Good day, and welcome to the Innovative Industrial Properties, Inc. First Quarter 2025 Earnings Call. All participants will be in a listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to Eli Kanter, Director of Investor Relations. Please go ahead, sir.

Thank you for joining the call. Presenting today are Alan Gold, Executive Chairman; Paul Smithers, President and Chief Executive Officer; David Smith, Chief Financial Officer; and Ben Regin, Chief Investment Officer. Before we begin, I'd like to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995. And actual results may differ materially due to a variety of risks, uncertainties and other factors. Please refer to the documents filed by the company with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, on today's call, we will discuss certain non-GAAP financial information such as FFO, normalized FFO, and AFFO. You can find this information together with reconciliations to the most directly-comparable GAAP financial measure in our earnings release issued yesterday as well as in our 8-K filed with the SEC. I'll now hand the call over to Alan.

Thanks, Eli, and welcome everybody to our first quarter 2025 earnings call. Before we begin, I would like to thank the entire IIP team for their hard work and dedication. They have truly been committed to protecting the long-term value of our portfolio for our shareholders by bringing their special knowledge and experience to this challenging industry. We believe we are uniquely positioned with our strong balance sheet and liquidity to manage through the ongoing uncertainty of the broader macroeconomic environment and the continued challenges in the regulated cannabis market. As for the quarter, we generated total revenues of $71.7 million, AFFO of $55.3 million and ended the period with just over $220 million of total liquidity. We delivered these results while navigating a turbulent market environment and advancing the strategic initiative we announced on our last call to strengthen our tenant credit profiles and optimize occupancy across our portfolio. The broader macroenvironment, particularly the ongoing uncertainty around tariffs has weighed on economic forecasts, inflation trends, consumer sentiment, and business planning. Against this backdrop, we continue to perform, focusing on optimizing occupancy of our portfolio, opportunistically recycling capital, and executing on growth initiatives on a disciplined selective basis. Year-to-date, we have acquired a $7.8 million industrial facility in Maryland, sold a cultivation facility in Michigan for $9 million, and executed two new leases totaling 211,000 square feet. Now Ben will provide more detail on our investing, leasing, and disposition activity. In addition, we strategically undertook steps to strengthen our financial foundation and drive long-term shareholder value. Year-to-date, we repurchased $20 million of our common stock at what we believe are compelling valuations and retired nearly $9 million of debt at a discount. To further enhance our capital structure, we also issued $10 million of preferred equity. These actions underscore our disciplined approach to capital allocation and our commitment to maximizing returns for shareholders. Now David will provide more detail on our financial results and capital position shortly. As we announced in March, we are proactively working to refresh a portion of our tenant base to better position our company for sustainable growth and financial performance. As part of this effort, we issued default notices for non-paying tenants and are aggressively pursuing all legal remedies available to enhance the performance of our real estate portfolio. We are encouraged by our progress so far and believe it reflects our management team's ability to navigate complex situations effectively with a focus on protecting shareholder value. We remain confident in the strength of our business and the opportunities that lie ahead. We look forward to keeping you updated on our continued progress. With that, I'll now turn the call over to Paul.

Thanks, Alan. As we noted last quarter, we are taking a strategic and aggressive approach to replacing our defaulted tenants. I'd like to provide some additional color on our progress with each tenant. Shortly after sending out default notices in March, Gold Flora filed for voluntary receivership in the State of California and announced the suspension of trading on CBOE Canada. Stone Blossom Capital has been appointed as the receiver of the company and we are currently in discussions with Stone Blossom about their plan for our properties leased to Gold Flora. Also in March, we issued default notices to Tilt Holdings and following the delivery of these notices, TILT made partial payments and satisfaction of their April rent obligations for the two properties we lease to them. We are working in good faith to resolve outstanding rental and other financial obligations under the leases while TILT works to complete the planned divestiture of their plant-touching businesses. For PharmaCann and 4Front Ventures, we have issued default notices and are actively working with local counsel to aggressively pursue our legal rights under the leases, including evictions. Understanding that each state is different, which impacts the timing and complexity of recovering these properties, we are working diligently through the process and we'll provide updates as we progress. On the regulatory front, the States 2.0 Act was introduced in the House last month with bipartisan co-sponsors. As a reminder, this act would make state-legal cannabis businesses federally legal and would also eliminate the punitive 280E tax, among other benefits. In addition, during last month's confirmation hearing for Terence Cole, President Trump's nominee to lead the DEA, Cole stated that reviewing the rescheduling of cannabis would be among his top priorities if confirmed. And at the state level, Pennsylvania, Florida, and Minnesota are making significant strides in their adult-use cannabis legalization initiatives. Pennsylvania is exploring legalization of adult-use cannabis with Governor Shapiro's budget proposing legalization effective July 1, 2025, with sales anticipated to begin by January 1, 2026. In Florida, the Smart and Safe campaign aims to put adult-use cannabis back on the ballot for the 2026 election after receiving 56% support in last November's election. Finally, Minnesota's Office of Cannabis Management progressed its regulatory framework by publishing its final rules in April. With these state-level drivers and continued strong consumer demand, BDSA forecasts U.S. cannabis sales to grow by 7% to $33.5 billion in 2025 and projects a compounded annual growth rate from 2024 to 2029 of 7.2%, reaching $44.4 billion by 2029. That said, competition from the illicit market, price compression, market maturity, and few new adult-use markets may continue to weigh on investor sentiment and operator performance. These market conditions are a key driver of our re-tenanting philosophy of focusing on bringing best-in-class operators to our mission-critical real estate. I'd like to now turn the call over to Ben to discuss our investment, leasing, and disposition activity.

Thanks, Paul. For my prepared remarks, I'd like to touch on our portfolio initiatives described by Alan. Leasing, selective investment activity, and opportunistic capital recycling. During the first quarter, we acquired a 22,000 square-foot industrial property in Maryland and entered into a long-term lease with a private Maryland operator expanding our footprint in the State to approximately 316,000 square feet. And in April, we closed on a $9 million disposition in Michigan for our property previously leased to Emerald Growth and executed a PSA to sell another property in Palm Springs, California. These three transactions illustrate our team's focus on strategic investments and opportunistic capital recycling. On the leasing side, over the first four months of the year, we have executed two new leases totaling 211,000 square feet, including a full building lease for our 205,000 square foot property in Warren, Michigan with Berry Green, one of the largest cultivators in Michigan with one of the top-selling brands in the state. We are encouraged by the demand we are seeing for our assets across markets and the leasing progress we have made this year, while also continuing to source attractive new investment opportunities, which we will continue to pursue on a very selective disciplined basis. With that, I'll hand it over to David.

Thank you, Ben. For the first quarter, we generated total revenues of $71.7 million, a 6.5% decrease from the fourth quarter of last year. The decrease was primarily driven by the tenant defaults we previously disclosed in March. The decline was partially offset by increased revenues from properties we recently-acquired or re-tenanted, additional funding, and building improvements that resulted in base rent increases and contractual rental escalations. During the quarter, we applied $5.8 million of secured deposits for the payment of rent on properties leased to four tenants. Adjusted funds from operations for the first quarter was $55.3 million or $1.94 per share, a decrease of 13% compared to the fourth quarter of 2024, driven primarily by the same factors that drove the decrease in revenue sequentially. Our balance sheet remained solid this quarter, supported by $2.6 billion in gross assets with nearly $2.2 billion of those assets unencumbered. Our only debt consists of $291 million in fixed-rate unsecured bonds maturing in May 2026. Furthermore, we continue to operate with conservative credit metrics highlighted by a net-debt to EBITDA of less than one time, a debt-to-gross assets ratio of 11%, and a debt service coverage ratio of nearly 17 times, which we believe positions us well for long-term value creation. This quarter, we executed on several strategic capital markets transactions to strengthen our financial position. In February, we repurchased $8.8 million of the company's unsecured notes at a discount to par value and year-to-date, the company issued just over 406,000 shares of our Series A preferred stock under our at-the-market equity offering program for $10.1 million in gross proceeds. In addition, with the stock repurchase program we established in March, we have the ability to opportunistically repurchase shares that we view as a clear undervaluation of our stock. Since the adoption of our stock repurchase program, we have repurchased 371,538 shares of common stock under this program for a total cost of $20.1 million at a weighted average price of $54.09 per share. Our solid financial position, characterized by strong liquidity and diversified capital markets access, positions us well to navigate the current challenging market environment. With that, I'll turn it back to Alan.

Thanks, David. As I indicated in my opening comments, I am proud of what our team accomplished this quarter, and we are confident in the future. As long-term owners of our company, thank you as always for your continued support. With that, I'd like to open it up to questions. Operator, could you please open the call up for questions?

And your first question today will come from Tom Catherwood with BTIG. Please go ahead.

Thank you so much, and good morning, everybody. Paul, I want to touch on - you mentioned working with PharmaCann towards a resolution, but I assume the 205,000 square feet that you leased in Michigan in April is PharmaCann's facility. Is that right? And have you gotten control of some of their assets already?

Yes. Hi, Tom. So yes, that is correct. That's a PharmaCann facility, and we're really proud of being able to re-tenant that facility as quickly as we did and put into a high-quality tenant. So we think that is the beginning of a good process and we'll go down the road with the rest of them as necessary. As we mentioned, we are actively pursuing legal remedies. But at the same time there's other potential outcomes, including receiverships. So we're really only a few weeks into this process. And so we think leasing that facility is a really good start for us.

Got it. And just building on that lease, you've also completed a significant amount of large block re-leasing in the past 18 months. There are obviously that one's, the PharmaCann's, then there was, I think, 160,000 square feet in Pittsburgh last quarter. And then another 200,000 square feet in Michigan at the end of 2023. So kind of two questions around that. First, how did these transactions come together? Did you find the tenants or did they find you? And then second, is there anything unique with these tenants in terms of either their strategy or structure or management that makes them different from tenants you were leasing to four or five years ago?

Let me ask Ben to respond to that one.

Yes. Hi, Tom. Yes, I mean to reiterate, you're right, I mean, we're talking nearly 1 million square feet of total leasing activity when you go back to late 2023 with our Michigan deal. The sourcing of the tenants comes in all different ways. We're eight years in and have a lot of great relationships and networking in the industry. We're very confident in the team that we have in place to execute and source these tenants. We're very confident in our plan for the portfolio. It's great to see that there are still in challenging markets groups that can make money. You find efficient operators that are performing well, even in Michigan, Massachusetts, and California, in states that are viewed as a little more challenged. And I think they view a tremendous amount of value in our mission-critical real estate. And we've been very encouraged really across the portfolio, the demand we're seeing from these groups.

And Tom, just on following up on that question, so a lot of these tenants that are struggling today might most likely have an issue with their balance sheet and their financial position, more so than the actual operating business. They're operating - the operating environment while challenging can still be a very good business. But with the historical balance sheet issues that some of them have creates more of a balance sheet issue. And I think that that's what we're discovering, and we are being very focused on choosing tenants that have the ability to operate very well and succeed in the future.

Got it. Appreciate all those thoughts. And then one last one for me. Since you announced the tenant refresh program at the end of March, a lot has changed as far as tariffs and there's been reports out there that a lot of packaging for cannabis operators comes from China. Kind of since that early-April time frame, have there been any other tenants that you're concerned with their operations or outlook going forward and might have to be included in this refresh program?

Well, as we're monitoring all of our tenants, we believe that there are - the macro-environment is still challenging and that there could be future issues. But right now, we are fairly confident that we've got our hands around our portfolio and our tenant base and confident that within a short 18 to 36 month period of time, the ship will generally be righted.

Understood. Appreciate all the answers. Thanks, everyone.

Thanks, Tom.

And your next question today will come from Connor Mitchell with Piper Sandler. Please go ahead.

Hi, good morning. Thanks for taking my question. First, I just want to go back to the space that was leased to Berry Green, the 205,000 square feet of the Michigan property, previously PharmaCann. I guess just kind of following on to some of Tom's questioning. What kind of makes this property unique in that you guys were able to lease it so quickly? And then should we expect any others that are in a similar stage or do you think that this is going to be a path that might follow for some of the PharmaCann properties or some of the others that you mentioned might fall under the process of receivership and might be a little bit longer instead?

Yes. Hi, Connor, this is Ben. I can take that. I wouldn't necessarily say it's unique. I mean, I think this follows a pretty strong track record that the team has here of re-tenanting these buildings in Michigan, like we've talked about before. I think we do expect that this will play out, as Alan mentioned, over the next 18 to 36 months as we're bringing new tenants in. But again, we've been very encouraged by the outreach that we've gotten, the inbound interest we've seen really across these buildings in multiple different markets, the groups that we're talking to that have the operational expertise and the financial position that we would want in our portfolio. And we feel very good that we've got the right team in place here to execute on our plan for these buildings.

Okay. I appreciate that. And then maybe if you could just remind us how much of the rent or security deposits were received and recorded in revenue in the quarter for the tenants that defaulted on payments for you guys viewed as part of the cleaning process that we should kind of think about in a modeling perspective stripping out going forward?

David, why don't you go ahead and handle that. But I think that's a really good point that security deposits were used for some rental income in the first quarter and won't be available in the second quarter and beyond.

Yes. So Connor, on that, I think as we disclosed in our press release, there was $5.8 million of secured deposits applied for the quarter for those defaulted tenants. It is important to note in the case of PharmaCann, 4Front, and TILT those security deposits were exhausted. So just over just over $0.20 a share of impact from that benefit.

Okay. And then any rents as well, I think for some of these, you may receive January payments, but not February or March?

Yes. We can go into the detail offline, but it was roughly $4.5 million that we collected from the defaulted tenants during the quarter.

Okay. I appreciate that. And then maybe one more for me. You guys made mention in the release of three leased properties that are still - you're waiting on rent commencement due to approvals that haven't been acquired yet. Just wondering if you could give some color on maybe the markets these are taking place in? And then if this has kind of changed your investment thesis on these markets if the regulatory process, the licensing process is a little bit slower than anticipated and maybe more difficult when you were underwriting the acquisition of the property?

Yes. Hi, Connor, this is Ben. Yes. I don't think it changes our view on the markets. I think this is pretty standard across markets and across industries really. I mean, it does take some time for a new operator to get in there, make any improvements they might want to make to the space, ultimately get sign-off and approval and final licensing. So I think this is all kind of in the normal course of what we would expect for these assets.

Okay. That's all for me. Thank you.

Thanks, Connor.

And your next question today will come from Bill Kirk with ROTH Partners. Please go ahead.

Hi, thank you. Good afternoon, everyone. So I wanted to talk logistically maybe about like the remedy where you take possession of some of these properties. And I guess what I want to ask is, in the context of not being plant touching, how - when you take possession of the property, how does that influence that listing status with the exchanges or what can you do with the property when you were to take possession that keeps you in compliance with what you need to do?

Hi Bill, It's Paul. So you know, it's really not a problem for us to date. And when we do take possession, of course, we, as a New York Stock Exchange listed company, we do not hold the license. We do not operate the property. So what we've done in the past to ensure a smooth transition is to utilize a management service agreement. So we put a third party in there to facilitate the transition into a new tenant and facilitate the license transfer. So we have a good process in place to ensure that we don't cross any lines with our division from not being a plant-touching company.

That's perfect. That's all I had. Thank you.

Okay. Thanks, Bill.

And your next question today will come from Aaron Grey with Alliance Global Partners. Please go ahead.

Hi, good afternoon and thank you for the questions here. So want to piggyback a bit off some of the questions that have been asked on the resolutions. I understand you're limited in what you can discuss because it's still ongoing and there's a lot of puts and takes. But curious in terms of timing of a resolution for these active facilities, is that coming into play? I know a lot of times for the existing tenants, they want to keep ongoing operations with the new tenant potentially coming in as well. They'd like to have everything up to date and ongoing as well. So curious how that comes into play, especially when you do have a crop with a certain amount of life cycle there, and you want to be fresh and going out to be sold for the best amount of cash flow. So just curious if that comes into play in terms of these negotiations and how you're looking to come to resolutions here. Thank you.

Yes, thanks, Aaron. This is Paul. So yes, you're exactly right that it is much more desirable to have a performing facility with the plants in good shape and growing and all the infrastructure up and running to facilitate a good transfer. So that's always the goal. But that being said, if we're in a receivership situation, it's a little easier because it's structured and we have the control of the receiver to help facilitate the transfer. But if we are in any eviction situation, we are willing and able to take over the property, put it into a management service agreement like I mentioned and clean it out. But that's kind of a last resort. And even when we're in eviction, once we take control, you know, we're typically already in negotiations with a replacement tenant. And so with the cooperation of the departing tenant, we can make that transfer. So as I mentioned, it's always desirable to have the functioning facility in place on the transfer, and that's our goal.

Really appreciate that color. That's helpful. And then second question for me, just as we think about potentially return again on the offensive, I think you said about $220 million of liquidity available in the presentation. Just given the current set of cannabis, I know that remains a focus, but last quarter, I believe you mentioned that you've broadened investment opportunities. So just curious today, any more color you can provide on that? Where are you seeing potential opportunities to deploy some of that liquidity? Thank you.

Yes. So we are continuing to evaluate many opportunities. I think that that liquidity comes with a cost of capital, and we're highly focused on making sure that we are looking at opportunities that can provide us an accretive return based on our cost of capital. And unfortunately, the environment does have several unique opportunities. And hopefully in the next short three to six months, we can announce some new investments. But in addition to that, we continue to review and analyze unique opportunities within the cannabis industry and still have a pipeline associated with that.

Appreciate the color there. I'll jump back in the queue.

Thanks, Aaron.

That concludes our question-and-answer session. I would like to turn the conference back over to Alan Gold for any closing remarks.

Thank you, and first and foremost, I'd like to thank you all for joining us here today. And again, to thank the team for their hard work on this portfolio and stockholders for their continued support. With that, we'll end the call. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.