Newlake Capital Partners, Inc. ((NLCP)) has held its Q3 earnings call. Read on for the main highlights of the call.
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NewLake Capital Partners, Inc. recently held its third-quarter earnings call, revealing a balanced sentiment among stakeholders. While the company celebrated improvements in Adjusted Funds from Operations (AFFO) and strong tenant performance, challenges in the cannabis sector and issues with rent collection and vacancies tempered the overall mood. The company’s cautious approach to new investments and risk management was a recurring theme throughout the call.
AFFO Increase
NewLake Capital Partners reported a more than 2% increase in Adjusted Funds from Operations (AFFO) compared to the third quarter of 2024. The AFFO payout ratio stood at 82%, comfortably within the target range of 80% to 90%. This improvement underscores the company’s operational efficiency and commitment to delivering value to shareholders.
Strong Tenant Performance
The earnings call highlighted robust tenant performance, with tenants representing approximately 50% of annual base rent reporting solid results. Curaleaf expanded its adjusted gross margins and generated over $100 million in cash flow year-to-date. Cresco delivered positive cash flow, reduced debt, and completed a refinancing. Trulieve achieved nearly 60% gross margins and over $60 million of free cash flow during the quarter, while Green Thumb reported $23 million of net income and $74 million of operating cash flow.
Solid Financial Position
NewLake Capital Partners generated total revenue of $12.6 million, marking a 0.3% increase year-over-year. The company declared a cash dividend of $0.43 per share, reflecting its strong financial position. With $432 million in gross real estate assets and a conservative debt profile of 1.6% debt to total gross assets, the balance sheet remains robust.
Limited Growth in Cannabis Sector
The cannabis sector continues to face challenges, including limited access to capital, slower market growth, and ongoing regulatory uncertainty. Delays in federal reform are affecting the operating environment for state-legal businesses, posing challenges for NewLake Capital Partners and its tenants.
Vacancy and Rent Collection Challenges
The company faced challenges with rent collection and vacancies, applying $505,000 of security deposits from AYR to cover August and September rent due to nonpayment. Additionally, the Fitchburg, Massachusetts property remains vacant following a tenant departure, highlighting ongoing challenges in managing property occupancy.
Forward-Looking Guidance
Looking ahead, NewLake Capital Partners emphasized its strategic focus on maintaining a strong balance sheet and sustaining dividend coverage. The company plans to support tenants through lease amendments to manage risk amid ongoing regulatory uncertainty in the cannabis sector. With $106 million in available liquidity, including cash and credit facility capacity, the company is well-positioned to navigate future challenges.
In summary, NewLake Capital Partners’ earnings call reflected a balanced sentiment, with positive developments in AFFO and tenant performance being offset by challenges in the cannabis sector and rent collection issues. The company’s strategic focus on risk management and maintaining a strong financial position will be crucial as it navigates the evolving landscape of the cannabis industry.