EDGAR 10-K Filing

Company CIK: 1854964
Filing Year: 2024
Filename: 1854964_10-K_2024_0001854964-24-000007.json

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ITEM 1. BUSINESS
Item 1. Business.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Our Properties
We seek to acquire specialized real estate assets used for cultivation and processing of cannabis as well as retail dispensaries that are strategic profit centers for our tenants and are well positioned for the regulatory evolution of the industry. These licensed facilities are critical components of the cannabis industry, particularly in limited-license jurisdictions. As of December 31, 2023, we owned 31 properties comprised of 17 dispensaries and 14 cultivation facilities that are 100% leased to state-licensed cannabis operators, with a weighted average remaining lease term of 14.3 years. Based on invested capital, as of December 31, 2023, our portfolio is comprised of approximately 90.8% cultivation facilities and 9.2% dispensaries.
As of December 31, 2023, we have aggregate unfunded commitments to invest $14.4 million for the development and improvement of our existing cultivation facilities in Arizona, Missouri and Pennsylvania. We define these tenant improvement commitments as a commitment pursuant to our lease with the tenant to fund alterations, additions or improvements to the premises. Our leases are generally structured to disburse capital over specified periods of time. The leases also generally contain certain provisions that require tenants to pay rent on the full amount of capital under each lease, whether or not disbursed.
Existing Portfolio. The table below sets forth our property portfolio as of December 31, 2023 (in thousands, except square feet):
Property Type State Tenant(1)
Rentable Square Feet(2)
Investment in Real Estate(3)
Real Estate Construction in Progress Total Real Estate In-Place Lease Intangible Assets(4)
Total Investment
Cultivation Florida Curaleaf 417,350 $ 75,983 $ - $ 75,983 $ - $ 75,983
Cultivation Pennsylvania Trulieve 144,602 44,270 - 44,270 12,331 56,601
Cultivation Illinois Cresco 222,455 50,732 - 50,732 - 50,732
Cultivation Massachusetts Revolutionary Clinics 145,852 42,860 - 42,860 - 42,860 (5)
Cultivation Pennsylvania Calypso 99,200 30,000 2,013 32,013 - 32,013
Cultivation Missouri Organic Remedies 81,808 21,101 - 21,101 - 21,101
Cultivation Massachusetts Columbia Care 38,890 13,826 - 13,826 4,120 17,946
Cultivation Pennsylvania AYR 38,031 14,529 - 14,529 - 14,529
Cultivation Illinois Columbia Care 32,802 11,361 - 11,361 3,106 14,467
Cultivation Nevada AYR 56,536 13,579 - 13,579 - 13,579
Cultivation Arizona Mint 100,758 2,400 14,822 17,222 - 17,222
Cultivation Missouri Bloom Medicinals 94,570 12,867 7,323 20,190 - 20,190
Cultivation Pennsylvania Acreage 30,625 10,161 - 10,161 - 10,161
Cultivation Massachusetts Acreage 38,380 9,791 - 9,791 - 9,791
Dispensary California Columbia Care 2,470 3,774 - 3,774 1,071 4,845
Dispensary Illinois Grassroots 5,040 3,362 - 3,362 575 3,937
Dispensary Ohio Grassroots 7,200 3,353 - 3,353 582 3,935
Dispensary Florida Grassroots 11,181 2,932 - 2,932 441 3,373
Dispensary Massachusetts Columbia Care 4,290 2,320 - 2,320 373 2,693
Dispensary Massachusetts PharmaCann 11,116 2,112 - 2,112 363 2,475
Dispensary Pennsylvania Grassroots 3,500 2,227 - 2,227 369 2,596
Dispensary North Dakota Grassroots 4,590 2,174 - 2,174 355 2,529
Dispensary Arkansas Greenlight (6)
7,592 2,157 - 2,157 320 2,477
Dispensary Pennsylvania Grassroots 1,968 1,918 - 1,918 320 2,238
Dispensary Illinois Grassroots 6,100 1,734 - 1,734 257 1,991
Dispensary Pennsylvania PharmaCann 3,481 1,315 - 1,315 256 1,571
Dispensary Ohio PharmaCann 3,735 1,550 - 1,550 - 1,550
Dispensary Illinois Columbia Care 4,736 1,215 - 1,215 206 1,421
Dispensary Illinois Grassroots 4,200 1,024 - 1,024 178 1,202
Dispensary Connecticut Acreage 2,872 929 - 929 - 929
Dispensary Illinois Grassroots 1,851 594 - 594 98 692
Total 1,627,781 $ 388,150 $ 24,158 $ 412,308 $ 25,321 $ 437,629
(1) Lease is with a subsidiary of this entity, for which this entity or an affiliate is a guarantor.
(2) Includes estimated rentable square feet at completion of construction.
(3) Includes the purchase price (and in some cases, transaction costs that have been capitalized into the purchase price) and tenant improvement commitments funded and placed in service, if any, as of December 31, 2023. Excludes tenant improvement commitments not funded as of December 31, 2023.
(4) Represents gross In-Place Intangibles at acquisition. Does not include accumulated amortization.
(5) Includes approximately $40.0 million in cash and 88,200 OP Units issued in connection with the purchase of the property.
(6) GL Partners, Inc. (dba Greenlight), acquired the tenant and was added as a guarantor. Curaleaf remains as an additional guarantor subject to certain conditions in the lease agreement.
The following table sets forth a summary of the lease expirations for leases in place as of December 31, 2023 for each of the ten full calendar years beginning January 1, 2024. The information set forth in the table assumes that tenants exercise no renewal options (square footage and annualized base rent in thousands).
Year of Lease Expiration Number of
Leases
Expiring Square
Footage of
Expiring % of
Portfolio
Net
Rentable
Square Feet Annualized
Base Rent(1)
% of
Portfolio
Annualized
Base Rent Annualized
Base Rent per
Leased Square
Foot(2)
2024 - - - % $ - - % $ -
2025 - - - % - - % -
2026 - - - % - - % -
2027 - - - % - - % -
2028 - - - % - - % -
2029 3 11 0.7 % 856 1.8 % 74.47
2030 - - - % - - % -
2031 2 15 0.9 % 400 0.9 % 27.38
2032 8 44 2.7 % 1,687 3.5 % 38.69
2033 2 10 0.6 % 571 1.2 % 59.29
Thereafter 16 1,548 95.1 % 44,274 92.7 % 28.59
Total/Weighted Average 31 1,628 100.0 % $ 47,788 100.0 % $ 29.36
(1) Annualized base rent is calculated by multiplying (i) rental payments (defined as cash rents without regard to rental abatements or reimbursables) for the month ended December 31, 2023, by (ii) 12.
(2) Annualized base rent per leased square foot is calculated by dividing (i) annualized base rent (without regard to rental abatements or reimbursables) by (ii) net rentable square feet. Amounts may not recalculate due to rounding.
We target companies that have successfully navigated complex state regulation and fulfilled rigorous state-licensing requirements. We believe we have been diligent in partnering with a diverse tenant base of experienced operators in limited licensed jurisdictions that have strong management teams. Our tenants have generally demonstrated access to capital, which is critical to continuing to execute on their respective business plans.
As of December 31, 2023, all of our revenues were derived from 13 tenants. The following table sets forth the tenants in our property portfolio as of December 31, 2023 (dollars in thousands). All of our leases include a parent or other affiliate guarantee.
Tenant(1)
Total Investment(2)
Number of
Leases Percentage of Annualized Rental Income(3)
Curaleaf $ 98,477 10 23.8 %
Cresco 50,732 1 13.6 %
Trulieve 56,601 1 11.6 %
Revolutionary Clinics 42,860 1 6.0 %
Columbia Care 41,373 5 8.6 %
Calypso 32,013 1 7.5 %
Acreage 20,880 3 6.9 %
Ayr Wellness 28,107 2 5.9 %
Organic Remedies 21,101 1 5.1 %
Mint 17,222 1 4.9 %
Bloom Medicinals 20,190 1 4.4 %
PharmaCann 5,595 3 1.2 %
Greenlight(4)
2,478 1 0.5 %
Total $ 437,629 31 100.0 %
(1) Lease may be with a subsidiary of this entity, for which this entity or an affiliate is a guarantor.
(2) Includes the purchase price (and in some cases, transaction costs that have been capitalized into the purchase price), gross In-Place Lease Intangible Assets and tenant improvement commitments funded, if any, as of December 31, 2023. Excludes tenant improvement commitments not funded as of December 31, 2023.
(3) Annualized Rental Income represents the annualized monthly base rent of executed leases as of December 31, 2023.
(4) GL Partners, Inc. (dba Greenlight), acquired the tenant and was added as a guarantor. Curaleaf remains as an additional guarantor subject to certain conditions in the lease agreement.
Curaleaf
We own nine dispensaries and one cultivation facility that are leased to subsidiaries of Curaleaf, which is, or an affiliate is, the corporate guarantor. Curaleaf is publicly-traded on the CSE and OTC markets under the symbols CURA and CURLF, respectively. Curaleaf’s filings, including their financial information, are electronically available at www.sec.gov and from the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com, the Canadian equivalent of the SEC electronic document gathering and retrieval system.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 2023, we were not a party to any proceedings. From time to time, we may in the future be a party to various claims and routine litigation arising in the ordinary course of business.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY
Not Applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock is listed on the OTCQX® Best Market operated by the OTC Markets Group, Inc., under the symbol "NLCP".
Dividend Information
In accordance with the requirements for maintaining REIT status, we intend to distribute to stockholders aggregate dividends equaling at least 90% of our REIT taxable income (determined without regard to the deduction of dividends paid and by excluding any net capital gain) for each taxable year and will endeavor to distribute at least 100% of our REIT taxable income so as not to be subject to federal income tax. Distributions of economic profits could be classified as return of capital due to differences between book and tax accounting rules. We may make additional returns of capital when the potential risk-adjusted returns from new investments fail to exceed our cost of capital. Subject to the limitations of applicable securities and state corporation laws, we can return capital by making purchases of our own capital stock or through payment of dividends.
Shareholder Information
As of December 31, 2023, there were approximately 250 holders of record of our common stock. This figure does not represent the actual number of beneficial owners of our common stock because shares of our common stock are frequently held in “street name” by securities dealers and others for the benefit of beneficial owners who may vote the shares.
Sales of Unregistered Securities
None.
Use of Proceeds from Sales of Registered Securities
None.
Purchase of Equity Securities by the Issuer
On November 7, 2022, the board of directors of the Company authorized a stock repurchase program of up to $10.0 million of its common stock through December 31, 2023. On September 15, 2023, the board of directors authorized an amendment to the stock repurchase program for the repurchase of up to an additional $10.0 million of outstanding common stock and extended the program through December 31, 2024. Purchases made pursuant to the stock repurchase program will be made in the open market, in privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b-18 of the Securities and Exchange Act of 1934, as amended. The authorization of the stock repurchase program does not obligate the Company to acquire any particular amount of common stock. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The stock repurchase program may be suspended or discontinued by us at any time and without prior notice.
As of December 31, 2023, pursuant to the stock repurchase program, the Company acquired 908,394 shares of common stock with an average price, including commissions, of $13.00, totaling approximately $11.8 million. The remaining availability under the stock repurchase program as of December 31, 2023 was approximately $8.2 million.
The following is a summary of common shares repurchased:
Period Total Number Of Common Shares Purchased(1)
Average Price Paid Per Common Share(2)
Total Number Of Common Shares Purchased As Part Of Publicly Announced Plans Or Programs(1)
Approximate Dollar Value Of Common Shares That May Yet Be Purchased Under the Plan Or Programs
October 1, 2023 - October 31, 2023 - - - $ 10,746,577
November 1, 2023 - November 30, 2023 - - - $ 10,746,577
December 1, 2023 - December 31, 2023 197,229 (3)
$ 13.10 197,229 (3)
$ 8,193,910
Total for the three months ended December 31, 2023 197,229 $ 13.10 197,229
(1) Total shares purchased includes shares of common stock owned by certain of our employees which have been surrendered by them to satisfy their tax and other compensation related withholdings associated with the vesting of restricted stock units issued under the 2021 Equity Incentive Plan.
(2) Average price per common share includes commissions paid in connection with the stock repurchased under the stock repurchase program. This price is not adjusted for the price of surrendered shares.
(3) Includes 2,666 shares of common stock surrendered by employees to satisfy taxes and other compensation related withholdings associated with the vesting of restricted stock units issued under the 2021 Equity Incentive Plan.
Securities Authorized for Issuance Under Equity Compensation Plan
For information about our equity compensation plans and other related stockholder matters see Item 12 of Part III of this Annual Report on Form 10-K.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RESERVED.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.
This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Cautionary Statement Regarding Forward-Looking Statements" in this Annual Report on Form 10-K. You should review the disclosure under the heading "Risk Factors" in this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
NewLake Capital Partners, Inc., (the “Company,” "we," "our," "us,") is an internally managed REIT and a leading provider of real estate capital to state-licensed cannabis operators primarily through sale-leaseback transactions, third-party purchases and funding for build-to-suit projects. Our properties are leased to single tenants on a long-term, triple-net basis, which obligates the tenant for the ongoing expenses of the leased property, in addition to its rent obligations.
We were incorporated in Maryland on April 19, 2019. We conduct our business through a traditional umbrella partnership REIT structure, in which properties are owned by an operating partnership, directly or through subsidiaries. We are the sole general partner of our operating partnership and currently own approximately 98% of the OP Units. We have elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our short taxable year ended December 31, 2019 and intend to operate our business so as to continue to qualify as a REIT.
As of December 31, 2023, we owned a geographically diversified portfolio consisting of 31 properties across 12 states with 13 tenants, comprised of 17 dispensaries and 14 cultivation facilities.
Emerging Growth Company
We have elected to be an emerging growth company, as defined in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company, among other things:
•We are exempt from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;
•We are permitted to provide less extensive disclosure about our executive compensation arrangements; and
•We are not required to give our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements.
We have elected to use an extended transition period for complying with new or revised accounting standards.
We may take advantage of the other provisions for up to five years or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company upon the earliest to occur of: (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.2 billion (subject to adjustment for inflation), (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period or (iv) the last day of the fiscal year following the fifth anniversary of our initial public offering.
Factors Impacting Our Operating Results
Our results of operations are affected by a number of factors and depend on the rental income we receive from the properties that we own, interest income we receive from the loans we originate, the timing of lease expirations, general market conditions, the regulatory environment in the cannabis industry, and the competitive environment for real estate assets that support the cannabis industry.
Rental Income
We generate rental income from our real estate properties that we own and from real estate properties that we expect to acquire in the future. The amount of rental income depends upon a number of factors, including:
•Our ability to enter into new leases at market value rents inclusive of annual rent increases; and
•Rent collection, which primarily relates to each of our current and future tenant’s or guarantor’s financial condition and ability to make rent payments to us on time.
For the year ended December 31, 2023, all of our rental income was derived from triple-net leases to 13 tenants. Our leases include a parent or other affiliate guarantee and obligate the tenant for all the ongoing expenses of a property, including real estate taxes, insurance, maintenance and utilities. Our rental income is, therefore, dependent on our tenants (and related guarantors) ability to meet their respective obligations to us. Our tenants operate in the cannabis industry. Changes in current state or local laws in the cannabis industry may impair our ability to renew or re-lease properties and the ability of our tenants to fulfill their lease obligations and could materially and adversely affect our ability to maintain or increase rental rates for our properties. Further, because the regulated cannabis industry is a relatively new space, some of our existing tenants have limited operating histories and may be more susceptible to payment and other lease defaults. Thus, our operating results will be significantly impacted by the ability of our tenants to achieve and sustain positive financial results.
Financial Performance and Condition of Our Tenants
We have 31 properties, leased to 13 tenants. All of our tenants are performing under their lease agreements as of December 31, 2023.
Revolutionary Clinics
During the year ended December 31, 2023, we had one tenant, Revolutionary Clinics, Inc., (“Revolutionary Clinics”), who did not pay contractual rent commencing on January 1, 2023 on our cultivation facility located in Massachusetts. We held a security deposit of approximately three months of the base year contractual rent, of which we applied $315 thousand each quarter, or approximately $1.3 million towards the outstanding rent during 2023. As of December 31, 2023, the security deposit had been fully applied.
On October 27, 2023, the Company entered into a lease amendment and forbearance agreement (the "Agreements”) for its existing lease agreement with Revolutionary Clinics. Under the terms of the Agreements, the lease term was extended by five years and we received approximately $480 thousand of unpaid rent which was recognized as rental income in the fourth quarter of 2023. Under the terms of the Agreements, the rental payments have annual fixed escalations and may escalate quarterly as the tenant’s business achieves certain gross revenue metrics based on the trailing twelve months performance. Under the forbearance agreement, the Company provided forbearance for approximately $2.0 million of back rental income, fees and reimbursable expenses. Lastly, the Company received warrants which if exercised will entitle the Company to receive 26,058 of common units in Revolutionary Clinics.
Calypso
On November 15, 2023, our tenant, Calypso Enterprises (“Calypso”) was sold by its parent Hero Diversified Associates, Inc. (“HDAI”) to Canvas Acquisition Corporation, LLC (“Canvas”) an independent third party, whose parent replaced HDAI as the lease guarantor. In connection with the sale the Company, and Canvas agreed to certain revised terms through a lease amendment. Under the terms of the amendment, we reduced the rent payments, provided up to $3.0 million in tenant improvements allowance, provided an option to purchase the property at our cost basis, (inclusive of funding the $3.0 million of tenant improvements), and received six-months of rent escrow, among other provisions. The purchase option is exercisable from December 1, 2024 through December 31, 2025, with notice to be delivered no later than December 31, 2024. In the event the purchase option is exercised prior to December 31, 2025, we would receive a make-whole payment for rent through December 31, 2025. As compensation for providing such lease modifications, HDAI agreed to pay us approximately $1.5 million of additional rent to be paid in 5 installments over 18 months from November 15, 2023.
See Item 1A. “Risk Factors” of this Annual Report on Form 10-K for additional factors that may impact our operating results.
Market Conditions
During the year ended December 31, 2023, financial markets were volatile, reflecting heightened geopolitical risks and material tightening of financial conditions since the U.S. Federal Reserve began increasing interest rates in the spring of 2022. The tense regional banking crisis was short-lived as the banking system remained steady. Central banks continued to shrink their balance sheets during the latter half of the year, reducing market liquidity. There continues to be uncertainty regarding monetary policy and inflation. While most concerns about an economic recession have been pushed to the second half of 2024, or later, and while inflation has trended downward, there are concerns that inflation may still prove stickier than the market anticipates, creating risks to corporate profit margins. The Federal Reserve left rates unchanged so far in 2024, it has been signaling higher rates for longer and will not consider a rate cut as it continues to fight inflation, with borrowing costs at the highest level in 22 years. The increasing cost of capital is pressuring many U.S. Corporations. U.S. corporate defaults increased in 2023 compared to 2022. These current market conditions have increased the cost of capital and reduced the availability of capital for us and our tenants.
Inflation and Supply Chain Constraints
Inflation continues to trend higher than in prior periods, which may be negatively impacting some of our tenants. This inflation has impacted costs for labor and production inputs for regulated cannabis operators, in addition to increasing costs of construction for development and redevelopment projections. Ongoing labor shortages with global supply chain issues, and geopolitical issues, also continue to adversely impact costs and timing for completion of these development and
redevelopment projects, which may result in cost overruns and delays in commencing operations on certain of our tenants' projects.
Competitive Environment
We face competition from a diverse mix of market participants, including but not limited to, other companies with similar business models, independent investors, hedge funds and other real estate investors, mortgage REITs, hard money lenders, as well as would-be tenants and cannabis operators themselves, all of whom may compete with us in our efforts to acquire real estate zoned for cannabis cultivation, production or dispensary operations. Competition from others may diminish our opportunities to acquire a desired property on favorable terms or at all. In addition, this competition may put pressure on us to reduce the rental rates below those that we expect to charge for the properties that we own and expect to acquire, which would adversely affect our financial results.
Critical Accounting Estimates
In accordance with GAAP, our consolidated financial statements require the use of estimates and assumptions that involve the exercise of judgment and use of assumptions. Our most critical accounting estimates will involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. Actual results could differ materially from those estimates and assumptions.
We believe that all of the decisions and assessments upon which our consolidated financial statements have been based were reasonable at the time made and based upon information available to us at that time. Below is a summary of our critical accounting policies that involve a significant level of estimation uncertainty or subjectivity and have had or are reasonably likely to have a material impact on our financial condition or results of operations. This discussion of our critical accounting estimates is intended to supplement the description of our accounting policies in the footnotes to our consolidated financial statements and to provide additional insight into the information used by management when evaluating significant estimates and assumptions. For further discussion of our significant accounting policies, see Note
2 “Basis of Presentation and Summary of Significant Accounting Policies ” to our consolidated financial statements included in this Form 10-K.
Investment in Real Estate Properties and Depreciation
All of our acquisitions of rental properties to date were accounted for as asset acquisitions because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets. Upon acquisition of a property, we allocate the purchase price of the real estate to land, building and improvements (inclusive of tenant improvements and site improvements) and, if applicable, determine intangibles, such as the value of above and below market leases and origination costs associated with the in-place lease. The tangible and intangible assets acquired and liabilities assumed are initially measured based upon their relative fair values. We exercise judgement to determine the estimated fair value. For example the fair value of the land is determined by reviewing comparable sales within the same submarket and/or region, the fair value of buildings on an as-if vacant basis may be based on assumption of projected growth in rental rates and operating expenses, anticipated trends and market/economic conditions and we may engage third-party valuation specialists. The determination of the fair value at acquisition based on the above methodology for land and building may involve inputs that require significant judgment. The use of different assumptions can affect the amount of consideration allocated to the acquired depreciable/amortizable asset, which in turn can impact our net income due to the recognition of the related depreciation/amortization expense in our consolidated statements of operations.
We depreciate the amounts allocated to building and improvements on a straight-line basis over their estimated useful lives generally between 20 to 35 years and the amount allocated to site improvements at our buildings, if any, over the estimated useful lives, generally between 8 to 15 years. Determining whether expenditures meet the criteria for capitalization and the assignment of depreciable lives requires management to exercise significant judgment.
Provision for Impairment
We review current activities and changes in the business condition of all of our properties to determine the existence of any triggering events or impairment indicators. We evaluate our real estate assets for impairment on a property-by property basis. If triggering events or impairment indicators are identified, we analyze the carrying value of our real estate for any impairment. Such impairment indicators include but are not limited to, deterioration in rent rates for a property, decline in projected rental rates, evidence of material physical damage to the property, holding period, and tenant defaults.
A provision is made for impairment if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property. Key inputs that we utilize in this analysis include projected rental rates, estimated holding periods, capital expenditures and property sales capitalization rates. Our undiscounted cash flow and fair value calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flow and property fair values, including determining our estimated holding period and selecting the discount or capitalization rate that reflects the risk inherent in future cash flow. If the actual net cash flow or actual market capitalization rates significantly differ from our estimates, the impairment evaluation for an individual asset could be materially affected.
Lease Classification
Lease classification for leases under which we are the lessor are evaluated at lease commencement and leases not classified as sales-type leases or direct financing leases are classified as operating leases. Leases qualify as sales-type leases if the contract includes either transfer of ownership clauses, certain purchase options, a lease term representing a major part of the economic life of the asset, or the present value of the lease payments and residual guarantees provided by the lessee exceeds substantially all of the fair value of the asset. Additionally, leasing an asset so specialized that it is not deemed to have any value to us at the end of the lease term may also result in classification as a sales-type lease. Leases qualify as direct financing leases when the present value of the lease payments and residual value guarantees provided by the lessee and unrelated third parties exceeds substantially all of the fair value of the asset and collection of the payments is probable. The determination of lease classification requires the calculation of the rate implicit in the lease or the use of an appropriate cap rate requires significant judgement.
Financial Instruments - Credit Losses
We adopted ASC 326, Financial Instruments - Credit Losses ("CECL") on January 1, 2023. The CECL expected loss model requires an allowance for all expected credit losses for the life of a loan be recognized when the loan is either originated or acquired. The allowance for credit losses is a valuation account that is deducted from, or added to, the amortized cost basis of the financial asset(s) to present the net amount expected to be collected on the financial asset(s). At each reporting period, we will update the estimate and adjust the allowance for credit losses accordingly. Increases in the allowance are recorded through net income as credit loss expense. Decreases in the allowance are recorded through net income as a reversal of credit loss expense. This standard does not specify a specific measurement technique for estimating expected credit losses and the approach used to estimate credit losses requires judgement. We generally use a discounted cash flow model approach to determine the credit loss. Determining the appropriate discount rate that reflects the risk inherent in future cash flow requires significant judgement. If the discount rates differ significantly from our estimates, the provision for current credit loss could be materially affected
Stock-Based Compensation
We record our compensation cost for all stock awards at fair value at the grant date and amortize the cost over the service period (generally equal to the vesting period) which is included in “Compensation Expense” on our consolidated statement of operations. The compensation cost for stock option grants is determined using option pricing models, intended to estimate the fair value of the awards at the grant date less estimated forfeitures. We used the Black-Scholes option pricing model to estimate the fair value of options awards at the time of their grant, which required input of assumptions, including judgments to estimate expected stock price volatility, expected life, and forfeiture rate. The fair value of performance stock awards is determined using a Monte Carlo simulation for our future stock price and the corresponding peer group. There is significant uncertainty in the estimation of the valuation of our performance stock awards and there is additional uncertainty around forfeitures as we cannot determine if or when forfeitures will happen. The valuation of units can vary significantly since units are based upon target amounts that may or may not be met. If target metrics are not met upon vesting, the performance stock units are subject to cancellation. Cancellation of performance stock units has no impact on estimated or previously recognized expense.
2023 Highlights
Investment Activity
Real Estate Acquisitions
During 2023, we exercised our option to purchase the adjacent parcel of land to expand our cultivation facility in Missouri for approximately $350 thousand and committed to fund $16.2 million in tenant improvements.
The following table presents our investment activity for the year ended December 31, 2023 (in thousands):
Tenant Market Site Type Closing Date Real Estate Acquisition Costs
Bloom Medicinal Missouri Cultivation March 3, 2023 $ 350
Total $ 350
Tenant Improvements Funded
During 2023, we funded approximately $14.4 million of tenant improvements to our cultivation facilities in Arizona, Missouri and Pennsylvania.
The following table presents the tenant improvements funded during the year ended December 31, 2023 (in thousands):
Tenant Market Site Type Closing Date TI Funded Unfunded Commitments
Mint Arizona Cultivation June 24, 2021 $ 4,281 $ 3,788 (1)
Organic Remedies Missouri Cultivation December 20, 2021 282 -
Bloom Medicinal Missouri Cultivation April 1, 2022 7,858 8,826
Ayr Wellness, Inc. Pennsylvania Cultivation June 30, 2022 - 750
Calypso Pennsylvania Cultivation August 5, 2022 2,013 987
Total $ 14,434 $ 14,351
(1) Effective June 1, 2023, the lease agreement was amended to include an additional TI commitment of approximately $6.5 million.
Disposal of Real Estate
On October 27, 2023, we closed on the sale of our property in Palmer, Massachusetts, for $2.0 million, which was leased to Mint. Our investment in the property was $1.9 million. Upon closing, Mint's lease agreement was terminated and they paid a portion of the closing costs, resulting in a break-even sale of the property.
Financing Activity
Loan Payable
In January 2023, we paid our annual principal and interest payment of $1.0 million on our loan payable, which we entered into in connection with a sale leaseback transaction, to the seller of our cultivation facility in Chaffee, Missouri. The loan's outstanding balance as of December 31, 2023 was $1.0 million and the discount had been fully amortized.
Revolving Credit Facility
As of December 31, 2023, we had outstanding borrowings of $1.0 million under our Revolving Credit Facility and $89.0 million in funds available to be drawn, subject to sufficient collateral in the borrowing base.
Capital Markets Activity
Stock Repurchase Program
On September 15, 2023, the board of directors authorized an amendment to the stock repurchase program of up to an additional $10.0 million of outstanding common stock and extended the program through December 31, 2024.
During the year ended December 31, 2023, pursuant to the stock repurchase program, we acquired 908,394 shares of common stock with an average purchase price, including commissions, of $13.00, totaling approximately $11.8 million. The remaining availability under the stock repurchase program as of December 31, 2023 was approximately $8.2 million.
Recent Developments
Tenant Improvements
Subsequent to December 31, 2023, we funded approximately $5.6 million of tenant improvements to our cultivation facilities in Arizona and Missouri.
Loan Payable
On January 3, 2024, we paid our annual principal and interest payment of $1.0 million on our loan payable, which we entered into in connection with a sale leaseback transaction, to the seller of our cultivation facility in Chaffee, Missouri. This represents the final installment payment on our loan payable.
Results of Operations
General
We derive substantially all our revenue from rents received from single tenants at each of our 31 properties under triple-net leases. We have low leverage on the portfolio with only $1.0 million outstanding under our revolving credit facility and low general and administrative expense with an annualized ratio of 1.33% of total assets.
Comparison of the Year Ended December 31, 2023 and 2022 (dollars in thousands):
For the Year Ended December 31, Increase/(Decrease)
2023 2022 2023 vs 2022
Revenue:
Rental Income $ 46,341 $ 42,216 $ 4,125
Interest Income from Loans 521 2,429 (1,908)
Fees and Reimbursables 442 355 87
Total Revenue 47,304 45,000 2,304
Expenses:
Property Expenses 657 219 438
Depreciation and Amortization Expense 14,266 12,825 1,441
General and Administrative Expenses:
Compensation Expense 4,477 6,069 (1,592)
Professional Fees 1,361 1,575 (214)
Other General and Administrative Expenses 1,721 1,736 (15)
Total General and Administrative Expenses 7,559 9,380 (1,821)
Total Expenses 22,482 22,424 58
Loss on Sale of Real Estate - (60) 60
Provision for Current Expected Credit Loss (167) - (167)
Income From Operations 24,655 22,516 2,139
Other Income (Expense):
Interest Income 747 113 634
Interest Expense (379) (273) (106)
Total Other Income (Expense) 368 (160) 528
Net Income 25,023 22,356 2,667
Net Income Attributable to Noncontrolling Interests (438) (380) (58)
Net Income Attributable to Common Stockholders $ 24,585 $ 21,976 $ 2,609
Revenue
Rental Income
Rental income for the year ended December 31, 2023 increased by approximately $4.1 million, to approximately $46.3 million, compared to approximately $42.2 million for the year ended December 31, 2022. The increase in rental income was primarily attributable to:
•A full year of rental income from two cultivation facilities acquired at the end of the second quarter of 2022. The increase also includes nine months of rental income from exercising our option to acquire the adjacent land parcel to expand one of our existing cultivation facilities in Missouri during the first quarter of 2023. These acquisitions generated approximately $1.6 million of rental income during the year ended December 31, 2023.
•Rental income from one cultivation facility that converted from a mortgage loan to a twenty-year sale-leaseback on August 5, 2022, which generated an increase of approximately $1.8 million of rental income during the year ended December 31, 2023.
•Funding of tenant improvements at our Arizona, Florida, Pennsylvania and both Missouri cultivation facilities, which generated approximately $2.1 million of rental income during the year ended December 31, 2023.
•Annual escalations on our portfolio which generated an increase of approximately $0.8 million of rental income during the year ended December 31, 2023.
The increase in rental revenue was partially offset by a decrease of approximately $2.7 million primarily attributable to:
•During the year ended December 31, 2023, Revolutionary Clinics, the tenant of our cultivation facility in Massachusetts, failed to pay seven months of contractual rent under its lease agreement of approximately $3.0 million. We applied their security deposit of approximately $1.3 million, towards the outstanding rent. On October 27, 2023, we entered into a lease amendment and forbearance agreement and collected a portion of the back rent of approximately $480 thousand for August and September and we collected rent at the full amended contractual amount for October through December 2023, totaling $1.2 million. The application of the security deposit and rent collected during the year ended December 31, 2023 resulted in a net decrease of rental income of approximately $2.6 million compared to rental income collected for the year ended December 31, 2022.
•The sale of two Massachusetts properties, one during 2022 and one during 2023, that resulted in a net decrease to rental income of approximately $31 thousand for the year ended December 31, 2023.
Interest Income from Loans
Interest income from loans decreased by approximately $1.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was attributable to the conversion of the $30.0 million mortgage loan that we entered into during the fourth quarter of 2021 that converted to a twenty-year sale-leaseback, in accordance with the loan agreement, on August 5, 2022.
Fees and Reimbursables
Fees and reimbursables remained relatively flat year over year.
Expenses
Property Expenses
The Company’s properties are leased to single tenants on a long-term, triple-net basis, which obligates the tenant to be responsible for the ongoing expenses of a property, in addition to its rent obligations. The Company will pay for certain expenses on behalf of the tenant and the tenant is required to reimburse the Company. The presentation in the statement of operations for these expenses are gross where the Company records revenue and a corresponding reimbursable expense. Expenses paid directly by a tenant are not reimbursable and therefore are not reflected in the statement of operations. The expense and reimbursable amounts may differ due to timing. The revenues associated with the reimbursable expenses were classified in "Fees and Reimbursables" in the accompanying consolidated statements of operations.
Property expenses for the year ended December 31, 2023 increased by approximately $0.4 million to approximately $0.7 million, compared to $0.2 million for the year ended December 31, 2022. The increase was primarily attributable to insurance, real estate taxes and legal fees paid on behalf of certain tenants, which will be reimbursed to us.
Depreciation and Amortization Expense
Depreciation and amortization expense for the year ended December 31, 2023, increased by approximately $1.4 million to approximately $14.3 million, compared to $12.8 million for the year ended December 31, 2022. The increase in depreciation was attributable to; (i) a full year of depreciation on approximately $27.1 million related to the three cultivation facilities and one dispensary we acquired during 2022, which generated an increase of approximately $403 thousand; (ii) a full year of depreciation on approximately $28.5 million related to the cultivation facility that converted from a mortgage loan to a twenty-year sale-leaseback on August 5, 2022, which generated an increase of approximately
$584 thousand; (iii) a full year of depreciation on approximately $21.0 million that was funded during the second quarter of 2022 in connection with the expansion at an existing cultivation facility in Florida, which generated an increase of approximately $300 thousand; (iv) approximately $30.8 million of improvements that were placed into service during 2022 and subsequent, which generated an increase of approximately $429 thousand; and (v) to a lesser extent, a full year of depreciation on approximately $0.1 million related to corporate assets that were placed into service during the third quarter of 2022, which generated an increase of approximately $12 thousand. These increases were slightly offset by a decrease of approximately $325 thousand related to adjustments for properties sold and assets that became fully depreciated.
General and Administrative Expenses
Total general and administrative expenses for the year ended December 31, 2023 decreased by approximately $1.8 million, to $7.6 million, compared to $9.4 million for the year ended December 31, 2022. The decrease in general and administrative expense is described below by category.
Compensation Expense
Compensation expense for the year ended December 31, 2023, decreased by approximately $1.6 million to $4.5 million, compared to $6.1 million for the year ended December 31, 2022. The decrease was primarily due to the following; (i) in connection with the retirement and the separation of certain executive officers during 2022 we incurred one-time severance payments of approximately $1.7 million; and (ii) the associated accelerated vesting of their restricted stock units (“RSUs”) of $0.2 million. The decrease was partially offset by (i) a full year of compensation expense for one executive officer and two employees hired during 2022; and (ii) increased expenses on RSUs and performance stock units (“PSUs”) granted to certain officers, employees and directors during 2023.
Professional Fees
Professional fees for the year ended December 31, 2023, decreased by approximately $0.2 million to $1.4 million, compared to $1.6 million for the year ended December 31, 2022. The decrease was mainly attributable to a reduction of approximately $115 thousand related to the elimination of outsourced accounting functions, a decrease of approximately $196 thousand in recruiting fees not incurred during 2023, and a reduction of approximately $139.4 thousand related to costs incurred for potential restructuring. These decreases were partially offset by increases in consulting fees, legal fees and tax preparation fees.
Other General and Administrative Expenses
Other general and administrative expenses were relatively flat year over year. Other general and administrative expenses is primarily comprised of director and officer insurance, information technology fees, public relations fees, filing and regulatory fees, reporting fees, corporate rent and various other expenses.
Loss on Sale of Real Estate
On March 21, 2022, we sold our dispensary in Franklin, Massachusetts for approximately $0.8 million, which was leased to PharmaCann. We recognized a loss on sale of property of $60 thousand during the year ended December 31, 2022.
Provision for Current Expected Credit Loss
On January 1, 2023, we adopted ASC 326, Financial Instruments - Credit Losses. In connection with this adoption, we used a discounted cash flow model to determine an expected credit loss on our loan receivable and recorded a provision for current expected credit loss of $167 thousand during the year ended December 31, 2023.
Other Income (Expense)
Other Income
Interest income increased during the year ended December 31, 2023, by approximately $0.6 million, to $0.7 million, compared to $0.1 million for the year ended December 31, 2022, primarily due to higher interest rates on our cash balances in our money market accounts.
Interest Expense
Interest expense increased during the year ended December 31, 2023 by approximately $0.1 million to $0.4 million compared to $0.3 million for the year ended December 31, 2022. The increase was mainly attributable to a full year of interest expense on the draw of $1.0 million from the Revolving Credit Facility we entered into on May 6, 2022, and the associated non-cash interest expense, which increased by approximately $268 thousand related to the amortization of deferred financing costs incurred in connection with this facility. The increase was partially offset by a decrease in interest expense on our loan payable in connection with the $1.0 million principal pay down in January 2023.
Non-GAAP Financial Information and Other Metrics
Funds from Operations and Adjusted Funds from Operations
Funds from Operations (“FFO”) and Adjusted Funds from Operations (“AFFO”) are non-GAAP financial measures and should not be viewed as alternatives to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that FFO and AFFO are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs.
We calculate FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines FFO as follows: net income (loss) (computed in accordance with GAAP) excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by an entity. Other REITs may not define FFO in accordance with the NAREIT definition or may interpret the current NAREIT definition differently than we do and therefore our computation of FFO may not be comparable to such other REITs.
We calculate AFFO by starting with FFO and adjusting for non-cash and certain non-recurring transactions, including non-cash components of compensation expense and the effect of provisions for credit losses. Other REITs may not define AFFO in the same manner as we do and therefore our calculation of AFFO may not be comparable to such other REITs. You should not consider FFO and AFFO to be alternatives to net income as a reliable measure of our operating performance; nor should you consider FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity.
The table below is a reconciliation of net income attributable to common stockholders to FFO and AFFO for the year ended December 31, 2023 and 2022 (in thousands):
For the Year Ended
December 31,
2023 2022
Net Income Attributable to Common Stockholders $ 24,585 $ 21,976
Net Income Attributable to Noncontrolling Interests 438 380
Net Income 25,023 22,356
Adjustments:
Real Estate Depreciation and Amortization 14,266 12,825
Loss on Sale of Real Estate - 60
FFO Attributable to Common Stockholders - Diluted 39,289 35,241
Severance - 1,752
Non-cash rental income - other (522) -
Provision for current expected credit loss 167 -
Stock-Based Compensation 1,439 1,493
Non-Cash Interest Expense 282 163
Amortization of Straight-Line Rent Expense (1) 12
AFFO Attributable to Common Stockholders - Diluted $ 40,654 $ 38,661
Liquidity and Capital Resources
Our cash requirements include the payment of dividends to our shareholders, distributions to our OP Unitholders, general and administrative expenses, debt service, other expenses related to managing our existing portfolio as well as acquisitions and unfunded tenant commitments. The sources of liquidity to fund these cash requirements include rental revenue from the leasing of our properties, which is our primary source of cash flow, borrowings under our revolving credit facility and equity and debt issuances either in the public or private markets, if markets permit. Where possible, we also may issue OP Units to acquire properties from existing owners seeking a tax-deferred transaction.
As of December 31, 2023, we had $114.8 million of liquidity comprised of $25.8 million of cash and cash equivalents and $89.0 million available on our $90.0 million revolving credit facility, subject to sufficient collateral in the borrowing base. The challenges posed by the increase in interest rates and inflation could adversely impact our cash flow from continuing operations but we expect that cash flow from continuing operations over the next twelve months, together with cash on hand, will be adequate to fund our business operations, cash dividends to our shareholders, distributions to our OP Unitholders and debt service. Acquisitions and unfunded tenant improvement costs may require funding from borrowings, equity issuance and or issuance of OP Units. We cannot however, be certain that these sources of funds will be available at a time and upon terms acceptable to us in sufficient amounts in the future.
Summary of Cash Flows
The following summary discussion of our cash flows is based on the consolidated statements of cash flows in our Consolidated Financial Statements and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below (in thousands):
For the Year Ended
December 31,
2023 2022
Net Cash Provided by Operating Activities $ 40,084 $ 37,008
Net Cash Used in Investing Activities $ (12,835) $ (86,453)
Net Cash Used in Financing Activities $ (46,598) $ (32,460)
Cash and Cash Equivalents - End of Year $ 25,843 $ 45,192
Net Cash Provided by Operating Activities:
Net cash provided by operating activities for the years ended December 31, 2023 and 2022 were approximately $40.1 million and $37.0 million, respectively. Net cash flows provided by operating activities primarily related to contractual rent and security deposits from our properties, partially offset by our general and administrative expenses.
Net Cash Used in Investing Activities:
Net cash used in investing activities for the years ended December 31, 2023 and 2022 were approximately $12.8 million and $86.5 million, respectively. Net cash used in investing activities for the year ended December 31, 2023 related to approximately $350 thousand used to purchase an adjacent parcel of land by an existing cultivation facility in Missouri and approximately $14.4 million used to fund tenant improvements, offset by approximately $1.9 million of proceeds received in connection with the sale of our Palmer, Massachusetts property. Net cash used in investing activities for the year ended December 31, 2022 related to approximately $37.0 million used to purchase three cultivation facilities and one dispensary, approximately $45.2 million used to fund tenant improvements, and $5.0 million used to fund an unsecured loan receivable at our cultivation facility in Missouri, partially offset by approximately $0.8 million of proceeds received from the sale of our Franklin, Massachusetts property.
Net Cash Used in Financing Activities:
Net cash used in financing activities for the years ended December 31, 2023 and 2022 were approximately $46.6 million and $32.5 million, respectively. Cash used in financing activities for the year ended December 31, 2023, related to approximately $33.7 million in dividend payments to holders of our common stock as well as distributions to OP Unitholders and dividend equivalents to RSU holders, $1.0 million to pay down principal on our loan payable,
approximately $11.8 million to buy back stock under the stock repurchase program, approximately $28 thousand in deferred financing costs related to updating our Revolving Credit Facility and approximately $43 thousand of cash paid for taxes in lieu of issuance of common stock. Net cash provided by financing activities for the year ended December 31, 2022, were related to approximately $29.7 million in dividend payments to holders of our common stock as well as distributions to OP Unitholders and dividend equivalents to RSU holders, $1.8 million to pay down principal on our loan payable, approximately $1.2 million in deferred financing costs related to obtaining our Revolving Credit Facility and approximately $813 thousand of cash paid for taxes in lieu of issuance of common stock, offset by $1.0 million drawn on our Revolving Credit Facility.
Dividends
To maintain our qualification as a REIT, U.S. federal income tax law generally requires that we distribute at least 90% of our REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding net capital gains. We must pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our taxable income. We evaluate each quarter to determine our ability to pay dividends to our stockholders based on our net taxable income if and to the extent authorized by our board of directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service payments. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution.
As a result of this distribution requirement, our operating partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can. During the year ended December 31, 2023, we declared and our board of directors approved, cash dividends on our common stock and restricted stock units and in our capacity as general partner of the Operating Partnership, authorized distributions on our OP Units totaling approximately $1.57 per share. During the year ended December 31, 2022, we declared and our board of directors approved, cash dividends on our common stock and restricted stock units and in our capacity as general partner of the Operating Partnership, authorized distributions on our OP Units totaling approximately $1.44 per share.
Contractual Obligations and Commitments
Unfunded Commitments
As of December 31, 2023, we had aggregate unfunded commitments to invest $14.4 million to develop and improve our existing cultivation facilities in Arizona, Missouri, and Pennsylvania.
Corporate Office Lease
As of December 31, 2023, we are the lessee under one office lease for a term of four years, subject to annual escalations. The annual rent payments range from approximately $72 thousand in year one to $85 thousand in year four. The office lease has a remaining average lease term of approximately 2.7 years.
Revolving Credit Facility
As of December 31, 2023, the Company had $1.0 million drawn on our Revolving Credit Facility which bears interest at a rate of 5.65% per annum.
Loan Payable
The loan payable outstanding balance as of December 31, 2023 was $1.0 million and the discount had been fully amortized. Principal on the loan was payable in annual installments of which $1.8 million and $1.0 million were paid in January 2022 and January 2023, respectively. The final principal payment of $1.0 million was made on January 3, 2024.
Adoption of New or Revised Accounting Standards
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended
transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Recent Accounting Pronouncements
Refer to Note 2 - “Basis of Presentation and Summary of Significant Accounting Policies” for recent accounting pronouncements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our Revolving Credit Facility. As of December 31, 2023, we had $1.0 million drawn on our Revolving Credit Facility, at a fixed interest rate of 5.65% through May 2025 and a floating rate thereafter. Therefore, if interest rates decrease, our required interest payments may exceed those based on current market rates. If interest rates remain higher for longer, our cost of financing will significantly increase when the Revolving Credit Facility adjusts to a floating rate in May 2025. We may choose to mitigate such interest rate risk through the use of interest rate derivative instruments.
Inflation
The U.S. economy has experienced an increase in inflation rates over the past two years. We enter into leases that generally provide for annual fixed increases in rent at a fixed rate. In some instances, leases provide for annual increases in rent based on the increase in annual CPI. We expect these lease provisions to result in rent increases over time. During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation.
Seasonality
Our business is not, and we do not expect our business to be, subject to material seasonal fluctuations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item 8 is incorporated by reference to our Financial Statements beginning on page of this report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES.
Our management, under the supervision and with the participation of our principal executive and financial officer, is responsible for and has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, including ensuring that such information is accumulated and communicated to our company's management, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officer have concluded that such disclosure controls and procedures were effective as of December 31, 2023 (the end of the period covered by this Annual Report).
Management’s Annual Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as a process designed by, or under the supervision of, the Company's Chief Executive Officer and Chief Financial Officer and
effected by the Company's Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management of the Company has assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2023. In making its assessment of internal control over financial reporting, management used the criteria described in Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission, ("COSO"). Based on this evaluation, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2023 based on criteria in Internal Control-Integrated Framework issued by the COSO.
This annual report does not include an attestation report of the company's independent registered public accounting firm due to a temporary exemption transition period established by rules of the Securities and Exchange Commission for emerging growth companies under the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act").
Limitations on Controls
Our system of internal control over financial reporting was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION.
During the quarter ended December 31, 2023, no director or officer of the Company adopted, modified or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, each as defined in Item 408 of Regulation S-K.
On March 6, 2024, the Company entered a new employment agreement with Ms. Lisa Meyer, effective June 13, 2024 (the “Effective Date”), pursuant to which she will continue to serve as the Chief Financial Officer, Treasurer and Secretary of the Company (the “New Employment Agreement”). As of the Effective Date, the New Employment Agreement will replace and supersede Ms. Meyer’s existing employment agreement (the “Prior Employment Agreement”) with the Company, which expires on June 13, 2024.
Under the New Employment Agreement, Ms. Meyer reports directly to the Chief Executive Officer of the Company. The term of the New Employment Agreement will end on June 13, 2025. On that date, and on each subsequent anniversary of such date, the term of the New Employment Agreement will automatically be extended for one year, unless (i) earlier terminated or (ii) unless either the Company or Ms. Meyer gives the other party written notice at least ninety (90) days prior to the end of the then-existing term that the term of the New Employment Agreement shall not be further extended.
Ms. Meyer’s New Employment Agreement provides that her annualized base salary will be $350,000. The Company’s Board of Directors (the “Board”) or the Compensation Committee of the Board (the “Compensation Committee”) may increase Ms. Meyer’s annual base salary during the term of the New Employment Agreement. The New Employment Agreement also provides that Ms. Meyer will have the opportunity to earn an annual cash performance bonus (“Annual Cash Bonus”) during the term, with a target Annual Cash Bonus of $250,000. The Compensation Committee will determine the Annual Cash Bonus actually earned in each calendar year based on the attainment of Company and individual performance goals established by the Compensation Committee in consultation with Ms. Meyer.
The New Employment Agreement also provides that Ms. Meyer will be eligible to receive annual equity incentive grants (the “Equity Grants”) under and subject to the terms and conditions of the Company’s 2021 Equity Incentive Plan (the “Plan”). The target value of Ms. Meyer’s annual Equity Grant shall be $250,000.
The New Employment Agreement also provides that Ms. Meyer will be eligible to participate in the Company’s retirement and welfare benefit plans, and is entitled to four weeks’ vacation in each calendar year.
The New Employment Agreement provides that Ms. Meyer is entitled to receive the “Accrued Obligations” upon termination of her employment for any reason. The “Accrued Obligations” are (i) payment of any compensation (including base salary, Annual Cash Bonus and accrued but unused vacation) that was earned but remains unpaid on the date of termination, and (ii) any benefits due to Ms. Meyer under the Company’s benefit plans.
In addition, the New Employment Agreement provides that Ms. Meyer is entitled to additional benefits upon a termination of employment by the Company without cause (as defined in the New Employment Agreement) or upon Ms. Meyer’s resignation for good reason (as defined in the New Employment Agreement); provided that Ms. Meyer has given the Company a release and waiver of claims in the form attached to the New Employment Agreement. Ms. Meyer is entitled to receive (i) the Accrued Obligations; (ii) any unpaid Annual Cash Bonus for a prior fiscal year; (iii) a pro-rated target Annual Cash Bonus for the year in which the termination occurs; (iv) a payment equal to one times the sum of her annual base salary in effect on the date of termination and target Annual Cash Bonus for the year in which the termination occurs; (v) all outstanding Equity Grants awarded as of the date of termination and (vi) a payment equal to the amount of the applicable COBRA premiums for 18 months. All outstanding Equity Grants awarded to Ms. Meyer shall be subject to any applicable accelerated or continuing vesting provisions set forth in the applicable Grant Instruments (as defined in the Plan).
Under the New Employment Agreement, if Ms. Meyer is terminated for cause, she will be entitled to receive Accrued Obligations and any obligations under the New Employment Agreement that continue after termination of employment or in any other agreements between Ms. Meyer and the Company pursuant to any outstanding equity-based awards. Ms. Meyer will not be eligible to receive any unpaid Annual Cash Bonus, including any unpaid Annual Cash Bonus for a prior fiscal year.
Additionally, if the New Employment Agreement terminates as a result of Ms. Meyer’s death or disability (as defined in the New Employment Agreement); provided that, in the case of termination as a result of Ms. Meyer’s disability, Ms. Meyer’s has given the Company a release and waiver of claims in the form attached to the New Employment Agreement, Ms. Meyer is entitled to receive additional compensation and benefits. Ms. Meyer is entitled to receive (i) the Accrued Obligations; (ii) any unpaid Annual Cash Bonus for a prior fiscal year; (iii) a pro-rated target Annual Cash Bonus for the year in which the termination occurs; and (iv) a payment equal to the amount of the applicable COBRA premiums for 18 months. All outstanding Equity Grants awarded to Ms. Meyer shall be subject to any applicable accelerated or continuing vesting provisions set forth in the applicable Grant Instruments.
The New Employment Agreement also provides that, if Ms. Meyer is terminated due to the Company’s non-renewal of the New Employment Agreement at the end of the term, provided that Ms. Meyer has given the Company a release and waiver of claims in the form attached to the New Employment Agreement, Ms. Meyer is entitled to receive (i) the Accrued Obligations; (ii) any unpaid Annual Cash Bonus for a prior fiscal year; (iii) a pro-rated target Annual Cash Bonus for the year in which the termination occurs, and (iv) all outstanding Company equity based awards held by Ms. Meyer, which will vest, and, if applicable, be paid in accordance with the terms of such equity based award agreement. If the termination resulting from the Company’s non-renewal of the term of the New Employment Agreement occurs following a change in control of the Company (as defined in the New Employment Agreement), provided that Ms. Meyer has given the Company a release and waiver of claims in the form attached to the New Employment Agreement, Ms. Meyer is also entitled to
receive (i) a payment equal to the amount of the applicable COBRA premiums for 18 months; and (ii) an additional payment. The amount of the additional payment is equal to one times Ms. Meyer’s annual base salary and target Annual Cash Bonus multiplied by a fraction, the numerator of which is 12 minus the number of months from the date of the change in control through the end of the then existing term of the New Employment Agreement, and the denominator of which is 12. In the event of a non-renewal after which Ms. Meyer remains employed by the Company, no severance compensation will be due solely by reason of such non-renewal, provided that any future termination may qualify for severance.
The foregoing description of the New Employment Agreement does not purport to be complete and is qualified in its entirety by the full text of the New Employment Agreement, a copy of which will be filed with our Quarterly Report on Form 10-Q for the quarter ending March 31, 2024.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by Item 10 is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2023.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2023.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Equity Compensation Plan
The following table summarizes information about the Company’s equity compensation plan under which our common stock may be issued as of December 31, 2023.
Plan Category Number of Shares to be Issued upon Exercise of Outstanding Options, Warrants and Rights(1)
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Shares Remaining Available for Future Issuance under Equity Compensation Plans(2)
Equity compensation plans approved by security holders 297,393 1,950,251
Equity compensation plans not approved by security holders - - -
Total 297,393 - 1,950,251
(1) Consists of awards granted under the 2021 Equity Incentive Plan. This amount includes 27,811 vested RSUs, 63,582 unvested RSUs and 206,000 unvested PSUs. The number of PSUs reflects the maximum number of shares issuable if the maximum performance criteria are achieved. There is no weighted-average exercise price for these RSUs and PSUs.
(2) Reflects shares available for issuance under the 2021 Equity Incentive Plan, assuming that maximum performance is achieved with respect to PSUs.
The remainder of the information required by Item 12 is incorporated by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2023.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by Item 13 is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2023.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by Item 14 is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2023.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)Documents filed as part of this report:
1.Financial Statements. See Index to Financial Statements.
2.Schedules to Financial Statements. See Index to Financial Statements.
All financial statement schedules not included have been omitted because they are either inapplicable or the information required is provided in our Financial Statements and Notes thereto.
3.Exhibits. See Exhibit Index below.
EXHIBIT INDEX
Exhibit
Number Description
3.1 Articles of Amendment and Restatement of NewLake Capital Partners, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
3.2 Articles Supplementary of NewLake Capital Partners, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on September 19, 2022).
3.3 Amended and Restated Bylaws of NewLake Capital Partners, Inc. (incorporated by reference to Exhibit 3.3 to the Registrant's Quarterly Report on Form 10-Q filed on November 10, 2022).
4.1 Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K filed on March 18, 2022).
10.1 Amended and Restated Agreement of Limited Partnership of NLCP Operating Partnership LP (incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.2† NewLake Capital Partners, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K filed on March 18, 2022).
10.3† Employment Agreement between NewLake Capital Partners, Inc. and Anthony Coniglio (incorporated by reference to Exhibit 10.1 to the Registrant's Registration Current Report on Form 8-K filed on December 21, 2023).
10.4† Employment Agreement between NewLake Capital Partners, Inc. and Lisa Meyer (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on May 16, 2022).
10.5† Indemnification Agreement between NewLake Capital Partners, Inc. and Lisa Meyer (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on May 16, 2022).
10.6† Indemnification Agreement between NewLake Capital Partners, Inc. and David Weinstein (incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.7† Indemnification Agreement between NewLake Capital Partners, Inc. and Anthony Coniglio (incorporated by reference to Exhibit 10.8 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.8† Indemnification Agreement between NewLake Capital Partners, Inc. and Gordon DuGan (incorporated by reference to Exhibit 10.10 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.09† Indemnification Agreement between NewLake Capital Partners, Inc. and Alan Carr (incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.10† Indemnification Agreement between NewLake Capital Partners, Inc. and Joyce Johnson-Miller (incorporated by reference to Exhibit 10.12 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.11† Indemnification Agreement between NewLake Capital Partners, Inc. and Peter Kadens (incorporated by reference to Exhibit 10.13 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.12† Indemnification Agreement between NewLake Capital Partners, Inc. and Peter Martay (incorporated by reference to Exhibit 10.14 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.13† Amended and Restated Investor Rights Agreement (incorporated by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.14 Amended and Restated Registration Rights Agreement (incorporated by reference to Exhibit 10.16 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.15 Warrant Agreement between NewLake Capital Partners, Inc, and NLCP Holdings, LLC (incorporated by reference to Exhibit 10.17 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.16† Form of Nonqualified Stock Option Grant Agreement (incorporated by reference to Exhibit 10.18 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.17† Form of Senior Executive Restricted Stock Unit Agreement under the NewLake Capital Partners, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed December 20, 2021).
10.18† Form of Senior Executive Performance Stock Unit Agreement under the NewLake Capital Partners, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed December 20, 2021).
10.19† Form of Employee Restricted Stock Unit Agreement under the NewLake Capital Partners, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed December 20, 2021).
10.20† Form of Employee Performance Stock Unit Agreement under the NewLake Capital Partners, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed December 20, 2021).
10.21† Form of Non-Employee Director Restricted Stock Unit Agreement under the NewLake Capital Partners, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrant's Current Report on Form 8-K filed December 20, 2021).
10.22 Loan and Security Agreement, dated as of May 6, 2022, among NLCP Operating Partnership LP, as borrower and a commercial federally regulated bank, as a lender and as agent for lenders that become party thereto (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on August 10, 2022).
10.23 Pledge and Security Agreement, dated May 6, 2022, among certain subsidiary guarantors and a commercial federally regulated bank as agent (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed on August 10, 2022).
10.24 Continuing and Unconditional Guaranty, dated May 6, 2022, among NewLake Capital Partners, Inc., as parent, guarantors and a commercial federally regulated bank, as agent (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q filed on August 10, 2022).
10.25 Amendment Number One to Loan and Security Agreement, dated July 29, 2022, between the Operating Partnership and a commercial federally regulated bank, as a lender and as agent for lenders that become party thereto (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q filed on August 10, 2022).
21.1* List of Subsidiaries of the Registrant.
23.1* Consent of BDO USA, P.C.
31.1* Certification of Annual Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Annual Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
97.1*
Clawback Policy.
101.INS* Inline XBRL Instance Document.
101.SCH* Inline XBRL Taxonomy Extension Schema Document.
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
_________________________
†Management contracts or compensatory plans required to be filed as Exhibits to this Form 10-K.
*Filed herewith.