties in Illinois, Massachusetts and Michigan, representing a complete dedication of practically $120 million.

Ascend which is led by Abner Kurtin, is a vertically built-in MSO with belongings in Illinois, Michigan, Ohio, Massachusetts and New Jersey. Abner has developed an amazing footprint with a world-class crew to execute on these key strategic markets and continues to successfully fund strategic initiatives all through this pandemic together with a $68 million capital elevate in August of final yr to execute on further enlargement alternatives in Illinois. Cresco Labs. We’ve been Cresco’s actual property accomplice since 2019 and have partnered with Cresco on fiveproperties in Illinois, Massachusetts, Michigan and Ohio, representing a complete dedication of $121 million.

Cresco is the biggest wholesaler of branded hashish merchandise within the U.S. And as talked about beforehand, lately introduced a transaction to amass Florida’s Bluma Wellness for $213 million in an all-stock transaction and closed on $125 million inventory transaction final month. We see Cresco is extraordinarily effectively positioned to proceed to achieve market share all through its states of operation with an enviable liquidity place to benefit from these alternatives. Inexperienced Thumb Industries is a tenant accomplice of ours in Illinois, Ohio and Pennsylvania, representing a complete dedication of about $122 million.

Led by Ben Kovler, Inexperienced Thumb is among the largest MSOs in the USA, with licenses for 97 retail areas, 13 cultivation and manufacturing services, and operations throughout 12 states. Earlier this month, they raised $100 million of fairness capital from a single institutional investor which we view as an actual testomony to the success of their enterprise and future alternatives. Holistic. We personal fiveproperties leased to Holistic in California, Maryland, Massachusetts, Michigan and Pennsylvania, representing a complete dedication of about $108 million.

Our Maryland property represented our second property acquisition in our historical past, and we’re really grateful to have partnered with Josh Genderson and his crew since that point in a lot of transactions as Josh has led his crew within the extremely profitable enlargement throughout the Northeast and Midwest and now out to California with our most up-to-date lease executed final month in Los Angeles. Holistic initially based in 2011 is among the largest privately owned, vertically built-in MSOs, with operations in California, Maryland, Massachusetts, Michigan, Pennsylvania and Washington, D.C. Holistic closed on an oversubscribed debt financing in September of final yr for $35 million, led by Altmore Capital. Parallel.

We personal two properties leased to Parallel in Florida, representing practically 600,000 rentable sq. toes and a complete dedication of roughly $100 million. With a terrific footprint in Florida, Massachusetts, Nevada, Pennsylvania and Texas, Parallel operates 50 retail areas nationwide and continues to have a look at additional strategic enlargement alternatives. Parallel is led by Beau Wrigley, who beforehand served because the chairman and CEO of world gum and confectionery chief on the William Wrigley Jr. Firm which was acquired by Mars in 2008 for $23 billion.

Having beforehand raised over $400 million in capital, Parallel introduced earlier this week a pending merger with Ceres Acquisition Corp. is again with the closing anticipated this summer season. The transaction features a dedication by buyers for a further funding of $225 million with an implied valuation of about $1.9 billion. I wish to congratulate Beau and his crew for all their success, and we stay up for monitoring the shut of this transformational transaction for Parallel.

Curaleaf. We personal 4 properties leased to Curaleaf in Illinois, New Jersey, North Dakota and Pennsylvania, representing a complete dedication of practically $103 million. These embrace the properties leased to Grassroots which, as Paul talked about, was acquired by Curaleaf in 2020 and for which we obtained company lease ensures from Curaleaf. Curaleaf has developed an amazing footprint with operations in 23 states, over 100 dispensaries, 23 cultivation websites, 30 processing websites and over 1,150 workers.

Final month, Curaleaf closed on a capital elevate in extra of CAD 300 million, one of many largest capital raises for a publicly traded operator on this trade’s historical past. Inexperienced Leaf. We personal two properties leased to Inexperienced Leaf in Pennsylvania and Virginia, representing a complete dedication of about $63 million. Inexperienced Leaf is the market chief within the mid-Atlantic area with cultivation, extraction, processing and retail operations throughout Pennsylvania, Maryland, Ohio and Virginia.

As Paul alluded to in his remarks, on the very finish of final yr, Columbia Care introduced that it had signed a definitive settlement to amass Inexperienced Leaf for $240 million in money and inventory, and that transaction is anticipated to shut in the summertime of 2021. And as it’s possible you’ll recall, Columbia Care acquired considered one of our different tenants at considered one of our Colorado properties, the Inexperienced Resolution in 2020. We additionally leased to Columbia Care two properties in New Jersey and professional forma for its acquisition of Inexperienced Leaf, we might anticipate to lease to Columbia Care, properties representing a complete funding of about $88 million. Columbia Care is among the largest and most skilled MSOs, working 108 services with licenses in 18 jurisdictions and the EU.

Rounding out our prime 10 tenants is Trulieve, a tenant accomplice of ours at properties in Florida and Massachusetts, representing a complete dedication of slightly over $60 million. Led by CEO, Kim Rivers, Trulieve is the dominant hashish operator in Florida, the biggest medical hashish market within the U.S., with 66 retail areas and a pair of million sq. toes of cultivation. Trulieve additionally operates in California, Massachusetts, Connecticut and Pennsylvania, and was lately awarded a number of dispensary permits for the New West Virginia Medical Hashish Program because it continues to develop its nationwide attain. Whereas we touched solely on our prime 10 tenants, we’re happy with what all of our tenant companions have achieved throughout this time and really feel that we’ve established in just a few quick years, an amazing tenant roster and property footprint that may be extraordinarily difficult to copy in coming years.

With that, I am going to flip it over to Catherine. Catherine?

Catherine Hastings — Chief Monetary Officer

Thanks, Ben. It has been one more busy quarter, and the regulated hashish market has actually continued to indicate its resiliency throughout these unprecedented instances each of that are mirrored in our monetary outcomes for the fourth-quarter and full yr 2020. We generated complete revenues of roughly $37.1 million for the quarter, a 110% enhance from This autumn of final yr. The rise was pushed primarily by the acquisition and leasing of recent properties, further tenant enchancment allowances offered to tenants at sure properties that resulted in base hire changes and contractual hire escalations at sure properties.

As Alan talked about, we have collected 100% of contractually due hire throughout our complete portfolio for the fourth-quarter 2020 and the primary two months of 2021 aside from for our Los Angeles property and for one different tenant in Southern California that made partial funds throughout that time-frame and don’t have any ongoing hire deferrals for any tenants. Relating to the tenant that made partial funds, we’re carefully monitoring that tenant’s enterprise and are in common communications with their administration. And I’d observe that the properties that they lease characterize lower than 1% of our complete gross belongings at year-end. And as we’ve indicated up to now, our This autumn income displays solely partial quarters of revenues from the acquisitions and leases executed throughout the quarter and no revenues after all for the leases executed after the tip of the quarter.

And our revenues for the quarter have been additionally impacted by hire abatements or deferrals below sure leases as we continued to account for all of our leases on a money foundation. For the three months ended December 31, 2020, we recorded internet earnings of $21 million. As famous in our earnings press launch for the primary time within the fourth-quarter 2020 versus all different intervals that we have reported thus far, our exchangeable notes have been thought-about dilutive for functions of calculating internet earnings, FFO and AFFO. Because of this, for the fourth-quarter 2020 outcomes, the exchangeable notes are handled as in the event that they’d been exchanged for widespread inventory on the then present change value which resulted in including again money and noncash curiosity expense for the exchangeable notes of roughly $1.9 million for the quarter to FFO diluted and likewise including roughly 2.2 million shares to the absolutely diluted share rely.

This primarily decreased our reported AFFO per diluted share by $0.07. So we wish to spotlight this merchandise, particularly because it makes an apples-to-apples comparability tough between the This autumn outcomes and every other interval because it pertains to FFO and AFFO measures. As in all the opposite intervals, the exchangeable notes have been antidilutive for accounting functions. To notice as effectively, all years introduced together with 2020, deal with the exchangeable notes as antidilutive for functions of FFO and AFFO measures.

So for the fourth quarter, funds from operations which provides again each money and noncash curiosity expense on the exchangeable notes and property depreciation to internet earnings, was $31.6 million. Adjusted funds from operations which provides again noncash stock-based compensation to FFO was $32.4 million. On January 15, we paid our quarterly dividend of $1.24 per share to widespread stockholders of file as of December 31. The This autumn 2020 widespread inventory dividend displays a 24% enhance from the prior-year’s fourth quarter.

As we have indicated up to now, the Board continues to focus on a dividend payout ratio of 75% to 85% of AFFO on a stabilized portfolio foundation. We additionally continued to fund actual property enhancements into lots of our properties as supplied in tenant enchancment allowances or development improvement to our operators below our leases. As we beforehand famous, these enhancements are crucial to both redeveloping an present facility to a hashish facility or funding enlargement to deal with rising market calls for. As Ben beforehand talked about, we have been proud to proceed to accomplice with lots of our tenant operators and amend the leases to offer for added enlargement capital at our services for a corresponding enhance in base hire.

Throughout the yr ended December 31, 2020, we capitalized prices of roughly $301 million and funded roughly $290 million, regarding the tenant enhancements and development exercise at our properties. And with respect to financing exercise. In November, we entered into a brand new at-the-market or ATM, providing program, permitting us to promote as much as 500 million shares of our widespread inventory. Throughout the fourth quarter, we raised internet proceeds of roughly $263 million via our ATM program, bringing our complete internet capital raised to roughly $1.7 billion from the IPO, follow-on widespread inventory choices, our Sequence A most well-liked inventory, exchangeable senior notes and our ATM program.

Up to now, we have dedicated round 83% of our raised capital or roughly $1.4 billion within the combination below our leases and have roughly $280 million of accessible capital to put at the moment. Lastly, as highlighted on our final name, I would like to notice that we proceed to have one of the crucial conservatively leveraged stability sheets within the REIT area with no secured debt and fewer than 8% of our complete gross belongings consisting of our exchangeable senior notes at year-end. The exchangeable notes have a hard and fast money rate of interest of three.75%, equating to roughly $5.4 million of complete money curiosity funds per yr and don’t mature till 2024. That is the one debt we’ve on the stability sheet totaling $1.8 billion of gross belongings as of year-end.

And with that, I am going to flip it again to Alan. Alan?

Alan Gold — Govt Chairman

Thanks, Catherine. I would like to notice the next in closing. In simply over 4 years of our firm’s operations, we’ve developed what I feel is a really distinctive property footprint and tenant roster with tenant companions that proceed to execute exceptionally effectively in one of the crucial difficult years we’ve skilled as a society. We proceed to be effectively capitalized with a robust, versatile stability sheet that we see as an amazing asset for future alternatives.

And we consider that in every year, within the final 4 years, has progressively validated our core perception of the great way forward for this very younger trade which has demonstrated a really distinctive resilience all through the well being and financial disaster that units it other than practically each — every other trade. I wish to personally thank our stockholders in your continued assist and entrusting us as stewards of your funding. We’ve and we’ll proceed to do our best in that position each day. With that, I would wish to open it as much as questions.

Operator, may you please open the decision up for questions.

Questions & Solutions:

Operator

[Operator instructions] And the primary query comes from Tom Catherwood with BTIG.

Tom Catherwood — BTIG — Analyst

Thanks and good morning, everybody.

Alan Gold — Govt Chairman

Good morning, Tom.

Tom Catherwood — BTIG — Analyst

Simply constructing off of what you sort of — Paul, you touched on it and Ben touched on it as effectively, the capital elevating and entry to capital for hashish operators within the U.S. clearly actually optimistic information, speaks to investor curiosity. Inventory costs have completely improved together with that. However out of your standpoint, given this elevated entry to capital, how are your tenants viewing actual property gross sales as a part of their capital stack going ahead?

Alan Gold — Govt Chairman

So Tom, that is Alan. I imply, we’re actually very enthusiastic about all that. The curiosity within the trade by buyers and offering higher and far stronger stability sheets for our public associated tenants. However in the long run, we’re nonetheless one of the best and most cost-effective nondiluted capital for this trade.

The price of capital that the businesses are incurring after they promote a chunk of their enterprise is considerably larger and extra dilutive than what we’re offering. So we’re seeing a really sturdy and continued curiosity in what — in our program. We consider that the trade total is rising a lot bigger, creating higher alternatives for us to offer extra capital — extra of our capital and to have the ability to place it very accretively.

Tom Catherwood — BTIG — Analyst

I respect that. Thanks, Alan. Alongside these strains, when it comes to acquisitions, 2021 is forward of your tempo in 2020 via the identical time frame. And a few of these new offers look slightly bit chunkier.

So bigger offers spaced out slightly bit extra, but additionally nonetheless with one of the best operators. Are you able to give us a way of how your pipeline proper now compares to 2020?

Alan Gold — Govt Chairman

Actually. And I feel you’ve got hit on a few factors. Initially, these transactions are very chunky. They usually’re chunky as a result of by design.

I imply, we expect we’ve a really sturdy enterprise mannequin and a enterprise mannequin that focuses on the bigger measurement sort tenants with the bigger measurement sort initiatives creating chunky acquisitions. The typical deal — our common deal measurement is north of the $30 million vary. And due to that, we’re uniquely — a singular group within the trade that has the capability to do these measurement sort transactions. There are opponents, and there are methods for our tenant companions to boost capital within the smaller vary.

However to do large-size sort transactions, say a leaseback transactions north of that $30 million, I feel — we expect we’re uniquely — we’re a singular group and effectively positioned to have the ability to present that capital. We expect that our pipeline, and I do know that I will have most likely been — spend slightly little bit of — to speak about our pipeline, however this continues to be strong. We expect that — we consider that we have been in a position to place capital on a really environment friendly foundation. Particularly after elevating the capital, we have been in a position to constantly place that capital in that six to 9 month time interval after elevating the capital.

And we’re extremely assured that we are able to proceed on that tempo. Ben, do you wish to add one thing?

Ben Regin — Vice President of Investments — Analyst

Certain. Hey, Tom. Simply echoing what Alan mentioned. We’re persevering with to see great progress within the trade total which could be very thrilling.

The addressable market continues to extend. And once more, as Alan talked about, we’re uniquely effectively positioned and really feel that we’re one of the best confirmed cost-effective supply of non-dilutive capital to the trade.

Tom Catherwood — BTIG — Analyst

Recognize that. Recognize that outlook. And sort of tying that along with one thing that Paul had mentioned, and Ben, I feel you talked about it as effectively, simply the rise in M&A exercise within the trade. Are you seeing any firms using some actual property gross sales as a part of a strategy to finance a few of these transactions, form of like Blackstone preselling a number of the fairness workplace belongings again in 2007.

Is that one thing that is made its means into the market but or is it nonetheless too early for that?

Alan Gold — Govt Chairman

So — I imply, we expect the M&A exercise is continuous to be strong. We expect that, as Paul has described, lots of our giant tenants have been on the outlook — or have been on the — on the lookout for distinctive acquisition targets, and we expect that may proceed. We expect our capital which continues to be the simplest and non-dilutive capital on the market, is a key element to the way in which our giant tenants are their stability sheet and utilizing that to assist them with acquisitions.

Tom Catherwood — BTIG — Analyst

Bought it. And only one final fast one for me, simply on Vertical. Cath, I appreciated your commentary there. If reminiscence serves me, this is among the firms you gave a deferral to in 2Q and the thought again then as they have been diversifying their wholesale enterprise, transferring away from sort of one key shopper that was having some bother and bringing some new ones which they have been in a position to do.

Is the sort of partial fee nonetheless tied to that diversification of purchasers or is that this one thing new that they are working via?

Alan Gold — Govt Chairman

So Tom, I am going to have Cath reply that or possibly even Ben. However we’re actually very happy with our total portfolio. And to say that we’re 100% leased and is a outstanding feat in a really younger — for a really younger trade basically. The trade continues to evolve.

Our tenants proceed to have a look at totally different enterprise fashions to maximise their alternative. And we’re actually enthusiastic about the truth that we have been in a position to generate 180% year-over-year AFFO progress with a portfolio that has been 100% leased. So Cath or Ben, who would love this?

Catherine Hastings — Chief Monetary Officer

Sure. So thanks, Alan. Sure, Tom, Vertical was a kind of three operators that we did present that restricted COVID hire aid program to again in April. It is — we really feel that these belongings are rather well positioned there.

We proceed to work with Vertical to attempt to get them present. They’re persevering with to function from the power at the moment. And as I remarked, they’re lower than 1% of our complete portfolio.

Tom Catherwood — BTIG — Analyst

Bought it. Thanks for all of your time guys.

Alan Gold — Govt Chairman

Thanks, Tom.

Catherine Hastings — Chief Monetary Officer

Thanks, Tom.

Operator

Thanks. And the following query comes from Daniel Santos with Piper Sandler.

Daniel Santos — Piper Sandler — Analyst

He. Thanks for taking my questions. So I am going to simply preserve with the tenant well being and form of identical and sort of dig into {that a} bit extra. If I perceive the state of affairs appropriately, it is not all of their belongings that is a difficulty which form of signifies that the problem is form of location dependent.

We talked up to now in regards to the limitations you guys have on what you possibly can disclose about your tenants. However how can we, and the investor neighborhood basically, get extra snug with the concept that there aren’t extra tenants to observe? I imply, I respect that in some methods, for a money enterprise, money assortment is a very powerful metric, however there needs to be another metrics that we are able to form of take a look at qualitatively or quantitatively to sort of get snug together with your particular portfolio.

Alan Gold — Govt Chairman

So — and I respect the query. And whereas we have tried to — we are saying we’ve a quite simple and I feel a really sturdy enterprise mannequin of offering nondilutive and cost-effective capital to this trade. It’s a — we’re offering it to a wide range of totally different sort of tenants which have a wide range of totally different sort of enterprise fashions. And to say that this one difficulty is location particular, I do not assume it has actually something to do with the situation of the asset, however extra of the particular enterprise mannequin that this one tenant targeted on, being extra targeted on the wholesale aspect of the enterprise versus creating their very own model and specializing in that model and rising that model over time.

Due to that, they’ve — they have been I feel extra affected by what was occurring within the broader trade together with what’s occurring throughout — due to COVID. And I feel that that is the first impact of the enterprise. They usually’re working via it. We consider — we’re doing our greatest to assist them.

However as soon as once more, I imply, we’re — we’ve $1.8 billion price of actual property over 67 totally different merchandise. That is one property, one tenant, that represents lower than 1% of our income.

Daniel Santos — Piper Sandler — Analyst

Proper. And I completely respect that it’s a form of small piece of the portfolio. However I suppose, as we form of look ahead, proper, I imply, this yr, you’ve got now had form of two tenants that you have needed to disclose. And once more, I get that you have had 100% hire collections.

However are there some metrics or some issues that we are able to take a look at to get slightly bit extra snug with the form of underlying well being of your tenants?

Alan Gold — Govt Chairman

So aside from — we have collected 100% of our hire. Apart from the truth that we have had 180% year-over-year progress on our AFFO, I am attempting to determine a metric right here as I am speaking. Apart from the truth that we’ve the highest 10 tenants in your entire nation, aside from the truth that the tenants have been in a position to elevate capital and — not solely from personal buyers and household workplaces, but additionally via the general public market. I imply, I feel possibly maybe that is the one metric that you might give attention to that basically provides the state of well being of the trade, and it’s simply their means to boost capital.

And we are able to focus in on that. You can additionally focus in on the truth that within the trade itself, the year-over-year progress of gross sales continues to be rising at north of 30%. That is a extremely sturdy factor. I feel that Ben talked about that over 75% of our income comes from the highest 10 tenants in your entire nation.

That is one other very sturdy metric. And Paul, do you wish to add?

Paul Smithers — President and Chief Govt Officer

Yeah. I’d — simply to go additional on that, I’d simply take a look at the trade itself. And 2020 was a pandemic yr. And we see great efficiency of our tenant operators and the great progress of the trade.

And most significantly I feel is the early designation of hashish trade as important companies in these states we function which actually allowed our operators to excel and produce the outcomes they did. So sure, I’d simply add that on prime of the issues that Alan enumerated.

Daniel Santos — Piper Sandler — Analyst

OK. That is useful. After which my subsequent query is form of on the stability between ATM, dilution and acquisitions. Such as you mentioned in a whole lot of methods, you have got a reasonably easy enterprise mannequin.

You elevate fairness, you purchase belongings. However until these issues are form of completely timed, you are going to take the dilution hit earlier than you get the good thing about the earnings. So with out being too long-winded I suppose, A, is there a means that we are able to sort of shut that hole between the dilution and the earnings or how may we be fascinated by it as we mannequin you going ahead? After which I suppose, B, given that you just ended the quarter with money which presumably funded your 21 acquisitions, how ought to we be fascinated by ATM sooner or later?

Alan Gold — Govt Chairman

So Dan, I feel should you recall otherwise you do not forget that, we do not have entry to a credit score facility. We do not have entry to that sort of the flexibility to warehouse capital on a credit score line or warehouse acquisitions on a credit score line after which elevate capital later to pay down the credit score line. So you possibly can take into consideration our extra capital is our credit score facility that we created for ourselves. And the price of that capital is actually the price of our dividend as we go ahead.

I feel that it is essential to notice that we have been very constant in our means to have the ability to place that capital in a 6- to 9 month time frame after elevating it. We consider that elevating the capital at — via the ATM on the finish of 2020 actually provides us the energy and talent to proceed to maneuver via our pipeline and provides our tenant companions the boldness that after they want the capital, we’ve the capital out there. It provides the brand new tenant companions the boldness that once we decide to do a transaction, that we are able to accomplish that. Remembering once more that we do not have the entry to a credit score facility to have the ability to warehouse these sort transactions.

I feel one of the simplest ways to mannequin it’s to imagine that capital that’s placed on the stability sheet will get positioned in that 6- to 9 month time frame. And that dilution that we do take once we do elevate that capital, we consider is effectively taken care of with very accretive sort transactions we’re doing. We did over $600 million price of transactions in 2020, all inside our focused acquisition yield vary of between 11% and 15%, and we consider that we’ll have the ability to proceed to try this as we transfer ahead.

Catherine Hastings — Chief Monetary Officer

And Dan, I simply wished to additionally level out too, that we have a tendency to carry money on our stability sheet that is already been dedicated. So do not forget that once we’re making a dedication for development, we’ve that money out there that sits on our stability sheet till we really fund it out over time as enhancements are going into the properties. So I feel in my ready remarks, we might indicated that at the moment we’ve about $280 million of money for these future investments that haven’t been dedicated at the moment.

Daniel Santos — Piper Sandler — Analyst

Excellent. That is tremendous useful. I am going to go away some questions for different folks.

Alan Gold — Govt Chairman

Thank, Dan.

Operator

Thanks. And the following query comes from Scott Fortune with ROTH Capital.

Scott Fortune — ROTH Capital Markets — Analyst

Good afternoon. Thanks for taking the questions. I wished to sort of follow-up slightly bit on the pipeline outlook and sort of breakdown share of the present tenants which might be transferring ahead with new services or tenant expansions and sort of the brand new tenant alternatives. The fantastic thing about the area is that a whole lot of these restricted licenses are capped.

And so it will present much more tenants over the long term for these states to do effectively inside every state from that standpoint. However should you can present slightly extra shade on sort of the proportion of the present tenant pipeline and potential new ones as these operators are getting flushed with extra capital right here, that may be nice?

Alan Gold — Govt Chairman

Certain. I imply, I feel one of the simplest ways to have a look at a really sturdy pipeline is that’s — in our enterprise mannequin is that we — once we usher in a brand new grower, we’ve 22 growers now which might be a part of our tenant base. And that we decide to not solely serving to them with the present transaction, however serving to to assist them to develop as they transfer ahead. As you possibly can see from our historic acquisitions, most likely I’d say higher than 60% of our transactions have been repeat enterprise with present growers.

And we have a tendency so as to add new growers very fastidiously and with a whole lot of consideration due to that dedication to have the ability to present them future capital. So with that, possibly I am going to flip it over to Ben to maybe speak about the place we — what we see in our pipeline.

Ben Regin — Vice President of Investments — Analyst

Yeah, certain. Hey, Scott. So we proceed to see a pleasant mixture of enterprise with our present tenants. It turns into a really mutually helpful relationship, actually I feel confirmed out by the truth that we have closed on follow-on transactions with the overwhelming majority of our present companions.

After which on prime of that, with the brand new markets coming on-line with the enlargement within the trade total, there may be additionally lots within the pipeline and a whole lot of enterprise and a whole lot of capital wants actually throughout the trade inside and out of doors our portfolio.

Alan Gold — Govt Chairman

Proper. And Scott, and simply — I would additionally remind you that the market or the provision of capital for our tenants, even 4 or fivemonths in the past, was very difficult for them. And whereas they’re having fun with it now, everyone knows that what comes up, generally goes down, and there could possibly be totally different market circumstances as we transfer ahead. Cath, do you wish to?

Catherine Hastings — Chief Monetary Officer

Sure. Scott, I simply wished to — I feel this can be a very distinctive trade too, the place along with acquisitions for our capital, having these market — these state markets develop their packages. Once we — when the operators are figuring out a facility that they wish to have operations in, a lot of that features enlargement alternatives. And so we have seen a terrific use of our capital on amendments to present properties that we already personal.

We did final yr $160 million of amendments for that enlargement progress for properties that have been already in our portfolio. And that is a terrific alternative for us to proceed to get a rise in base hire in addition to our lease extension. And I feel our weighted common lease size at the moment of effectively over 16 years, that is a terrific testomony to the curiosity in our portfolio.

Paul Smithers — President and Chief Govt Officer

Hey, Scott. That is Paul.

Scott Fortune — ROTH Capital Markets — Analyst

I respect the colour. Makes a whole lot of sense, particularly as new states are approaching board right here, we see each day, states seeking to legalize right here. I imply, New Jersey and New York are solely 3%, 4% of the portfolio. And people states are very undersupplied.

So it looks as if your giant tenants will transfer that means. One final query for me. From a aggressive panorama, we see tariff, we see PW, a brand new though slightly totally different mannequin sort. What are you seeing from a aggressive standpoint? And the way is that probably compressing a number of the cap charges with additionally the debt choices or the debt raises that a number of the tenants have finished? Are you seeing any cap charge compressions throughout the yr?

Alan Gold — Govt Chairman

I feel we’ve repeatedly seen potential opponents for that pop up due to the sturdy enterprise that we have been in a position to put collectively. However the — we’ve not really seen any of them actually achieve the long term. They raised some quantity of capital after which they burned via that capital fairly fast after which are stymied. We expect we nonetheless have and proceed to be the one REIT targeted on the medical hashish trade on the New York Inventory Trade.

And we expect that our measurement, having a market cap in extra of $4.5 billion, $5 billion is a reasonably sturdy lead. We do assume that there’s — possibly not from different opponents, however from different capital, there may be competitors. There all the time has been and can all the time proceed to be. However we’re I feel a really sturdy actual property crew that has been in a position to adapt, and we’ll — and have the ability to compete fairly successfully.

We have been in a position to develop this firm from — in a really quick 4 interval time frame from lower than $70 million to, as I mentioned, north of $4.5 billion.

Scott Fortune — ROTH Capital Markets — Analyst

So that you’re seeing the identical cap charges holding up, the 11% to fifteen% that you just guys acknowledged?

Alan Gold — Govt Chairman

Nicely, I feel we — that our pipeline continues to be in that vary, and we proceed to consider that that is the suitable sort of vary for our portfolio at this level. We do assume that there are very — sure tenants which might be very, very sturdy and have entry to maybe slightly bit extra aggressive capital than that, however we’re assured that we are able to proceed to develop in that — with these sort of yields.

Scott Fortune — ROTH Capital Markets — Analyst

Excellent. Thanks. I am going to go it on. I respect the colour.

Alan Gold — Govt Chairman

Thanks, Scott.

Operator

Thanks. And the following query comes from Eric Des Lauriers from Craig-Hallum Capital.

Eric Des Lauriers — Craig-Hallum Capital Group — Analyst

All proper. Nice. Thanks for taking my questions. First one simply sort of little bit of housekeeping.

So perceive the broader portfolio could be very a lot so wholesome and that these rents, the property in L.A. and Vertical, their partial hire lower than 1% of your belongings. So understanding that is small, may you guys quantify how a lot of an impression that had in your rental revenues in This autumn?

Catherine Hastings — Chief Monetary Officer

So we disclosed within the press launch that about $424,000 was used from their — from Vertical’s out there safety deposits for rents for 2020.

Eric Des Lauriers — Craig-Hallum Capital Group — Analyst

OK. Nice. After which only a little bit of a follow-up on the earlier query. So it is good to listen to that charges aren’t actually budging in your pipeline from what you possibly can see proper now.

The place do you assume competitors will impression your pipeline? I imply clearly if we get SAFE Banking and these firms can entry banking debt, it is fairly logical that cap charges would come down. Clearly, you guys may sort of lever up and offset that. However simply questioning form of the place you envision competitors form of impacting your pipeline, whether or not it’s form of fewer alternatives, possibly simply decrease charges, possibly additionally decrease durations, some — possibly some buyback provisions in there. Simply sort of assist us perceive what are the elements that you just’re seeing probably being impacted by elevated competitors or maybe that your tenants are beginning to get a bit extra powerful on in negotiations, that may be nice? Thanks.

Alan Gold — Govt Chairman

Certain. And I feel that competitors comes from different actual property opponents and from the trade’s entry to capital. And we do consider that the trade’s entry to capital can and does have an impact. And maybe the — it creates the chance for a few of our most — the biggest sort tenants within the trade to ask for decrease yields.

But it surely doesn’t suggest that our enterprise mannequin has actually modified a lot. We’re nonetheless very targeted on sale-leaseback transactions. We’re not modifying our — the lengths of our lease. We have really elevated the common size of our lease from the common 15 years that we have been doing early on to now common of 20 years.

We have really — I feel we have seen some modest modification of our annual price will increase which have been 3% to 4%. And now they’re most likely two and a half to 3 and a half %. We’re — we began out and checked out specializing in a sure class of tenants which have grown considerably. And now we have to usher in one other group of these tenants which might be beneath our present crop of tenants and we’re targeted very extremely on that.

We’re fairly happy with the yields of the transactions we have lately closed that are proper down the center of our anticipated — our anticipated acquisition yields. And we expect that we’ll have the ability to be very near that as we transfer ahead all year long. I feel the yr is — we nonetheless have a very long time left on this yr. We nonetheless have a whole lot of acquisitions to do.

And we expect we will be proper there between the — on common between 11% and 15%.

Eric Des Lauriers — Craig-Hallum Capital Group — Analyst

OK. Good. That is good to listen to. I suppose, final one for me right here.

Simply sort of given all of the potential places and takes with the trade, a few of your bigger tenants possibly having much less of a dependence on different capital, whereas on the identical time, presumably an increasing number of licensed growers sort of getting into the area and potential tenants getting into the area. So while you sort of take a look at all these totally different places and takes, elevated competitors, et cetera, do you envision any shift in your technique because it pertains to manufacturing belongings versus retail belongings? Any purpose for any of these altering dynamics to impression that technique of form of favoring giant manufacturing belongings over form of extra conventional retail belongings?

Alan Gold — Govt Chairman

No. We have by no means shied away from doing retail belongings in a — with any considered one of our present growers. But when the common measurement of a retail asset has not modified from that $2 million to — $1 million to $2 million to $3 million in measurement. And we’re targeted and — staying targeted on larger-sized transactions.

And as I described earlier, our common transaction measurement is in that $30 million measurement vary. So we do not see any want to vary our enterprise mannequin from the place we’re. I did point out simply in my final — reply to the final query that we’re once more wanting on the group of tenant growers that aren’t the identical as the present prime 10 that we’ve in our portfolio. I wish to be very cautious to say that they don’t seem to be the identical high quality.

They’re very high-quality growers. They’re simply not — they simply aren’t public or on the identical monetary stage as the opposite — as our present growers as a result of they’ve grown such — so considerably with — during the last couple of years. Maybe that is likely to be the realm the place we — you would possibly see some new grower names that are not as acquainted as you — as the present ones that we have been rising with up to now 18 to 24 months.

Eric Des Lauriers — Craig-Hallum Capital Group — Analyst

OK, nice. Thanks. I respect the colour.

Operator

Thanks. And the final query comes from John Massocca from Ladenburg Thalmann.

John Massocca — Ladenburg Thalmann — Analyst

Most of my questions have already answered, however I’ve a few fast ones. I suppose, are cap charges any totally different for de novo transactions versus a number of the latest lease modification offers? Primarily, do you have got some benefit by being the landlords that may permit you to facilitate pushing larger yield on a few of these offers?

Alan Gold — Govt Chairman

I do not assume that you could go down that path {that a} de novo transaction would have a unique yield than a lease modification. We consider and underwrite each single considered one of our transaction individually. We underwrite the standard of the tenant, the standard of the situation, the deal phrases and the complexity of the transaction. And that every one goes into serving to us create what we expect is an acceptable yield for the capital that we intend to supply.

I feel should you have been considering extra of de novo maybe new growers that are not multistate operators which have — which might be — which have obtained a license however have not actually grown up to now, these sort of transactions aren’t what we’re targeted on, if that is what you are asking.

John Massocca — Ladenburg Thalmann — Analyst

No. It was extra of the primary a part of the reply which I feel defined it fairly succinctly. After which understanding every transaction, as you mentioned, is sort of bespoke within the area. Is there rule of thumb for us to observe as regards to attempting to consider the impression that sort of beginning deferrals and abatements may need on sort of quarter-to-quarter hire, one quarter has a very strong quantity of funding exercise, how that is going to have an effect on quarter-to-quarter hire both within the subsequent quarter or three quarters out or no matter you assume is possibly one of the best sort of means we should always give it some thought, notably from a modeling perspective?

Alan Gold — Govt Chairman

OK. So I feel the place you are going with is that maybe the variety of transactions in our pipeline are that we do on a mean quarter which have some form of hire deferral due to development that needs to be accomplished or improvement that’s ongoing. And I feel — is that the query? I feel that is.

John Massocca — Ladenburg Thalmann — Analyst

Yeah. Yeah. Simply sort of possibly what’s rule of thumb for when to consider that hire impression?

Catherine Hastings — Chief Monetary Officer

Sure. So John, I feel we have described up to now that if there’s sometimes a big development challenge, so if we’re providing giant tenant enhancements or components of development that there tends to be an extended abatement interval earlier than hire is starting absolutely on that dedicated capital. And I feel up to now, earlier than this previous yr, I imply, lots of our initiatives have been smaller tenant enchancment initiatives. We sometimes had possibly between three to 6 months, possibly 9 months tops, if it have been possibly $10 million of tenant enhancements.

This yr, in 2020, we have actually seen a big acceleration of huge TI initiatives. And plenty of of these are taking between three and 12 months earlier than the — to finish that development. And a few of our abatements will mirror that intervals of that three to 12 months earlier than we’re incomes hire on the complete quantities of the capital we have dedicated.

John Massocca — Ladenburg Thalmann — Analyst

That is very useful.

Ben Regin — Vice President of Investments — Analyst

I’d simply add to what — hey, that is Ben, what Cath mentioned, that I feel at any given time, it could possibly be upwards of 75% of our pipeline may have some form of improvement or vital construct out element to it.

John Massocca — Ladenburg Thalmann — Analyst

Nice. That is very useful and that is it for me. Thanks very a lot.

Alan Gold — Govt Chairman

Thanks, John.

Catherine Hastings — Chief Monetary Officer

Thanks, John.

Operator

And this concludes our question-and-answer session. I want to flip the convention again over to Alan Gold, Govt chairman, for any closing remarks.

Alan Gold — Govt Chairman

Thanks. And as soon as once more, I would wish to not solely once more thank our stockholders for his or her assist, however actually for the crew right here in your unbelievable onerous work within the — in 2020 and within the first a part of yr of 2021. It has been a really difficult time frame, not just for the world and within the trade, however I feel we proceed to be very hopeful and optimistic about Revolutionary Industrial Properties and our prospects as we transfer ahead. Thanks all.

Operator

[Operator signoff]

Period: 74 minutes

Name individuals:

Brian Wolfe — Vice President, Secretary, and Common Counsel

Alan Gold — Govt Chairman

Paul Smithers — President and Chief Govt Officer

Ben Regin — Vice President of Investments — Analyst

Catherine Hastings — Chief Monetary Officer

Tom Catherwood — BTIG — Analyst

Daniel Santos — Piper Sandler — Analyst

Scott Fortune — ROTH Capital Markets — Analyst

Eric Des Lauriers — Craig-Hallum Capital Group — Analyst

John Massocca — Ladenburg Thalmann — Analyst

More IIPR analysis

All earnings call transcripts