Good morning. Welcome to the NewLake Capital Partners fourth quarter and full year 2025 Earnings Conference Call. Today's call is being recorded. I will now turn the call over to Jack Perkins, Investor Relations.
Thank you, operator. Good morning, everyone. Joining me today are Gordon DuGan, Chairman, Anthony Coniglio, President and Chief Executive Officer, and Lisa Meyer, Chief Financial Officer. Before we begin, please note that certain statements made during today's call may be considered forward-looking under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to various risks and uncertainties. We will also reference non-GAAP measures, including FFO and AFFO. Reconciliations to the most direct comparable GAAP measures are included in our earnings release. With that, I'll turn the call over to our chairman, Gordon DuGan.
Thank you, Jack, and good morning, everyone. We are very pleased with our fourth quarter and full year 2025 performance, delivered against a backdrop that remains challenging for the Cannabist industry, with continued capital scarcity and inconsistent operator execution. For the year, we generated $51 million of revenue, $44 million of AFFO, and returned $1.72 per share in dividends from our $2.09 per share of AFFO, highlighting the cash flow generation of our business. Since our IPO in 2021, we have paid $6.86 per share in dividends. Our team remains focused on disciplined risk management, re-tenanting where necessary, and sourcing high-quality opportunities. Our measured pace of origination reflects intentional discipline as we navigate the current environment and position the company for future growth once reforms materialize.
On the policy front, the most notable development of the quarter was obviously President Trump's executive order directing the Attorney General to accelerate the process of rescheduling Cannabist from Schedule I to Schedule III. This represents an important and constructive federal signal, but one that now requires decisive follow-through from the Department of Justice. Rescheduling is critical to eliminating the burdensome Section 280E tax regime and supporting additional reform that could restore access to capital, both foundational to long-term health of this industry. Like many, we are awaiting DOJ action. Until that occurs, we will continue to operate cautiously based on today's regulatory environment and maintain our disciplined risk-aware approach. As we look into 2026, NewLake is entering the year with a strong balance sheet. We have more cash than debt.
We have no expensive preferred stock and basically the lowest leverage ratio of any REIT that I'm aware of. We expect continued Cannabist industry headwinds until reforms are ultimately completed. Against that backdrop, we will remain disciplined, waiting for the opportunities that will come as the industry progresses. Thank you for joining us, and I'll now turn the call over to Anthony.
Thank you, Gordon. Good morning, everyone. Fourth quarter results were in line with our expectations, delivering $0.51 per share of AFFO and an 85% AFFO payout ratio. Our full-year results exceeded those of 2024, which is especially notable in a market where competitors reported year-over-year declines in both revenue and AFFO. Throughout 2025, our team remained focused on mitigating risk across the portfolio, addressing vacancies, and sourcing high-quality investment opportunities. That's work that's continued into 2026. During the year, we closed two smaller transactions with our existing tenant, Cresco Labs, and we partnered with tenants Curaleaf and C 3 to optimize property performance and further reduce long-term risk in the portfolio.
During our last call, we provided details about the C3 amendment, but as a reminder that higher than expected construction costs reduced the attractiveness of the Hartford project, and we worked collaboratively with our tenant to structure a transaction providing a better risk reward for our shareholders. Overall, our portfolio remains in solid position. Our top three tenants, Curaleaf, Trulieve, and Cresco, which together represent more than 50% of our annualized based rent, each reported strong 2025 results, including positive operating cash flow. Curaleaf generated $1.3 billion in net revenue, delivered a 50% adjusted gross margin, and produced $90 million of free cash flow. Trulieve continued to demonstrate industry-leading profitability with 60% gross margins and $230 million of free cash flow.
Cresco reported sequential improvements in gross margins to 52%, extended their debt maturities to 2030, and generated over $70 million in operating cash flow during the year. Having said that, the broader Cannabist landscape remains challenging without federal reform, and we continue to proactively manage risk while seeking opportunities to strengthen the portfolio. We're also closely monitoring developments at The Cannabist, which remains in forbearance with its creditors following a debt default. In the first quarter of 2026, The Cannabist completed the sale of its San Diego operations, where we lease a dispensary. The new operator, Walgreens, has taken over the location, and we are pleased to welcome them to our tenant roster. In connection with the transition, we completed a lease amendment under which Walgreens assumed full operational control of the property, and we secured a five-year lease extension.
This amendment underscores the property's strategic value within the Cannabist ecosystem, enhances long-term cash visibility, and reflects our disciplined, proactive approach to asset management in the portfolio. The transition also reduces our exposure to the Cannabist from 9% - 8% of annualized based rent. Turning to policy, while federal momentum is encouraging, we remain appropriately cautious until a final rule rescheduling Cannabist is published. Eliminating 280E through a move to Schedule III would meaningfully improve long-term cash flow fundamentals for our tenants and, in our view, pave the way for additional reforms such as the SAFER Banking Act and broader state-level expansion. In addition, shortly after our last earnings call, the president signed a continuing resolution that closed the long-standing hemp loophole from the 2018 Farm Bill. This loophole enabled a nationwide market for intoxicating hemp-derived THC products outside state-regulated systems.
We believe this unregulated channel siphoned revenue from the state-licensed operators. If fully implemented as scheduled on November 12th of this year, the ban on hemp-derived THC could help stabilize pricing and support operator revenue growth in the second half of 2026 and into 2027. The combination of these reforms, rescheduling and the elimination of hemp-derived THC, once implemented, has the potential to meaningfully improve industry fundamentals and by extension, our tenant quality. Importantly, we're not taking these reforms for granted, nor are we adjusting underwriting or capital allocation based on anticipated policy outcomes. With respect to our vacant properties, we continue to advance retenanting efforts. Interest remains healthy, and we will update investors as developments become tangible. Our focus remains on thoughtful, risk-adjusted decisions designed to protect long-term shareholder value. With that, I'll turn it over to Lisa.
Thank you, Anthony. For the full year of 2025, our portfolio generated total revenue of $51.1 million, representing a modest 1.9% increase from $50.1 million for the full year of 2024. The key factors contributing to this revenue growth include rental income from the 2025 acquisition of two Ohio dispensaries, a full year of rent generated from a property that we acquired in 2024 for $4 million, a full year of rent generated from funded improvement allowances during 2024 of $15.1 million, and annual rent escalators that consistently boost our revenue. The increase in revenue was partially offset by the impact of vacancies at two properties previously leased to Ayr and one property previously leased to Revolutionary Clinics.
As a result of this modest revenue growth, we experienced a corresponding increase in our net income and AFFO. Net income attributable to common stockholders for the full year of 2025 totaled $26.3 million compared to $26.1 million for the full year of 2024. AFFO for the full year of 2025 totaled $43.8 million or $2.09 per share, reflecting a 0.3% year-over-year increase. Moving on to the fourth quarter of 2025. Total revenue was $12.3 million, reflecting a modest decrease of approximately 1.4% year-over-year. This decrease was primarily driven by vacancies previously mentioned.
During the fourth quarter of 2025, we applied the remaining Ayr security deposit of approximately $408,000 to partially offset unpaid rent amounts. The lower rental income and additional property carrying costs drove corresponding declines in our results for the quarter. Net income attributable to common stock for the three months ended December 31st, 2025 totaled $6 million or $0.29 per share. AFFO for the fourth quarter was $10.6 million or $0.51 per share, representing a 3% decline compared to the same period in 2024. On December 15th, 2025, the company declared a fourth-quarter cash dividend of $0.43 per share, which was paid on January 15th, 2026. This dividend represents an AFFO payout ratio of 85%.
For the full year of 2025, our aggregate dividend totals $1.72 per share, reflecting an AFFO payout ratio of 82%. Most recently, our board of directors declared the first quarter 2026 cash dividend of $0.43 per share. The dividend is payable on April 15th, 2026 to shareholders of record as of March 31st, 2026. As of December 31st, 2025, our balance sheet remains strong, with $433 million in gross real estate assets and only $7.6 million in outstanding debt. Our leverage remains exceptionally low at 1.6% debt to total gross assets and a debt service coverage ratio of approximately 78 times. We have no debt maturities until May of 2027.
Our liquidity is solid with $106.3 million available, including $23.9 million in cash and $82.4 million in untapped capacity under the revolving credit facility. With that, I will turn the call over to the operator. Operator, please open the line for questions.
Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is from Pablo Zuanic with Zuanic & Associates.
Thank you and good morning, everyone. Just following up on the comment on the Ayr security deposit that was applied to rental in the fourth quarter. You know, just very basic math question, trying to model 1Q. All else equal, what would be the impact on the Ayr side? Because, you still applied some deposits in escrow, I think, to rental income in 4Q. If you can explain that, please. Quantify that. Thanks.
Yeah. The $408,000 represents a little over a month and a half of rent. I guess it's approximately. Yeah.
That's it. Just the $408,000.
Yeah.
Okay. That's it. That, I mean, that's all else equal, and I know that a lot of things can change, but at least, based on what we know right now, that would be the major change when we try to model 1Q, right? Will there be any expense items that have cadence or that are different from 4Q? Again, just it's a, it's a basic modeling question to start. Thanks.
Yeah. No, it would just be the $408,000. We already have the property carrying costs on balance sheet, I mean, on the income statement, those will just continue to roll forward.
Okay. Thank you. Anthony, you know, in the recent IIPR call, they sounded quite, I guess, positive or bullish on their ability to re-tenant facilities. You know, I don't know if you share those comments. From my point of view, it's taking a while to re-tenant the facility in Massachusetts from Rev Clinics. I'm not sure where we are with re-tenanting the two Ayr properties in Pennsylvania and Nevada. You know, it's a two part question. Do you echo the positive sentiment from IIPR? Then maybe just more color in terms of when and how you can re-tenant to Cannabist operators or to people outside the industry. Thank you.
Yeah. Thank you for the question, Pablo. We've been at this now over seven years. We talk to a lot of operators. We're very cautious about this industry. Given some of the stuff we talked about in the prepared remarks, the fact that this industry lacks access to regular way capital, the onerous Section 280E taxation on the industry and how that limits capital flows to the companies. While we have seen a modest pickup in interest in the vacant properties, we're just gonna continue to be very cautious. I would say specifically about Massachusetts, there are some structural changes to the state regulatory approach, such as increasing the cap on dispensaries that any one operator could own. That is part of driving some renewed interest in the sector.
While we're having some activity around our properties, we won't be announcing LOIs. We're only going to announce actual lease activity. While I'm cautiously optimistic, we're certainly not gonna strike the tone here at NewLake that we think everything is great and we're gonna be able to backfill these properties with no problem. That's not our position.
Thank you.
It-It-
Oh, go ahead.
I would just add to that, Anthony, that I agree with everything, you said. We, we are seeing a modest pickup in activity and operator interest in expansion. We do have activity on all three sites. It's, you know, it's tough getting a lease across the line on any of these. We're, as Anthony said, I think we're very appropriately cautious about announcing anything ahead of getting something done.
Thank you. That's good color. I appreciate it. Look, then just moving on to Cannabist and Acreage, again, I know there's only, you know, so much you can share about these companies. I realize you have access to data that is not public, so you cannot comment on that. In the case of Cannabist, you talked about the California property, so great. That's been with the new operator. Can you comment on the other Cannabist operations? I mean, cultivation dispensary in Illinois, cultivation dispensary in Massachusetts. Are they operational? I guess as an analyst, I should know that, but I'm not. Are they operational? What color can you share, if not from the operator or a bit more at the state level? The same question regarding Acreage cultivation in Massachusetts and Pennsylvania. Thanks.
Whatever color you can share, Anthony. I mean, from my point of view-
Yeah, no.
Those are two regions you have to at least
From what we know.
That's a good question.
From what we know... Yeah. From what we know, all of those properties are operational. Is it possible they closed down yesterday? It is. I'm only limited on what we know. We don't run the properties. It's our belief that they're all currently operational. Obviously, Illinois is a better state to operate in, for those familiar with the industry, than it would be, say, for Massachusetts. We take some comfort that Acreage is owned by a very large Canadian company, albeit having a ring-fence structure. That transaction closed only a little over a year ago, and I think Canopy sees meaningful opportunity long term in owning and maximizing the value from a U.S.-based MSO like Acreage.
I think you could look at the first quarter dividend announcement, and also connected with that, if we had something material to tell you, we take transparency with our investors very importantly, and so we would have announced something. As we stand here, all of our tenants are in compliance with their leases. Nobody's in a default position when we sit here today.
Yeah.
Thank you.
Maybe just a little extra color on that. I would. You picked on exactly the two right tenants to focus on. You know, I'd be more worried about Cannabist and Acreage. We'll just have to see, you know, how they both play out. You know, Acreage has been prompt in paying rent, and Cannabist , I think, similarly up to now. They have defaulted. They're in forbearance on their senior debt. You know, we're watching that very closely.
Yeah. All right. Thank you. That's, that's great color again. Just moving on, in terms of the Connecticut property that's held for sale in your balance sheet, C3, I think if I read correctly in the 10-K, if that property is sold above your book value, that goes to C3. If it's sold below book value, C3 is responsible for that. Can you clarify that and I mean, and correct me if I'm wrong in my interpretation?
You're correct, I'd provide an amplification around if it's sold above market value, there is a corridor of value where C3 participates, so they can recover some of their very significant investment into the property, but beyond that corridor, premiums on the property come to NewLake. You are also correct, and I would reiterate that the extent that there's even $0.01 below our basis, we are reimbursed 100%.
Right. What happens if, if the property is not sold for a year or two? I mean, the agreement remains in place, I suppose, right?
Yeah. They continue to be a tenant, and they continue to pay rent while we're seeking a sale of the property.
Okay. Sorry, I didn't realize that. That property, although it's held for sale at the moment, it is paying rental and it's current? Yes.
Correct. Yes.
Okay. Thank you. Just moving on and apologies if there's someone else on the Q&A line here. you know, in the case of IIPR, in their conference call, they disclosed that they've been served by the SEC, that there's a video. I don't know what that exact legal terms are being or investigation. you know, when I hear things like that, I wonder if there's any read-across for the rest of the industry, for other sale-leaseback operators. I mean, obviously, if you had been served, you would probably issue a press release on that. you know, in my opinion, when there's these type of investigations, they are not just company specific, but they can be looking at the industry and practices in the industry.
There could be some minimal risk, read-across for NewLake. Again, please correct me if I'm wrong.
I don't believe so at all. Let me be clear. We are not under investigation. We have not received any SEC inquiries. We do not have any subpoenas from the SEC. We take transparency and investor communication extremely seriously, as you could tell from the way we've been doing this for five years. We try to be very upfront about issues in the portfolio, about the condition of our tenants. I don't know, Pablo, that there really is a read-through from this. If you look at the disclosure, and that's really all that any of us have to go on right now. If you look at the disclosure, it looks like it was an outgrowth of their class action lawsuits that were pertaining to the transparency of the disclosures of the company in need. We don't have any class action lawsuits.
We've never been accused of not being transparent in our communications with investors. I would not think that there is a read-through to other sale-leaseback providers.
Okay. Thank you. The very last question, I know you touched on the policy front, we know that, you know, it's uncertain, although we're all positive at the federal level and state level. Can you give more color in terms of your conversations with operators? Are people trying to get ahead of Virginia or Pennsylvania, and that could lead to discussions that are more positive and constructive right now in terms of, you know, future opportunities for NewLake? And by the same token, like you said, with rescheduling the credit quality of your operators tenants improves more business. Is all this news flow translating into more active conversations with the operators out there or not really yet? Am I putting too much of a positive spin on this right now?
Thank you. That's it.
It is, but to a small extent. I would say that similar to what we saw in Florida before the ballot initiative, there were some operators that were building out in anticipation. A large majority were awaiting the actual results. I'd say in Pennsylvania, it's a similar thing. We've heard of a couple who are thinking about and looking forward to some expansion. Others, and many of them are not. So it's a mixed bag. I would say that the level of activity for us has increased in terms of looking at new deals, has increased in the first quarter from the fourth quarter. I don't wanna give you the impression that it's up tenfold, that it's a massive pipeline. It certainly isn't that.
Quite frankly, is a good thing because it tells me that this industry is remaining disciplined about its CapEx obligations. Even though we fund for real estate on any of these projects, there's a meaningful amount of equity investment that an operator needs to put into a cultivation facility or a dispensary in terms of equipment, people, training, and other various expenses to get these facilities up and running. I think people are being generally judicious about not leaning too hard into the what can happen. They're doing their research, having the conversations, but I think being appropriately cautious.
Yeah. I would say I think it is fair to have a more positive outlook on that. You know, we're seeing more operator interest in places like Massachusetts. Virginia, hopefully is close to some positive momentum. Pennsylvania, you mentioned. You know, yeah, it feels like for the first time in a while, the operators are modestly better and more optimistic. You know, it's really been the industry's been tough. You know, it does feel like some green shoots are appearing.
All right. Thank you. That's very helpful. Again, I would say congratulations to the team for having maintained the DCF throughout in a very tough environment. Thank you.
Thank you, Pablo.
Thank you.
Our next question is from Craig Kucera with Lucid Capital.
Yeah. Hey, good morning, guys.
Sorry, Craig. You had to wait so long.
Those were good questions, though. That was, that was useful.
Yeah, they were. Excellent.
Yeah, absolutely. I've got a few follow-up questions on Cannabist . I guess, you know, you were able to get the California asset re-tenanted without any, you know, any real downtime, obviously. Were the lease terms... I know you mentioned it's a five-year lease, but as far as the rent, was that, you know, more or less in line with what Cannabist was paying?
One clarification. It's not a five-year lease, it's a five-year lease extension.
Oh, extension. Okay.
That was an extension. We added duration to that lease, generating, you know, from an NPV perspective, as you know, we created value by getting that lease extension.
Anthony, what was the old lease term? What was the old lease term?
We had about six years remaining.
Okay. Yeah, we pushed it out to 11, obviously, or roughly, you know.
Yep.
And rent-
Cannabist -
Rent. Yeah, go ahead. Sorry, Anthony.
No, no. Go ahead, Gordon.
No, no. Go.
Rent was not adjusted.
Okay. That's helpful. Of the remaining four assets, that Cannabist has leased, can you give us a split of how much is coming from Massachusetts versus Illinois?
It's about 50/50.
Okay.
In Illinois, we have a dispensary and a cultivation, and we have the same in Massachusetts.
Right. Okay. Do those leases kind of have your standard, you know, call it six-month rent deposit affiliated with them?
The deposits vary on those leases. It's not six months, it varies. Sometimes you have a little bit more on cultivation, a little bit less on dispensary. If those go into default and we have an announcement, we'll talk about the security deposits associated with those.
Okay. That's helpful. Just one more on Cannabist . I guess, can you give us a sense of the rent coverage of those assets? Are those kind of in line with your... I think you typically have maybe 3.5 on the cultivation, nine on the dispensary. Are they in that kind of ballpark range?
We don't disclose specific property-level, asset-by-asset coverages. The way I'd answer your question is by focusing on the state's operating environment. I think what you would find is that Illinois, given the size of that market, given the more limited license nature of that market, has a better operating profile overall for Cannabist operators in the state versus, say, a Massachusetts. We've spoken many times over the last couple of years about the difficulties in Massachusetts, primarily driven by the lack of ability to become vertical with the cap at three on dispensaries, but also the proliferation of cultivation licenses that occurred over the last four years. In fact, the state has taken notice, and recently at a February regulatory commission hearing, the CCC was requesting input on a potential moratorium for new cultivation licenses.
That's part of what's driving some of this increase in interest in Massachusetts, because with the moratorium, it could make the state dynamics better and provide a better floor support for wholesale revenue there. Couple that with the increase in the cap on dispensary ownership, where the legislature has approved a bill that would let you go to six. The House has approved one that lets you go to four, and they're in reconciliation right now. Those are some of the tailwinds that people are feeling a little bit better about Massachusetts today. Coming back to your question, Illinois is an easier market to operate in than Massachusetts.
Right. Right. That, that's helpful. Changing gears, you know, last quarter, you mentioned that you might look at expanding outside of the Cannabist sector. This, this sort of improving legislative environment momentum, maybe put that on pause, or are you still evaluating maybe an expansion outside of Cannabist ?
We continue to evaluate all opportunities to deliver growth for shareholders. Yes, during the quarter, we were evaluating non- Cannabist opportunities. When we think there's an opportunity for good risk reward, we'll present it to our investment committee and ultimately the board for approval.
Yeah, if I might just add to that, I think there is some subtle positive momentum that would raise the bar on non- Cannabist opportunities, given some of the positive momentum and, you know, almost without exception, we still find the highest app rates in the net lease sector, in the Cannabist sector. You know, it's a tough bar. Most of the alternatives that we've looked at, some of them are, we think, attractive, but they're lower return alternatives. And that's always been sort of the premise of the Cannabist sale leaseback industry. You know, very high returns, higher risk. And I think we've navigated that very well.
It, it's still the bar, the positive momentum from the regulatory standpoint has probably raised the bar in a, in a subtle way for doing something outside of it.
I know, that makes sense. Just one more for me. You know, you mentioned the strength of the public companies that represent, I think, about 50% of your portfolio. Obviously we can look at that and there's a lot of visibility into their operations. Can you talk about your private tenants? Are you seeing any degradation in four wall coverage or any concerns there?
No. You point out we can't discuss their specific profitability, but they are performing as expected. That's not a negative. They are performing well. We have some private operators that have profit and cash flow profiles that people in the industry would love to have that financial performance. We are, you know, everybody's performing in line with our expectations.
Okay, thanks. That's it for me.
Thank you. There are no further questions at this time. I'd like to hand the floor back over to Anthony Coniglio for any closing comments.
Great. Thank you all for joining us today. We appreciate your continued support, and we look forward to updating you in the months ahead. Have a nice weekend.