Advanced Flower Capital Inc. (AFCG) Q3 2021 Earnings Report, Transcript and Summary

Good morning. My name is Kree, and I will be your conference operator today. At this time, I'd like to welcome everyone to the AFC Gamma Q3 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be question-and-answer session [Operator Instructions] Thank you. I would now like to turn the conference over to your speaker. You may now begin.

Thank you, Kree. Good morning and thank you for joining the call. I am joined this morning by Leonard Tannenbaum, Chief Executive Officer; Jonathan Kalikow, Head of Real Estate; Robyn Tannenbaum, Head of Origination; and Brett Kaufman, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our October 13, 2021 press release and is posted on the Investor Relations section of ASC Gamma’s website at afcgamma.com, along with our third quarter 2021 earnings release and investor presentation. Today’s conference call includes forward-looking statements and projections that reflect the company’s current views with respect to, among other things, anticipated market size, and financial performance. These statements are subject to the inherent uncertainties in predicting future results and conditions, and certain factors could cause results to differ materially from those projected in these forward-looking statements. New risks and uncertainties arise over time, and it is not possible for the company to predict those events or how they may affect these statements. Therefore, you should not place undue reliance on these forward-looking statements. We ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward-looking statements and projections. During this call, we will refer to distributable earnings, which is a non-GAAP financial measure. Reconciliations of net income, the most comparable GAAP measure to distributable earnings, can be found in our earnings release or in the investor presentation available on our website. The format for today’s call is as follows; Len will provide introductory remarks, an overview of our third results and strategic commentary; Jon, will discuss the real estate lending environment; Robyn, will discuss the origination pipeline; and Brett will summarize our financials. We will then open the line for Q&A. With that, I now turn the call over to our Chief Executive Officer, Leonard Tannenbaum.

Thank you, Gabe, and good morning and welcome to AFC Gamma's third quarter earnings call. For those who are joining us for the first time, AFC Gamma is a leading institutional lender to the cannabis industry. We issued loans that are typically secured by three pillars; cash flow, licenses and real estate. These companies that we went to are domestic single and multi-state cannabis operators, which include those that are privately held, as well as those listed on the Canadian exchanges. Before we dive into our quarterly results, I'd like to highlight what makes AFC Gamma unique. AFC Gamma is an institutional lender that combines my expertise in cash flow lending, having run a $5 billion credit-focused asset manager; John's real estate expertise, having run a real estate finance development company with billions of dollars in real estate transactions; and Robin's healthcare investment banking background. The investment committee's expertise combined with the experienced team that we are continuing to build helps differentiate AFC Gamma from other lenders in this market. Over the last quarter, we have further built out our in-house capabilities to continue providing our borrowers with customized financing solutions. One key area that we continue to build out is our in-house construction expertise led by Martin Bickslow III. As John will describe in further detail, we believe our ability to consult on construction projects is unique and valuable, and we have financed our borrowers in building many construction projects. Additionally, as we announced last quarter, we are pleased that Brett Kaufman has joined us as AFC Gamma's Chief Financial Officer. Brett's expertise and leadership have strengthened the executive team and we look forward to him continuing to meet with our investors and analysts. Turning now to our capital structure. A third important differentiator for AFC Gamma is our cost of capital as the first NASDAQ listed lender in the industry. This allows us to access both public and private debt and equity markets. As discussed last quarter, we are striving to establish an industry-leading benchmark for our cost of capital. Subsequent to quarter end, we are pleased to have received an increase in our credit rating from Egan-Jones moving to a BBB+ investment grade rating. Leveraging our investment grade rating, we closed on an offering of $100 million of unsecured notes due in 2027, led by Seaport Global Securities, which Brett will describe in further detail. We are further encouraged by the fact that the debt raise we completed with strong institutional support. Going forward, we expect to utilize a mix of debt and equity to fund our growth with a target of 0.5 times debt-to-equity. Typically, our lower yielding assets in our portfolio are comprised of larger, more diversified operators. Conceptually, we believe that using leverage against these types of assets in the portfolio is a good way to generate strong returns on equity for our shareholders. With this debt offering as our first step, we continue to remain focused on developing the best cost of capital among the limited number of alternative lenders in the industry. I believe that we have all the necessary components in place to scale this business and serve this rapidly growing industry. As we continue to scale the business, we will continue to aim to improve our cost of capital. Separately, our actionable pipeline continues to remain strong. As we have previously discussed, deals typically take between three and nine months to close, which makes it difficult to predict the timing of closings. In structuring our investments, we lend at different rates to the top MSOs, the midsize operators and the smallest single state operators. Due to the size and scale of the top MSOs, we continue to see those operators borrowing at lower yields. Now turning to our quarterly results. During the third quarter, we continue to execute on our pipeline which led to record originations. We closed on new commitments of 119 million – 119.2 million and had net fundings of 79.3 million as of November 1, 2021. We have 14 borrowers that have operations in 14 states which Robin will discuss later during the call. The closing of active deals in our pipeline resulted in distributable earnings of $0.44 per basic weighted average share. This increase in earnings drove at 13.2% increase in our quarterly dividends moving from $0.38 cents a share in the second quarter to $0.43 per share in the third quarter. As a reminder, our dividend policy is to pay between 90% and 100% of distributable earnings over the year with a special dividend at the end of the year, if necessary. Before turning the call over to Jon, but like to highlight a notable transaction that we recently closed. Subsequent to quarter end, AFC Gamma funded $50 million as part of a new $120 million tranche of Verano Holdings Corp’s credit facility. We are pleased to expand our relationship with Verano and believe the company is a top tier credit, given a strong brand reputation, real estate ownership, business execution and experience management team. With that, I'll turn the call over to Jon.

Thank you, Len. Today, we wanted to highlight one of our core competencies and key differentiating factors as a lender focused on the cannabis industry. That is our ability to finance construction projects. Because the legal cannabis industry is still in its infancy. We believe construction financing will be a dominant part of our cannabis cultivation, production and dispensary lending program. Most banks and lenders shun such financing given their lack of requisite know-how and expertise and experience that our team has. Lending to cannabis operators adds an additional layer of complexity. Beside zoning, permitting and environmental factors, cannabis cultivation facilities require specialized heating, cooling ventilation, backup power generation and enhanced lighting to create an optimal growth environment. Many jurisdictions have ordinances requiring fire suppression, light safety and security measures, well in excess of those required on other types of real estate. This is where our in-house construction expertise becomes a vital component of our strategy. We know firsthand the issues that often arise and how to mitigate them. Information we are happy to share with our borrowers. Construction loans have drawn over time and with each draw, we ensure we have all the needed lien releases, and that the building aligns with construction documents and that construct remains in compliance with state and local ordinances. We also made sure that the borrower stay on budget and on schedule. Of course, we have a vested interest in the quality of our collateral underpinning our loans. Now, let me turn the call over to Robyn.

Thank you, Jon. As of November 1, 2021, AFC management acted as agent for about 76% of our current commitments. From January 2020 through November 1, 2021, we have sourced overnight $9.4 billion of transactions, which represents over 400 deals. We continue to expand our lending platform and our reputation as a trusted vendor in the industry continues to grow. In addition to our construction expertise that Jon mentioned, another key differentiator is AFC Gamma’s available capital and the ability of its external manager to active agent. This allows our borrowers to deal with one lender when changes or amendments need to be completed versus going to a largest syndicate of lenders. AFC Gamma’s seeks to hold a majority of a borrower debt tranche and its external manager’s ability to act as lead agent is another differentiating factor that provides our borrowers with flexibility and ease of execution. We see ourselves as a relationship lender, financing cannabis operators to build successful businesses. Our origination platform is focused on both expanding loans with a variety of our existing borrowers and continually sourcing new borrowers. When sourcing deals, incumbency has proven to give us an important edge. In the third quarter, we expanded upon our initial loans to two borrowers, Nature’s medicines and Justice Cannabis Company. In addition, during the fourth quarter, we expanded upon our initial launch of Verano, providing the company with another $50 million of debt. I will now turn the call over to Brett to talk about our financial results.

Hello, everyone. I'm very happy to be participating in my first AFC Gamma earnings call and look forward to speaking with many of you soon. For those of you that have not met me, I have over 25 years of capital markets experience within global organizations overseeing accounting and finance. Prior to coming on board with AFC Gamma, I served as CFO at Ladenburg Thalmann Financial Services for 12 years. Prior to that I spent nine years at Bear Stearns, serving in various roles of increasing responsibility, including Managing Director and Director of Financial Planning and Analysis. For the quarter ended September 30th, 2021, we had GAAP net income of $7.9 million or earnings of $0.48 per basic weighted average common share. For the three months ended September 30th, 2021, we generated total interest income of $10.6 million and distributable earnings of $7.2 million or $0.44 per basic weighted average common share. We believe providing distributable earnings is helpful to stockholders in assessing the overall performance of our business. Distributable earnings represents the net income computed in accordance with GAAP, excluding non-cash items such as equity compensation expense, any unrealized gains or losses, provision for current expected credit losses, also known as CECL, or other non-cash items recorded in net income or loss for the period. CECL was early adopted by AFC Gamma in its 2020 fiscal year. As of September 30th, 2021, the CECL reserve represents approximately 1.18% of our loans at carrying value compared to approximately 1.09% at June 30th, 2021. As a REIT, we are required to distribute at least 90% of our annual REIT taxable income. We believe that dividends are generally one of the principal reasons that stockholders invest in our common stock. On October 15th, 2021, AFC Gamma paid a dividend of $0.43 per common share outstanding for the September quarter, which represented an increase of 13.2% from the prior quarter. The company has distributed $14.4 million of distributable earnings for the nine months ended September 30th, 2021 or approximately 89% of its distributable income. At the end of the third quarter, our total stockholders' equity was $274.5 million and our book value per share was $16.69 as compared to $14.83 as of December 31st, 2020. The increase in our book value per share as of September 30th, 2021 compared to December 31st, 2020 was primarily attributable to our IPO and follow-on equity offering in the first and second quarters of 2021 respectively, each of which were accretive to our book value. As Len mentioned, we recently hit another milestone as a public company. On November 3rd, 2021, we closed on a $100 million aggregate principal amount of senior unsecured notes. This was a private offering available to qualified institutional buyers. The notes have a fixed cash interest rate of 5.75% and do not mature until 2027. In connection with the closing of our senior notes offering and subsequent to quarter-end, we executed a second amendment to our revolving credit facility. The amendment increases the revolving credit commitment from $50 million to $75 million, lowers our interest rate from 6% to 4.75% per annum and extends the maturity date of our revolving facility from December 31st, 2021 to September 30th, 2022. The second amendment also requires that all payments of interest and fees will be paid directly or indirectly to support charitable organizations. For the three and nine months ended September 30th, 2021 and through November 3rd, 2021, the Company has not drawn on the revolving credit facility or incurred any interest expense related to the revolving credit facility. Turning to our portfolio, we ended the third quarter of 2021 with total assets of $303.9 million, as compared to $278.5 million at June 30th, 2021. Portfolio investments totaled $244.1 million of principal outstanding spread across 15 companies as of September 30th, 2021. As of the end of the third quarter, AFC Gamma's portfolio consisted of $296.9 million of current commitments with $243 million funded. Following quarter end, we closed an additional $50 million of new commitments; we sold a $5 million loan and also funded $52.3 million of new and existing commitments. As of November 1st, 2021 we have $341.9 million of current commitments with $292.4 million of principal outstanding across 14 companies. All of our loans in the portfolio are current and performing. The weighted average portfolio yield to maturity, which is measured for each loan over the life of such loan, was approximately 21% as of September 30th, 2021, compared to the weighted average yield to maturity of the portfolio of approximately 20%, as of November 1st, 2021. With that, we will now open the call to questions. I will now turn it back over to the operator to start the Q&A. Operator?

[Operator Instructions] Your first question is from Gerald Pascarelli with Cowen.

Hi, good morning. Thanks for taking the questions. So in 3Q, you clearly had a lot of momentum towards the end of the quarter, really starting on Labor Day with a few of these deal announcements. That's continued into 4Q with a $50 million Verano announcement. And so, when I -- I know you've spoken about seasonality in the lending business before, can we just get an update on what you're seeing in the market and whether you expect this level of momentum to continue throughout the duration of the fourth quarter? Any color you can provide there would be helpful. Thank you.

Thanks, Gerald, for the question. There certainly is and always -- and I've operated in this -- in the middle market industry for 10-plus years or 15-plus years. The fourth quarter is usually the strongest quarters, as people want to get things done before year end. And it's sometimes materializes quickly. But remembering the cannabis is a three to nine month cycle, I can imagine that some of the things in fourth quarter could slip into January in the first quarter. So to exactly estimate where we are at any point is really difficult. Only because deals take a long time to complete. There's a lot of diligence to those deals, there’s environmental and phase one’s and phase two’s and all other things, quality of earnings and the things that we have to accomplish before we can make loans. Having said that, we do anticipate the fourth quarter to be the strongest quarter, but whether it's the fourth quarter of the fourth quarter plus January into February, I can't tell.

Got it. That makes total sense. Just in terms of your outlook for next year. I know you haven't guided for anything, but you do have a target, which I believe is 700 in gross originations. It seems like the top credits really started with Verano at 8.5 and I know that's the headline rate. But then the day after Verano we saw Jushi raise a 100 at 9.5, which is probably lower than the rate would have been a couple of months prior. And so, as you think about building out your loan portfolio, can you just talk about the ideal mix and how you think about the relative spreads for the top credits amid a yield-compressing environment. Given that based on some of the numbers you've thrown out, your cost of capital, it seems like your own cost to capital was also coming down. So just, I guess, in terms of the spread, if you could just provide some color on your outlook, that would be helpful.

Look, I do think that larger MSOs are all-in and that's inclusive of things like agency fees, OID and other things that you may not see in a headline rate, are borrowing between 10% and 12% and I do think that’s -- I do think that many of the funds and hedge funds that have participated are filled up and we're seeing that in some of the syndicated transactions being weaker than expected, which is -- which may mean that yields are leveling off at that 10% to 12% total IRR. But when we talk about IRRs and yields, just remember, we're talking about yields to maturity and back to my first comment, it's very rare for something ever to be held to maturity. It's almost always a higher velocity. Then that, the five-year loan is typically repaid in three, a four-year loan in 2.5 years or 2.2 years. So, the effective yields are going to be higher, usually than the yields to maturity. So, we've been able to, I think, as Brett said, maintain a 20% yield, but basically a 20% yield to maturity on the current portfolio despite doing things like Verano and at a lower yield as they deserved. And so, I think we're able to maintain those types of yield to maturities. We do expect it to be potentially higher, additional velocity. As to next year, I think there will be a mix of larger MSOs that we will support and the smaller mid-sized operators that we'd like to grow and help them acquire and build out that institutional platform. So, I imagine next year at 50-50, but that's just a shot I had in the sky. There's no magic to the projection.

Super helpful color. Thanks very much, Len.

Your next question is from Aaron Hecht with JMP Securities.

Yes. Thanks for taking my questions. In terms of the Verano credit facility, $50 million commitment, is there a percentage of that that you believe goes out the door immediately? Is it a longer-term draw-down? Any thoughts around timeframe that commitments go out the door?

In this case, all $50 million are funded. But you're right, sometimes we do part-funding and part-commitment, in which case we charge an unused fee on the balance until it's strong and we have one, one-year drop periods, typically, sometimes a little bit longer. But in the case of Verano, they had immediate use for the capital and we funded all $50 million.

Roger that. And then I know you talked about 50-50 split, possibly next year with larger MSOs and smaller operators. Any thoughts on more near-term, maybe fourth quarter pipelines? If we were going to have a mix, obviously understand there could be some variability on how much money goes out the door, but any thoughts about near-term versus next year, large and MSOs versus smaller operators?

I think yield continue. It's all lumpy when things close, but we will continue to see a mix in the fourth quarter and probably all next year between the larger operators where they're more established with a diversified license stack and diversified operations and the smaller operators with one, two, three states of operations ramping cash flows and construction. So, you'll see a mix in the fourth quarter and I think you'll see a mix throughout next year.

Right. And then lastly on the amended credit facility for some five great rate. Any detail on the other fees that may be in there? Maybe undrawn fees that we need to be considering?

So remember, I'm still writing this credit facility and I'm giving all of the proceeds net of taxes -- hopefully, I don't get taxed on it -- to charity. We're going to back the AFC Foundation to benefit, primarily children in states that we operate in. So, all of it's going to be given on behalf of AFC to benefit the communities that we operate in as we think it's really important to give back and I made the rate pretty much equal to the rates that we're talking to some external banks about. We intend still to take an external bank credit facility. As you just pointed out, there are other fees and expenses in doing that. Typically those types of fees are -- let's call it 25 basis points upfront and there's 25 basis points unused that are waived in some cases. So, there's little bits of -- and there's an agency fee maybe. If you think about the sort of cost of the credit facility that we're talking about, we're talking about maybe $100,000 a year of extra cost. But that's not really what the cost to shareholders is. It's the legal cost, believe it or not. It's the legal cost on their side that we have to pay for and the legal cost on our side that we have to pay for and all of the borrowing bases, borrowing base certificates and all that. So, we're now prepared to do that. We have a robust platform, we have a fully built-out accounting team, we have a fully built-out legal team. We can definitely take an external bank and manage that and manage that efficiently and take it in the size that makes sense. And I think you will see us do that next year. And it doesn't mean that I'm not going to continue to maybe backstop and lend or give any proceeds to charity on behalf of AFC. I'd probably add to that credit facility because there's still not a lot of banks lending to the space.

It sounds like a great idea. Thanks for the color, Len.

No problem.

Your next question is from Mark Smith with Lake Street Capital.

Hi, guys. First off, I just wanted to ask, big picture, what you're seeing in kind of the cannabis industry, primarily in the states that you are currently operating then versus maybe the Californias and some of the other state?

Thank God, that we underwrote and we determined not to invest in cannabis in the State of California. Watching the collapse in cannabis prices to less than $300 for outside grows, I think will cause a lot of havoc in Cali – and I've wrote about this in my LinkedIn platform, if any of you want to watch, see the post and see the responses. I'll give a plug for that. But I think that a lot cannabis operators, especially the small and mid-sized operators are going to have severe trouble making their interest payments, and maybe performing on their loans. That leaked in of course to Oregon and Washington, which are unlimited license states. We do not operate in any of those states. We are considering our first Colorado deal by the way, but we don't operate under the license states. In the limited license states, we did see a little bit of a depth to Croptober, which basically is, when your outdoor grows, come to fruition just happened to be a very good growing season, pretty much across the country and there was a lot of supply. That's starting to actually be worked down and we're seeing prices starting to rebound in some of the limited license states. But California definitely has a flood of product and a flood of inventory that it has to work through and we do not intend to do investments in California any time soon.

Perfect. And then similarly, what are you seeing in the competitive landscape and kind of changes here recently? You talked about maybe some of the hedge funds that have been involved kind of topping out, but what else are you seeing in the competitive landscape today?

I think – when I sold my company Fifth Street to Oaktree, I realized – I learned a very important lesson. The day when Oaktree has one of the best platforms in the world, or country in terms of what lending platform and it was very difficult to compete to the Owl Rocks and Oaktree's of the world, BlackRock's, etcetera. I think us as the leading lender developing the best cost of capital, a great team that continues to grow to support us institutionally, having multiple prongs into our clients. Having incumbency in our important clients, should be a very huge differentiator and it's all about size, scale, cost of capital, but also institutionalized approach. You have to have a commercial and institutionalized approach and many of our competitors do not have that relationship approach. They're still draconian lenders that think that they can lend a different way. We are not those people. We've operated in the commercial lending for 20 years and we continue to build those relationships, and I think that's a really important approach that the industry needs. So, I'm excited about our prospects, and I'm excited about continuing to separate ourselves across the capital, our size and scale from our competitors.

Great. Thank you.

Your next question is from Russell Stanley with Beacon.

Good morning and thank you for taking my question. Perhaps somewhat out of necessity especially publicly traded borrowers. A number of them are of course, reevaluating what their capital structure should look like. Just wondering what structure you think is healthy for a cannabis company and what kind of leverage levels would concern you as a lender?

It's interesting. When you think about leverage levels -- and I know Beacon writes about a lot of different companies in cannabis -- our investors and our institutional investors are asking that question all the time, 'Oh, what leverage level should it be at?' Including all the sale leasebacks which are creeping up at 3% escalators and are you including that in leverage because that's effective leverage and all the guarantees that they get, are you including in leverage to seller notes that are below? Are you including in that the contingent liabilities from acquisitions that these MSOs are making or not? So leverage is not so simple and headline leverage is certainly not so simple. It takes an enormous amount of work and diligence in cannabis to really get to the bottom line. When you look at the public cannabis operators, many of them report on IFRS. You have to do the GAAP conversion. You have to ask what's below the line and what's above the line. We do all of this analysis when we determined what a real leverage is -- not headline leverage. Just like I say, an 8.5% coupon, it sounds like it's 8.5% money, but it's not. And so all of that is very important in when we lend and who we partner with. And obviously, you've seen us write a very large check to Verano and we asked all of those questions. What's the GAAP conversion? What does your real estate look like? How do you own it? What have you say at least factored anything? What equipment leases do you have, if any? And Verano is one of the cleaner operators in this space where they own their real estate and they really haven't succumb to very expensive and in the future, even more expensive sale leasebacks. So, we really want to target those types of companies that want to benefit SAFE Act passes, etcetera, from yield compression.

Got it. That's great color. And just one more question if I could, just around Robin's comments around the value of incumbency earlier on the call. Just wondering, what you're seeing in terms of new relationships coming forward, especially given the debt financings we've seen announced by the larger MSOs of late? Thank you.

I think the incumbency is very powerful and I think, if you have a good lender that's working well with you and that understands your business model, it's very hard for a new lending relationship to go take that over. We're proud to have the support of really great companies like Justice Grown, Nature's Medicine, Brono and others where we really believe the business model and we believe in what they're doing and how to build that over time. And I think as long as we continue to be good commercial partners and it's not to say that you give into everything. You just have to be commercial about your approach. I think that we'll continue to be lenders to those and other companies as we continue to build that relationship and we look forward to you guys seeing that happen over the next year.

Excellent. Thanks for the color.

Final question is from Lance Jessurun with Jefferies.

Thank you for taking my question. Two really quick ones. I wanted to chat on how you view the balance of debt and equity and where you kind of see your optimal leverage going over the course of the next quarters?

I think that -- and thank you for asking the question because I wanted to clarify a little bit. I said our target is 0.5 times leverage, I mean by the end of next year when I made that comment. It's a stair-step approach. Right? Now we have debt cost to capital. We're going to watch to see how that debt trades. It's already trading well after we did a week ago that we did this issuance. So we're monitoring the interest, continuing to talk to institutions about our debt now that we have a $100 million tranche that trades with Seaport. And we are also taking a look at equity issuance to balance that. Eventually get to the end of next year at a 0.5 times around my target is, a 0.5 times debt-to-equity ratio.

Okay, thank you. And then the last question I have is just around the competitive space. Your competitors are coming up. Anything on the regulatory side or the SAFE Act as well?

Look, I think there are a number of competitors that continue to try to get public or enter the space, but none of them I view as true institutional competitors that have built large businesses as John I have built. I built a $5 billion asset manager, scaled into 100 people. I've had over 100 credits, I portfolio-manage through those credits. There's really not anyone yet with that type of track record and expertise in middle-market lending and/or the expertise that John has in real estate, having done that for 20 years and matching billions of dollars of real estate assets. So, look, if an Apollo, or Owl Rock, or an Oaktree decide to come into our space right our fortress that is going to be a significant competitor to us. I think, I can differentiate enough in the next year for sure, but by none of those types of competitors and our expertise in cannabis and experience over the last three to four years, we have so much data. We really believe we're in the center of the industry in terms of data, data mining in the 14, 15, 16 states that we're really focused on, understand the legislative changes, understanding the very quickly changing dynamics in terms of even construction builds and how long that takes and the delays in orders and what orders you have to do first. We have so many different differentiating factors that I view the other ones really as far behind where we are. The other lenders that is. Obviously IIPR has a dominant position in sale leasebacks. We're not talking about that, we're talking about the lending environment, not the sale leaseback.

Got it. Thank you.

At this time, there are no questions. I would like to return the call back over to -- okay, we do have a question from [indiscernible] with BTIG.

Hey, good morning, Len, and Robin, and John. Can we just go back to the earlier question on yields? You mentioned that you see a potential leveling off of rates for the top-tier MSOs. Would you say that you are seeing that for the two other Tier 2 borrowers that you lent to as well? Are those dropping relative to the top-tier, maybe a little bit more color on there would be helpful?

Primary, my view -- there's no right answer, right? But my view of why the MSOs have gotten better pricing is, you've seen a very good effort from Canaccord and Seaport and attracting a lot of the hedge funds and credit funds into the space in the syndicated manner that felt like they had the clearance because Seaport was leading or Canaccord was leading. And that started driving the rates down. Look they do a very good job of doing that and packaging it correctly. Now remember, they charge a fee, which if we let the deal or originated the deal, we would get that fee as OID and it would be the same cost to the borrower. I think that our competitive positioning versus them -- they're important parts of the market. Canaccord and Seaport are doing a great job and they're going to continue to be very important parts of the market. But our positioning is, look, you want us to lead this deal and agent this deal and if it's a $400 million deal, maybe you want us to write $150 million check or $200 million check and yes, Seaport and Canaccord will do a great job syndicating the rest of it with us as a lead check and we'll be able to capture their fee. But also, you will have some control over maintenance and waivers and things like that versus have a very disparate holder base that doesn't necessarily build the relationship with the company. And so look, there's a place for everything, but I think Seaport and Canaccord did a pretty good job. developing a more competitive environment with larger credits.

Got it. Very interesting. And then on the competitive landscape then, Len, as the industry continues to mature and evolve, how would you characterize the demand for the sale leaseback financing versus secured loans from each of the tears of borrowers generally?

So, there is going to be a demand for sale leasebacks and there's going to be a demand for lending. Both of them serve different parts of the market and certainly if a company has gone down the sale leaseback route, my expectation is that we'll continue to go down that route for a variety of reasons, including the hooks that a lot of the sale leaseback firms have in those companies, and the fact that firms like IIPR have been good partners to their borrowers. I mean, they've been there with capital when they need that. And so, I expect that to continue and I expect newer companies that haven't done sale leasebacks to really think about in a potentially compressing yield environment over the next one to five years, do you want to own your real estate for now and borrow against it, versus do sale leasebacks because your effective cost of capital over the medium-term is going to be much better. Not every firm can afford to do that, right? Someone have to do sale leasebacks. But we expect both of them to be an important component to the market.

That thanks very much.

Thanks everyone.

I would now like to turn the conference back over to management for closing remarks.

Thank you all for listening. We look forward to reporting our year-end results next year.

This concludes today’s conference call. You may now disconnect.