H2 2023 Innovative Industrial Properties Inc Earnings Call

Operator: Good day, and welcome to the Innovative Industrial Properties Incorporated fourth quarter and full year 2023 earnings call. All participants will be in listen-only mode.

Good day and welcome to the innovative industrial properties incorporated fourth quarter and full year 2023 earnings call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on your touchtone phone.

After today's remarks, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I'd now like to turn the conference over to Brian Wolfe General Counsel. Please go ahead.

Operator: To withdraw your question, please press star, then two. Please note this event is being recorded. I'd now like to turn the conference over to Brian Wolfe, General Counsel. Please go ahead.

Brian Wolfe: 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; Catherine Hastings, Chief Offering Officer; and Ben Regan, 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.

Brian Wolfe: 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, Catherine Hastings, Chief Operating Officer, and Ben Regan Chief Investment Officer.

Brian Wolfe: Before we begin I'd like to remind everyone that statements made during today's conference call maybe deemed forward looking statements within the meaning of the safe Harbor.

Brian Wolfe: Securities Litigation Reform Act of 1995.

Brian Wolfe: Actual results may differ materially due to a variety of risks uncertainties and other factors.

Brian Wolfe: 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.

Brian Wolfe: 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 adjusted FFO. 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 file with the SEC. I'll now hand the call over to Alan. Alan?

We are not obligated to publicly update or revise any forward looking statements.

As a result of new information future events or otherwise.

Brian Wolfe: In addition on today's call, we will discuss certain non-GAAP financial information such as the F O.

Brian Wolfe: Normalized.

Brian Wolfe: And adjusted <unk>.

Brian Wolfe: You can find this information together with reconciliations to the most directly comparable GAAP financial measure.

Brian Wolfe: 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 Alan.

Alexander David Goldfarb: Thank you, Brian, and welcome everyone. We are pleased to discuss our results for the full year 2023 and recent activity as we enter into our eighth full year of operation. The company performed well in 2023 and has continued to execute year-to-date, demonstrated by one annual AFFO per share growth of 7%. 2. Increasing our annual dividends declared each year since inception in 2016. 3. Committing capital totaling $119.5 million during 2023. 4. Executing new leases and LOIs to release five properties representing over $140 million of invested capital. And 5.

Alexander David Goldfarb: Thank you, Brian and welcome everyone. We are pleased to discuss our results for the full year 2023, and recent activity as we enter into our eighth full year of operations. The company performed well in 2023 and has continued to execute year to date demonstrated by one.

Alexander David Goldfarb: Annual <unk> per share growth of 7%.

Alexander David Goldfarb: Two increasing our annual dividends declared each year since inception in 2016.

Alexander David Goldfarb: Three committing capital totaling $119 5 million during 2023.

Alexander David Goldfarb: For executing new leases and allies to release five properties, representing over $140 million of invested capital.

Alexander David Goldfarb: Five further enhancing our liquidity position and strong balance sheet with the closing of a new $45 million revolving credit facility.

Alexander David Goldfarb: Further enhancing our liquidity position and strong balance sheet with the closing of a new $45 million revolving credit facility. For the year, IIP generated total revenues of $310 million and adjusted funds from operations of $256 million, increases of 12% and 10% over 2022, respectively. I will note that these growth results were achieved during a time when we strategically determined to reduce our investment activity in light of macroeconomic uncertainties and a significantly increased cost of capital. That financial performance allowed us to continue to grow our dividend, with $7.22 of common stock dividends declared over the course of 2023, annual dividends increasing each year since inception. Our most recent dividend declared in Q4 of $1.82 per share was at the midpoint of our board's target dividend payout range of 75% to 85% of AFFO.

Alexander David Goldfarb: For the year IP generated total revenues of $310 million and adjusted funds from operations of 256 million increases of 12% and 10% over 2022, respectively.

Alexander David Goldfarb: Note that these growth results were achieved during a time when we strategically determined to reduce our investment activity in light of macroeconomic uncertainties and significant increased cost of capital.

Alexander David Goldfarb: That financial performance allowed us to continue to grow our dividend with $7.22 of common stock dividends declared over the course of 2023.

Alexander David Goldfarb: Annual dividends, increasing each year since inception.

Alexander David Goldfarb: Our most recent dividend declared in Q4 of $1 82 per share, which at the midpoint of our boards target dividend payout range of 75% to 85% of a F F O.

Paul Smithers: We have one of the strongest and most experienced teams of real estate professionals in the cannabis industry, a high-quality portfolio, and a conservative and flexible balance sheet with 12% debt to total gross assets. No variable rate debt, and no debt maturities until May 2026. We further enhanced our balance sheet position during Q4 with the introduction of a revolving credit facility and then recently upsized that facility earlier this month, which David will touch on further. On the investments front, we are very pleased with our execution on our release initiatives as well as the opportunities we are seeing to selectively close on new investments, which Ben will discuss in more detail. From a regulatory perspective, as we noted in our prior call, we continue to follow closely the potential rescheduling of cannabis from Schedule I to Schedule III under the Controlled Substance Act. Of course, there are significant benefits to this, the most important of which, from our perspective, is the potential lifting of the confiscatory 280e federal taxes imposed on regulated cannabis operators. And Paul will discuss our thoughts in more detail. I will now turn the call over to Paul to discuss licensing, regulatory, and industry dynamics. Paul?

Alexander David Goldfarb: We have one of the strongest and most experienced teams of real estate professionals in the cannabis industry, a high quality portfolio and a conservative and flexible balance sheet with a 12% debt to total gross assets.

Alexander David Goldfarb: Variable rate debt no debt maturities until May 2026.

Alexander David Goldfarb: We further enhanced our balance sheet position during Q4 with introduction of our revolving credit facility and then recently upsize that facility earlier, this month, which David will touch on further.

Alexander David Goldfarb: On the investment front, we are very pleased with our execution on re leasing initiatives as well as the opportunities we're seeing to selectively close on new investments, which Ben will discuss in more detail.

Alexander David Goldfarb: From a regulatory perspective, as we noted in our prior call. We continue to follow closely the potential rescheduling of candidates from schedule one to schedule three under the controlled substance Act.

Alexander David Goldfarb: Of course, there are significant benefits to this the most important which from our perspective is the potential lifting of the consistent story to a D E federal taxes imposed on regulated cannabis operators and Paul will discuss our thoughts in more detail.

Alexander David Goldfarb: I will now turn the call over to Paul to discuss licensing regulatory and industry dynamics Paul.

Paul Smithers: Thanks, Alan. Licensing. Before discussing overall market developments, I'd like to provide an update on the properties leased or previously leased to Parallel, Green Peak, and Kings Garden. As we have noted in the past, and I think it is worth repeating here, we are, of course, first and foremost focused on maximizing the value of each of our properties and having tenants with strong teams that can manage their businesses successfully through the inevitable ups and downs in the industry. As we discussed in detail previously, Green Peak was placed into receivership in March of last year, and we subsequently regained possession of the Summit Building, a cultivation and processing facility under redevelopment, and three small retail locations. The receiver also decided to turn back the Harvest Park cultivation and processing facility to us, but we expect the buyer of the remaining Green Peak receivership estate to assume the leases for the other three retail locations with no changes to terms.

Paul Smithers: Thanks, Alan licensing before discussing overall market developments I'd like to provide an update on our properties leased or previously leased to parallel Green peak and Kings Garden as we've noted in the past and I think it is worth repeating here.

Paul Smithers: Of course, first and foremost focused on maximizing the value of each of our properties and having tenants with strong teams. They can manage their businesses successfully through the inevitable ups and downs with the industry.

Paul Smithers: As we discussed in detail previously Green peak was placed into receivership in March of last year, and we subsequently regain possession of the summit building, our cultivation and processing facility under redevelopment and three small retail locations.

Paul Smithers: The receiver also decided to turn back the harvest park cultivation and processing facility to us, but we expect the buyer of the remaining Green peak receivership estate to assume the leases for the other three retail locations with no changes to terms.

Paul Smithers: As you also know, we filed actions against Parallel for possession and damages at our Texas and Pennsylvania properties and regained possession of those two properties in March and October of last year, respectively. We are actively exploring all options for these properties. With respect to the Pennsylvania property, a consent order was issued in October awarding us damages of $15.5 million, of which we collected $1.7 million in Q4.

Paul Smithers: As you also know we filed actions against parallel for possession and damages at our Texas, and Pennsylvania properties and regain possession of those two properties in March and October of last year, respectively.

Paul Smithers: We are actively exploring all options for these properties with respect to the Pennsylvania property a consent order was issued in October warning us damages of $15 $5 million of which we collected $1 7 million in Q4.

Paul Smithers: In late September, as we previously disclosed, we regained possession of the remaining four properties previously occupied by Kings Garden. As Alan noted, we are pleased with our progress to date on these properties, and Ben will provide further detail in his prepared remarks. Market Development, Growth of the overall cannabis industry in the U.S. continues to remain strong with BDSA projecting cannabis sales to increase approximately 10% in 2024. BDSA estimates U.S. cannabis sales were $29.5 billion in 2023, representing approximately 12% growth from 2022. Although unit pricing for regulated cannabis products has been under pressure in certain states at the wholesale level for some time now, indoor cannabis cultivation continues to command significant sustained premiums versus greenhouse and outdoor counterparts. Several factors affect unit pricing, including basic supply-demand dynamics, lack of meaningful enforcement in certain states on illicit, non-licensed cannabis sales by state and local law enforcement authorities, taxation, and general macroeconomic conditions.

Paul Smithers: And in late September as we previously disclosed we regain possession of the remaining four properties previously occupied by King's Guard.

Paul Smithers: As Alan noted we are pleased with our re leasing efforts to date for these properties and Ben will provide further detail in his prepared remarks.

Market development.

Paul Smithers: Growth of the overall cannabis industry in the U S continues to remain strong with BD S projecting cannabis sales to increase approximately 10% in 2020 for BD.

Paul Smithers: P D S. A estimates U S. Cannabis sales were $29 $5 billion in 2023, representing approximately a 12% growth from 2022.

Paul Smithers: Although unit pricing for regulated cannabis products has been under pressure in certain states at the wholesale level for some time now indoor cannabis cultivation continues to command significant sustained premiums versus greenhouse and outdoor counterparts.

Paul Smithers: Several factors affect unit pricing, including basic supply demand dynamics lack of meaningful enforcement in certain states on illicit non licensed cannabis sales by state and local law enforcement authorities taxation and general macroeconomic conditions.

Paul Smithers: From a state market perspective, we continue to see divergence in performance and dynamics, with new markets experiencing high growth while some mature markets become increasingly competitive, especially after an extended period of price compression and the aforementioned challenges in competing with the illicit market. For example, 2023 saw strong rollouts for adult use sales in Missouri and Maryland, and Ohio legalized adult use in November, with sales expected to commence this year and Ohio expected to be one of the fastest growing markets in the near future. On the flip side, while New York introduced its Adult Use Program more than a year ago, it remains constrained by limited retail availability and a thriving illicit market, though there are efforts in the state to ramp up enforcement efforts.

Paul Smithers: From a state market perspective, we continue to see divergence in performance in dynamics with new markets experiencing high growth, while some mature markets become increasingly competitive, especially after an extended period of price compression and the aforementioned challenges in competing with the illicit market for example, 2020.

Paul Smithers: We saw strong rollouts for adult use sales in Missouri in Maryland, and Ohio legalized adult use in November with shell is expected to commence this year in Ohio expected to be one of the fastest growing markets in the near future.

Paul Smithers: On the flip side, while New York introduced its adult use program more than a year ago. It remains constrained by limited retail availability and a thriving illicit market. So there are efforts in the state to ramp up enforcement efforts for additional perspective, PDSA put out recent estimates that illicit competition drives more than three quarters.

Paul Smithers: For additional perspective, BDSA put out recent estimates that illicit competition drives more than three-quarters of total sales in the New York market and that there were roughly 50 active adult-use retailers in the state earlier this month versus over 2,000 illicit retailers. Capital Availability Another continuing theme from our prior calls is the impact that the tightening of financial conditions has had on capital availability for the cannabis industry. As with other industries, the cost of capital and capital availability have fundamentally changed for cannabis operators over the course of the past few years, with Viridian Capital Advisors reporting that both U.S. operator capital raising and mergers and acquisitions activity in 2023 were at their lowest levels since before 2018. The funding environment continues to be challenged right now.

Paul Smithers: Of total sales in the New York market.

Paul Smithers: And that there were roughly 50 active adult use retailers in the state earlier this month versus over 2000 illicit retailers.

Paul Smithers: Capital availability.

Paul Smithers: The continuing theme from our prior calls is the impact that the tightening of financial conditions has had on capital availability for the cannabis industry.

Paul Smithers: As with other industries, the cost of capital and capital availability have fundamentally changed for cannabis operators over the course of the past few years.

Paul Smithers: With Meridian capital advisors reporting that both U S, operator capital raising and mergers and acquisitions activity in 2023 were at their lowest levels since before 2018. The funding environment continues to be challenged right now.

Ben Regan: That said, we've seen a significant bounce in many publicly traded MSO stock prices since the announcement by the Department of Health and Human Services that it recommended to the DEA a reclassification of cannabis from Schedule 1 to Schedule 3, federal legislation. On the federal legislation front, we are closely watching for progress on the DEA's evaluation of the HHS recommendation to reschedule cannabis to Schedule III. Most importantly, such a reclassification is expected to end the 280e tax treatment, which has imposed an extreme, unsustainable tax burden on regulated operators for years. We expect such a change to be a great win and potentially a significant positive catalyst for the industry, immediately providing a meaningful improvement in many operators' financials. To give you a sense of magnitude for this potential adjustment, a recent Viridian analysis estimated that removal of the 280E burdens could reduce the 12 largest publicly traded operators' collective tax burden by $700 million annually, providing for a rational tax structure for these operators, many of which face effective tax rates of well over 100% under the 280E regime. I'd like to now turn the call over to Ben to discuss our portfolio and leasing activity in the fourth Ben.

Paul Smithers: That said, we've seen a significant bounce in many publicly traded msos stock prices since the announcement by the department of Health and human services and are recommended to the D. E. A reclassification of cannabis from schedule one to schedule III.

Paul Smithers: Federal legislation.

Paul Smithers: On the federal legislation front, we are closely watching for progress on the <unk> evaluation of the HHS recommendation to reschedule cannabis to schedule III.

Paul Smithers: Most importantly, such a reclassification is expected to end the 280 E tax treatment, which is imposed an extreme unsustainable tax burden unregulated operators for years.

Paul Smithers: We expect such a change to be a great win and potentially significant positive catalyst for the industry immediately providing meaningful improvement in many operators financials.

Paul Smithers: To give you a sense of magnitude for this potential adjustment a recent meridian analysis estimated that removal of 280 burdens could reduce the 12 largest publicly traded operators collective tax burden by $700 million annually, providing for a rational tax structure of these operations many of which piece.

Paul Smithers: Active tax rates are well over 100% under the 280 <unk> regime.

Paul Smithers: I'd like to now turn the call over to Ben to discuss our portfolio and leasing activity in the fourth quarter and into 2024 then.

Ben Regan: Thanks, Paul for my prepared remarks, I plan to highlight our leasing progress for our vacant and underdevelopment assets. We took back possession of our summit property in Michigan in March of 2023, while it was under redevelopment, we signed an LOI for the asset in Q3 less than six months after repossession and executed a lease in Q4.

Ben Regan: For my prepared remarks, I plan to highlight our leasing progress for our vacant and underdeveloped assets. We took back possession of our Summit property in Michigan in March of 2023 while it was under redevelopment. We signed an LOI for the asset in Q3, less than 6 months after repossession, and executed a lease in Q4.

Ben Regan: We anticipate completing redevelopment of the 201000 square foot project in Q4 of this year and are looking forward to our new tenant moving in and activating the building.

Ben Regan: We anticipate completing the redevelopment of the 201,000 sq. ft. project in Q4 of this year and are looking forward to our new tenant moving in and activating the building. In addition to the lease for the Summit Building, we've also executed LOIs for both our McLean and 19th Avenue properties in Southern California. We are working diligently through the lease negotiations on these assets and will provide updates as we progress. These two assets, along with Summit, represent over $120 million of invested capital, and we are very pleased with the demand we saw for the space and the speed in which we were able to get each asset under LOI early. Also, as Paul noted, Green Peak is expected to move out of our Harvest Park property on March 1st.

Ben Regan: In addition to the lease for the summit building. We've also executed LOI is for both our Mcclain and 19th Avenue properties in Southern California.

Ben Regan: We are working diligently through lease negotiations on these assets and will provide updates as we progress.

Ben Regan: These two assets along with summit represent over $120 million of invested capital and we are very pleased with the demand we saw for the space and the speed in which we were able to get each asset under LOI or lease.

Ben Regan: Also as Paul noted Green peak is expected to move out of our harvests Park property on March 1st week.

Ben Regan: We saw significant interest in the assets since the announcement of Greenpeace departure and executed a letter of intent earlier. This month ahead of Green peaks move out date.

Ben Regan: Lastly, we signed the lease last month for one of our three vacant retail assets in Michigan, we are continuing to market for lease the remaining two retail assets as well as our north Anza in del Sol assets in Southern California, The total of which is less than 1% of our total invested capital.

Ben Regan: Regarding our San Bernardino property as noted on previous calls we are exploring a potential mixed use development of the property and will continue to provide updates on progress on future calls.

Ben Regan: For a land site in San Marcos, Texas, we continue to explore options for that site for vertical construction has not yet commenced.

Ben Regan: We saw significant interest in the asset since the announcement of Greenpeak's departure and executed a letter of intent earlier this month ahead of Greenpeak's move out. Lastly, we signed the lease last month for one of our three vacant retail assets in Michigan. We are continuing to market for lease the remaining two retail assets, as well as our North Anza and Del Sol assets in Southern California, the total of which is less than 1% of our total invested capital. Regarding our San Bernardino property, as noted on previous calls, we are exploring a potential mixed-use development of the property and will continue to provide updates on progress on future calls. For our land site in San Marcos, TX, we continue to explore options for that site where vertical construction has not yet commenced, and our Pittsburgh, PA asset, Parallel, wound down its operations in late October, and we were awarded a consent judgment for possession and damages at that time, as Paul noted, and collected about $1.7 million on that judgment in December.

Ben Regan: And at our Pittsburgh, Pennsylvania asset parallel wound down its operations in late October and we were awarded a consent judgment for possession and damages at that time as Paul noted and collected about $1.7 million on that judgment in December.

Ben Regan: As we now have control of the asset we are actively exploring leasing options for the property.

Ben Regan: Regarding new investment activity, we have continued to selectively close on new opportunities supporting our tenant partners and their growth initiatives in key markets.

Ben Regan: As we previously reported we amended our lease with goodness growth in New York in Q4, providing additional funding to complete the development of the expanded cultivation and processing facility and increasing rent accordingly.

Ben Regan: As goodness growth previously disclosed and we noted in our last call. The company is exploring the sale of its New York operations, including the operations at this facility.

Ben Regan: We also executed a lease amendment with farm Mccann to provide additional construction funding of $16 million to our New York asset as far Mccann executes on its strategy to expand production capacity after being awarded an adult use production license late last year.

Ben Regan: We are pleased with the demand we're seeing for assets across markets and a significant leasing progress. We have made in the last year. While also continuing to source attractive new investment opportunities, which we will continue to pursue on a very selective disciplined basis.

Catherine Hastings: As we now have control of the asset, we are actively exploring leasing options for the property. Regarding new investment activity, we have continued to selectively close on new opportunities supporting our tenant partners and their growth initiatives and key markets. As we previously reported, we amended our lease with Goodness Growth in New York in Q4, providing additional funding to complete the development of the expanded cultivation and processing facility and increasing rent accordingly. As Goodness Growth previously disclosed, and we noted in our last call, the company is exploring the sale of its New York operations, including the operations at this facility. We also executed a lease amendment with Pharmacan to provide additional construction funding of $16 million to our New York asset as Pharmacan executes on its strategy to expand production capacity after being awarded an adult use production license late last year. We are pleased with the demand we are seeing for our assets across markets and the significant leasing progress we have made in the last year, while also continuing to source attractive new investment opportunities, which we will continue to pursue on a very selective, discipline-based With that, I'll turn it over to Catherine.

Ben Regan: With that I'll turn it over to Kathryn Kathryn.

Kathryn: Thanks, Dan.

Kathryn: This call I'll describe our property portfolio and tenant roster. In addition to our rent collection statistics and updates on our development projects.

Kathryn: As of December 31st we owned 108 properties across 19 states, comprising $8 9 million rentable square feet, including one 4 million square feet under development or redevelopment.

Kathryn: Of these 108 properties 103 properties are included in our operating portfolio, which was 96% leased at year end with a weighted average remaining lease term of approximately 14 six years.

Kathryn: Our portfolio continues to be well diversified with no one tenant representing more than 16% of our annualized base rent and no state representing more than 15% of our annualized base rent.

Kathryn: We have relationships with some of the largest and most experienced operators in the industry with our least operating portfolio comprised of 90% multi state operators and 62% leased to public company tenants.

Kathryn: The total amount of capital invested and committed across our operating portfolio.

Kathryn: <unk> $275 per square foot, which we believe remains significantly below replacement cost.

Kathryn: Moving on to rent collection, we collected 100% of contractually due base rent and property management fees from our operating portfolio in Q4.

Kathryn: Rent collected for the quarter included approximately 800000 of security deposit supplied for the payment of rent in connection with an amendment with four friends at one of our Illinois properties.

Kathryn: As we indicated in the past this property has been under development since August of 2021 and has experienced significant delays to get permanent power delivered to the building which is needed to get it operational.

Kathryn: We recognize this hardship to end in January of this year restructured for trends, Illinois rental obligation to reduce the base rent due through September 'twenty, 'twenty, four and increase their obligation thereafter.

Catherine Hastings: Thanks, Ben. On this call, I'll describe our property portfolio and tenant roster in addition to our rent collection statistics and updates on our developments. As of December 31, we owned 108 properties across 19 states, comprising 8.9 million rentable square feet, including 1.4 million square feet under development or redevelopment. Of these 108 properties, 103 properties are included in our operating portfolio, which was 96% leased at year-end with a weighted average remaining leased germ of approximately 14.6%.

Kathryn: Bowing for better alignment at forefront future, Illinois rental obligations with our ability to generate revenue from the property.

Kathryn: I'll also extending the term of all four leases we have lift for a friend.

Kathryn: We're also pleased to report that the building did finally get permanent power in January and we look forward to this project completion in the near future.

Kathryn: Q4 rent collection included approximately 700000 of the $1 7 million collected in December 2023 from parallel pursuant to the consent judgment award in in our favor and applied to rent due from parallel for October 2023 at one of our Pennsylvania properties.

Kathryn: Which parallel vacated on October 31st.

Catherine Hastings: Our portfolio continues to be well diversified, with no one tenant representing more than 16% of our annualized base rent, and no state representing more than 15% of our annualized base rent. We have relationships with some of the largest and most experienced operators in the industry, with our leased operating portfolio comprised of 90% multi-state operators and 62% leased to public companies. The total amount of capital invested and committed across our operating portfolio equates to $275 per square foot, which we believe remains significantly below replacement costs. Moving on to rent collection, we collected 100% of contractually due rent and property management fees from our operating portfolio in Q4. Rent collected for the quarter included approximately $800,000 in security deposits applied for the payment of rent in connection with an amendment with Forefront at one of our Illinois properties.

Kathryn: As David will describe next the full $1 7 million from parallel increased our revenue for the fourth quarter, but only the 700000 impacted our Q4 rent collection statistics.

Kathryn: Overall for the full year 2023, we collected 98% of our contractual rent on our operating portfolio.

David J. Smith: As for the first two months of 'twenty 'twenty four we collected 100% of contractually due base rent and property management fees from our operating portfolio.

David J. Smith: We also continued to fund draws for improvement allowances or construction development to our operators under leases as we've previously noted on prior calls. These improvements are critical for the efficient production of quality cannabis products at scale.

David J. Smith: In Q4 of 2023 we funded $21 million for building improvements and construction activities at our properties.

David J. Smith: Recently, several projects received their operational status, including Battle Green and Ohio with several other projects projected to complete this next quarter.

David J. Smith: And with that I'll turn it over to David David.

David J. Smith: Thank you Catherine for the fourth quarter, we generated total revenues of $79 million.

David J. Smith: A 12% increase from Q4 of last year.

Catherine Hastings: As we indicated in the past, this property has been under development since August of 2021 and has experienced significant delays in getting permanent power delivered to the building, which is needed to get it operational. We recognize this hardship and, in January this year, restructured 4FRENT's Illinois rental obligation to reduce the base rent due through September 2024 and increase their obligation thereafter, allowing for better alignment of Forefront's future Illinois rental obligations with their ability to generate revenue from the property, while also extending the term of all four leases we have with. We're also pleased to report that the building did finally get permanent power in January, and we look Q4 rent collection included approximately $700,000 of the $1.7 million collected in December 2023 from Parallel, pursuant to a consent judgment awarded in our favor and applied to rent due from Parallel for October 2023 at one of our Pennsylvania properties, which Parallel vacated on October 3.

David J. Smith: The increase was driven primarily by an increase in tenant reimbursements versus the prior period.

David J. Smith: As well as activity in prior periods for the acquisition and leasing of new properties additional funding of building improvements provided to tenants at certain properties that resulted in base rent increases and contractual rental escalations.

David J. Smith: The $79 million of revenue for the fourth quarter included approximately zero point $8 million of security deposits applied for payment of rents or three cents per share and $1 7 million or <unk> <unk> per share received as partial payment from the consent judgment against parallel for its failure to pay rent at one of our Pennsylvania properties previously.

David J. Smith: So at least the parallel.

David J. Smith: For the three months ended December 31, 2023, we recorded net income attributable to common stockholders of $41 million or $1 45 per share.

David J. Smith: Adjusted funds from operations for the fourth quarter was $64 million or $2 28 per share an increase of 8% compared to the fourth quarter of 2022.

David J. Smith: Driven by increased tenant reimbursements revenue generated by properties acquired in prior periods.

David J. Smith: <unk> actual rent escalations.

David J. Smith: And revenue earned on additional capex investments at existing properties.

David J. Smith: F O for the fourth quarter was down one cent per share versus the third quarter <unk> of 2029.

Catherine Hastings: As David will describe next, the full $1.7 million from Parallel increased our revenue for the fourth quarter, but only $700,000 impacted our Q4 rent collection. Overall, for the full year 2023, we collected 98% of our contractual rent on our operating portfolio. As for the first two months of 2024, we collected 100% of contractually due base rent and property management fees from our operating portfolio. We also continued to fund draws for improvement allowances or construction development to our operators under our leadership.

David J. Smith: With a decrease primarily due to our taking back the remaining four properties that kingsguard unoccupied until late September <unk>.

David J. Smith: Regarding King's Garden as mentioned on last quarter's call results in the third quarter included $1 7 million or six cents per share of rent from King's garden applicable to those four properties.

David J. Smith: Which was partially offset by zero point $4 million in payments made by King's Garden in the fourth quarter pursuant to a consent judgment issued in our favor.

David J. Smith: On January 12, we paid a quarterly dividend of $1 82 per share to common stockholders of record as of December 29th.

David J. Smith: An increase of two cents per share versus a third quarter dividend of $1 80.

Catherine Hastings: As we previously noted on prior calls, these improvements are critical for the efficient production of quality cannabis products at scale. In Q4 of 2023, we funded $21 million for building improvements and construction activities at our property. Recently, several projects received their operational status, including Battle Green in Ohio, with several other projects projected to complete this next year. And with that, I'll turn it over to David. Thank you, Catherine.

David J. Smith: As Alan noted our dividend remain covered by our April forward during the quarter with a payout ratio of 80%, which is in line with the board's targeted payout ratio of 75% to 85% of <unk>.

David J. Smith: Turning to the balance sheet at year end, we had approximately $2 6 billion and total gross assets and roughly $304 million in fixed rate debt.

David J. Smith: Our debt outstanding as of today consists solely of $300 million in unsecured bonds not maturing until may 2026, with the holders of the remaining $4 million of exchangeable senior notes, having exchanged their notes in full earlier this month for a mix of cash and common stock or receive cash payment at maturity we.

David J. Smith: For the fourth quarter, we generated total revenues of $79 million, a 12% increase from Q4 of last year. The increase was driven primarily by an increase in tenant reimbursements versus a prior period, as well as activity in prior periods for the acquisition and leasing of new properties. Additional funding of building improvements provided to tenants at certain properties that resulted in base rent increases and contractual rental escalation. The $79 million of revenue for the fourth quarter included approximately $0.8 million of security deposits applied for payment of rents, or $0.03 per share, and $1.7 million, or $0.06 per share, received as partial payment from the Consent Judgment Against Parallel for its failure to pay rent at one of our Pennsylvania properties previously leased to For the three months ended December 31, 2023, we recorded net income attributable to common stockholders of $41 million, or $1.45 per share.

David J. Smith: Continuing to maintain credit metrics that are among the best in the entire publicly traded REIT industry with a debt to gross assets ratio of less than 12% and a debt service coverage ratio in excess of 16 times.

David J. Smith: On the liquidity front, we ended the fourth quarter with over $175 million of total liquidity comprised of our cash and short term investments and availability under our revolving credit facility.

David J. Smith: We closed on this credit facility last October which at that time was a $30 million three year facility.

David J. Smith: I am pleased to report that just this month, we were able to increase our capacity by 15 million to provide US 45 million and total availability we.

David J. Smith: We are well positioned as we continue to maintain a conservative and low leveraged balance sheet generate positive free cash flow and have now added another liquidity option for the company with the closing of this credit facility in the fourth quarter.

David J. Smith: Finally, as a result of the investment activity that Ben mentioned.

David J. Smith: We opportunistically tapped our ATM program on a limited basis issuing 101000 shares of common stock for $9 6 million in net proceeds.

David J. Smith: With that I will turn it back to Alan Alan.

Alexander David Goldfarb: Thanks, David I would like to note. The following in closing now into our eighth year of operations I'm proud of what our team of dedicated professionals has accomplished over that time.

David J. Smith: Adjusted funds from operations for the fourth quarter was $64 million, or $2.28 per share, an increase of 8% compared to the fourth quarter of 2022, driven by increased tenant reimbursements, revenue generated by properties acquired in prior periods, contractual rent escalations, and revenue Earned on additional CapEx investments at existing properties. AFFO for the 4th quarter was down 1 cent per share versus the 3rd quarter AFFO of 2,029 cents, with the decrease primarily due to our taking back the remaining 4 properties that Kingsgarden occupied until late September.

Alexander David Goldfarb: With our property footprint team expertise balance sheet position and strategic focus I believe we are well positioned for the journey ahead, serving in a dynamic industry with a continued long term growth trajectory.

Speaker Change: With that I'd like to open it up to questions. Operator could you. Please open the call up for questions.

Thank you we will now begin the question and answer session Task. A question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your headset before pressing the keys to withdraw your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.

Speaker Change: Our first question comes from Tom Cats, or wood from B T. I G. Please go ahead.

Tom Cats: Thank you and good morning, everyone Paul.

David J. Smith: Regarding Kingsgarden, as mentioned on last quarter's call, results in the third quarter included $1.7 million, or $0.06 per share, of rent from Kingsgarden applicable to those four properties, which was partially offset by $0.4 million in payments made by Kingsgarden in the fourth quarter pursuant to a consent judgment issued in our favor. On January 12th, we paid a quarterly dividend of $1.82 per share to common stockholders of record as of December 29th, an increase of 2 cents per share versus a third quarter dividend of $1.80. As Alan noted, our dividend remained covered by our AFFO during the quarter with a payout ratio of 80%, which is in line with the board's targeted payout ratio of 75-85% of AFFOs. Turning to the balance sheet, at year end, we had approximately $2.6 billion in total gross assets and roughly $304 million in fixed rate debt. Our debt outstanding as of today consists solely of $300 million in unsecured bonds not maturing until May 2026. Holders of the remaining 4 million exchangeable senior notes have exchanged their notes in full earlier this month for a mix of cash and common stock or received cash payment at maturity.

Tom Cats: You would previously.

Tom Cats: Talked about and kind of mentioned that you expected weaker operators to exit in mature markets over time and there was an article out this week that spoke to a year over year decline in active U S cannabis licenses in 'twenty three.

Despite expansion to states like Maryland, New Jersey, and Illinois.

Tom Cats: How was this tightening impacted your markets and are you expecting more consolidation in 2024.

Tom Cats: So Tom this is Alan first I'd like to say that where.

Alexander David Goldfarb: We're really very proud of our current tenant base in our current portfolio and the geographic diversification of our of our properties.

Alexander David Goldfarb: We think that we have some of the strongest tenants in the in the industry.

Alexander David Goldfarb: And we.

Alexander David Goldfarb: We believe that the growth that we exhibited in 2023, 7% year over year growth.

Alexander David Goldfarb: It's something that is replicable and and we look forward to continued growth in 2024, but now I'm going to turn it over to Paul to answer the question, Yes, Hi, Hey, John So yeah, I think we always figured out that there would be some consolidation over the years and we have seen that.

Paul Smithers: But yeah I think it's important to note that.

Paul Smithers: Our our tenant base as you know primarily.

Paul Smithers: Indoor growers.

David J. Smith: We continue to maintain credit metrics that are among the best in the entire public-traded read industry, with a debt to gross assets ratio of less than 12% and a debt service coverage ratio in excess of 16 times. On the liquidity front, we ended the fourth quarter with over $175 million of total liquidity comprised of our cash, short-term investments, and availability under our revolving credit facility. We closed on this credit facility last October, which at that time was a $30 million, three-year facility.

Paul Smithers: So while we're seeing a lot of the consolidation as some of the states that have more outdoor grow and.

Paul Smithers: Greenhouse grow so we're very happy with the performance of our operators.

Paul Smithers: And if we do see some consolidation some of the bigger states, Michigan and California as we've noted in the past, we think thats only a positive.

Paul Smithers: 90% of our tenant base, our Msos as you know so we're we think we're really well positioned going forward.

Speaker Change: That's really helpful.

Speaker Change: Then we're trying to piece together a couple of items.

David J. Smith: I'm pleased to report that just this month we were able to increase our capacity by 15 million to provide us with 45 million in total availability. We are well positioned as we continue to maintain a conservative and low-leveraged balance sheet, generate positive free cash flow, and have now added another liquidity option for the company with the closing of this credit facility in the fourth quarter. Finally, as a result of the investment activity that Ben mentioned, we opportunistically tapped our ATM program on a limited basis, issuing 101,000 shares of Common Stock for $9.6 million in net proceeds. With that, I will turn it back to Alan. Alan?

Speaker Change: Since three Q U.

Speaker Change: Put more capital to work than you did over the prior two quarters.

Speaker Change: David You mentioned tapping the equity markets Opportunistically in four Q1, and obviously upsizing, our credit facility of $45 million.

Speaker Change: How do these items relate to your interest in maybe comfort level and pursuing additional investments this year.

Speaker Change: So again.

Speaker Change: Sure.

Speaker Change: Tom This is Alan I mean, I think that where we are cautiously as we were in 2023.

Alexander David Goldfarb: Keeping the same sort of.

Alexander David Goldfarb: <unk>.

Alexander David Goldfarb: Thanks, David. I'd like to note the following in closing. Now into our eighth year of operations, I'm proud of what our team of dedicated professionals has accomplished over that time. With our property footprint, team expertise, balance sheet position, and strategic focus, I believe we are well positioned for the journey ahead, serving a dynamic industry with a continued long-term growth trajectory. With that, I'd like to open the call up to questions. Operator, could you please open the call up to questions? Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone.

Alexander David Goldfarb: View in 2024 are being very cautious but opportunistic.

Alexander David Goldfarb: We believe that we have.

Alexander David Goldfarb: <unk> been able to drive strong returns for our shareholders.

Alexander David Goldfarb: And are going to continue to do so and that we believe that the strength of our existing tenants.

Alexander David Goldfarb: Continues to be.

Alexander David Goldfarb: Exceptional.

And and we look forward to a bright 'twenty 'twenty, four but now I'm going to let.

Alexander David Goldfarb: Then talk about our portfolio pipeline.

Speaker Change: Hey, Tom.

Tom Cats: Appreciate the question.

Tom Cats: The pipeline, we're seeing a lot of attractive new opportunities and when we really think about.

Operator: If you're using a speakerphone, please pick up your headset before pressing the keys. To withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble a roster. Our first question comes from Tom Catherwood from BTIG. Please go ahead.

Tom Cats: Driving revenue growth going forward, the others the pipeline, where we're seeing opportunistic.

Tom Cats: Transactions out there that we can take advantage of and I also want to highlight the 460000 square feet of leasing LOI activity, we had out of out of our development portfolio as well as another 128000 square feet within our operating portfolio that we have under lease or LOI in the last year. So no.

Alexander David Goldfarb: Thank you and good morning, everyone. You had previously talked about and kind of mentioned that you expected weaker operators to exit mature markets over time. And there was an article out this week that spoke to a year-over-year decline in active U.S. cannabis licenses in 2023, despite the expansions of states like Maryland, New Jersey, and Illinois. How has this tightening impacted your markets, and are you expecting more consolidation in 2024? So, Tom, this is Alan.

Tom Cats: Not only the new transactions that we can pursue but but nearly 600000 square feet of leasing activity between our new leases in LOI and last year I think.

Tom Cats: We'll continue to set us up well for continued revenue growth going forward.

Tom Cats: Yeah.

Speaker Change: I appreciate that color.

Speaker Change: And then last one for me is then Paul I know you both touched on on New York and the challenges that it has had but sentiment from msos seems to be improving in the market I think far Mccann announced plans to increase head count by nearly three X in the state.

Alexander David Goldfarb: First, I'd like to say that we are. We're really very proud of our current tenant base and our current portfolio and the geographic diversification of our properties. We think that we have some of the strongest tenants in the industry, and we believe that the growth that we exhibited in 2023, 7% year-over-year growth, is something that can be replicated, and we look forward to continued growth in 2024. But now I'm going to turn it over to Paul to answer some questions. Hey Tom,

Speaker Change: But obviously you've made incremental investments over the last few months in New York.

Speaker Change: What are you seeing on the ground in the state and how do you expect the market to evolve going forward.

Paul Smithers: Yeah, Yeah. Thanks, Tom I think we're seeing are happy to see the additional retail licenses being issued.

Paul Smithers: Certainly been sort of historical challenges, but we very much like the position that our tenant partners are in the state.

Paul Smithers: To your comment about farmer Mccann, we feel there's a tremendous amount of value in that asset in particular.

Paul Smithers: So, yeah, I think we've always figured out that there would be some consolidation over the years, and we have seen that. But, you know, I think it's important to note that, you know, our tenant base is, as you know, primarily indoor growth. So what we're seeing a lot of consolidation are some of the states that have more outdoor grow and greenhouse grow.

Paul Smithers: The cultivation and the state is either outdoor greenhouse as Paul touched on that is one of the very few high quality indoor facilities in the state I think it's that's far Mccann very.

Paul Smithers: Very well to take advantage of the wholesale opportunities that we're going to see.

Paul Smithers: It's projected to be one of the top markets in the country, perhaps not.

Paul Smithers: So we're very happy with the performance of our operators, and if we do see some consolidation in some of the bigger states, like Michigan and California, as we've noted in the past, we think that's only a positive. Ninety percent of our tenant base are MSOs, as you know, so we think we're really well positioned going forward. It's really helpful.

Paul Smithers: Growing as fast as some had hoped in previous years, but we're really.

Paul Smithers: <unk> seen some improvement seeing me.

Paul Smithers: The improved sentiment from the Msos as you mentioned.

Paul Smithers: Well that are very bullish on the state would want to get into the market. They recognize the potential there.

Paul Smithers: We're very happy to support our partners on their growth initiatives in that state.

Alexander David Goldfarb: Then we're trying to piece together a couple of things, you know, since 3Q, you've put more capital to work than you did over the prior two quarters. David, you mentioned tapping the equity markets opportunistically in 4Q and then, you know, obviously, upsizing the credit facility to 45 million. How do these items relate to your interest and maybe comfort level in pursuing additional investments this year? So, again, um... Tom, this is Alan.

Speaker Change: I appreciate all your thoughts that's it for me thanks, everyone. Thanks, Tom.

Speaker Change: The next question comes from Scott Fortune from Roth M. Kam. Please go ahead.

Scott Fortune: Okay. Thank you and thanks for the questions here, just kind of want to dig a little deeper in that probably four ban in that as you talk with your tenant partners. We've seen most of them really focused on cost efficiencies and improving yields within kind of cultivation facilities to drive their profitability in March.

Scott Fortune: And as the prices compress here in some of these markets.

Alexander David Goldfarb: I mean, I think that we are cautious, as we were in 2023, keeping the same sort of view in 2024 being very cautious but opportunistic. We believe that we have been able to drive strong returns for our shareholders and are going to continue to do so, and we believe that the strength of our existing tenants continues to be exceptional. And we look forward to a bright 2024.

Scott Fortune: But two things one.

Scott Fortune: Better ops and prove your tenants cash flow generation, which is important for the tenant health, but more important the second what is ipas.

Scott Fortune: Your your help or are your involvement and proofing. These facility efficiencies improving yield and do you expect to see kind of facility improvement needed more moving forward here to be successful in a normalized lower pricing environment for them and just a little follow up on that would be.

Ben Regan: But now, I'm going to let Ben talk about our portfolio and our pipeline. Hey Tom, I appreciate the question. The pipeline, we're seeing a lot of attractive new opportunities, and when we really think about driving revenue growth going forward, there's the pipeline where we're seeing opportunistic transactions out there that we can take advantage of. And I also want to highlight the 460,000 square feet of leasing and LOI activity we had out of our development portfolio, as well as another 128,000 square feet within our operating portfolio that we have under lease or LOI So not only the new transactions that we can pursue but nearly 600,000 square feet of leasing activity between our new leases and LOI in the last year continue to set us up well for continued revenue growth going forward..... Appreciate that color.

Scott Fortune: <unk> kind of a wild demand kind of volume for Kansas remains very robust kind of where you are are you seeing pricing stabilize in your chance in these key states kind of further strengthen that tenant health from from that standpoint, alright.

Scott Fortune: Sorry long winded question here, but just wanted to dig deeper into that alright. So Scott. This is Alan So you know first start from the very beginning our business model and business plan was to provide.

Scott Fortune: Yeah.

Alexander David Goldfarb: Capital to some of the smartest and best growers in the in the country and we've done we've done that we have a very strong portfolio and edge as it's been noted earlier that you know over 90% of our portfolio are msos and matter of fact over 62% of our of our.

Alexander David Goldfarb: Tenants are public public tenants and the majority if not almost all of them are now cash flow breakeven and ore.

EBITDA breakeven or positive.

Ben Regan: And then last one for me, Ben and Paul, I know you both touched on New York and the challenges that it has had, but sentiment from MSOs seems to be improving in the market. I think Pharma can announce plans to increase headcount by nearly 3x in the state, and obviously, you've made incremental investments over the last few months in New York. What are you seeing on the ground in the state, and how do you expect the market to evolve going forward? Yeah, yeah, thanks, Tom.

Alexander David Goldfarb: And the business model is to provide them capital so that they can create a very efficient spaces and that they are the ones who are focused on the efficiency of their of their operations and as you can see that they've been they've been the ones doing that work and continue to do that work in and our.

Alexander David Goldfarb: Our.

Alexander David Goldfarb: Our I think doing a very good job.

Ben Regan: I think we're seeing we're happy to see the additional retail licenses being issued. You know, there's certainly been some historical challenges, but we very much like the position that our tenant partners are in the state. To your comment about Pharmacan, we feel there's a tremendous amount of value in that asset in particular. A lot of the cultivation in the state is either outdoor or greenhouse, as Paul touched on.

Alexander David Goldfarb: Keeping up with the technology and the efficiencies to be able to deal with.

Alexander David Goldfarb: Pricing pressures in the macroeconomic issues that.

Alexander David Goldfarb: Router economy is exhibiting.

Alexander David Goldfarb: So I think I think that that would be how we would look at it now as to you know I don't know, if Paul or Ben when I talk about the overall.

Alexander David Goldfarb: Pricing pressures on the wholesale pricing.

Alexander David Goldfarb: But just keep in mind that as.

Speaker Change: Both both Paul.

Ben Regan: That is one of the very few high-quality indoor facilities in the state, and I think it sets Pharmacan up very well to take advantage of the wholesale opportunities that we're going to see. It's projected to be one of the top markets in the country, perhaps not growing as fast as some had hoped in previous years, but we're really seeing some improvement, and we're seeing improved sentiment from the MSOs. As you mentioned, people that are very bullish on the state want to get into the market. They recognize the potential there, and we're very happy to support our tenant partners on their growth initiatives in that state. I appreciate all your thoughts. That's it for me.

Speaker Change: And then have reiterated that we.

Speaker Change: We deal with are.

Speaker Change: Indoor grow primarily plus facilities and products.

Speaker Change: And or have tenants that deal with those type of products as opposed to the outdoor grow.

Speaker Change: Products that has that is exhibiting the most pricing pressure.

Speaker Change: Hey, Scott This is Ben to follow up on Alan's comments on pricing I think we've been very pleased to see the stabilization in particular some of the markets people have been focusing on historically been California and Michigan.

Ben Regan: And the sentiment there has certainly gotten better and I think that's evidenced by the leasing success, we've had in those two markets.

Ben Regan: A good chunk of the nearly 600000 square feet of leasing activity, We mentioned was full and Michigan and California, and most recently the harvest Park facility that Green peak intends to move out of after they announced that we received a tremendous amount of interest and multiple offers and were able to successfully put that under LOI before green peak even moved.

Alexander David Goldfarb: Thanks everyone. The next question comes from Scott Fortune from Roth MKM. Please go ahead. Thank you and thanks for the questions here. Just kind of want to dig a little deeper into that, probably for Ben, in that as you talk with your tenant partners, we see most of them really focus on cost efficiencies and improving yields within kind of their culpabilization facilities to drive their profitability and margins as the price is compressed here in some of these markets. But two things, one, better operations improves your tenant's cash flow generation, which is important for tenant health. But more importantly, second, what is IPA's role or your involvement in improving these facility efficiencies and improving yields?

Ben Regan: Out of the building.

Ben Regan: That really speaks to the way operators on the ground in those markets.

Ben Regan: Their confidence going forward and the pricing stability in the markets overall.

Speaker Change: Got it I appreciate that color and maybe a follow up on this discussion you know 23, we saw Europe retrenching by your tenants how do you see capex for for most of the major Msos that you work with came off anywhere from 30% to 50% and kind of similar expectations.

Alexander David Goldfarb: And do you expect to see kind of facility improvement needed more moving forward here to be successful in a normalized lower pricing environment for them? And just a little follow-up on that would be kind of while demand for cannabis remains very robust, kind of where are you seeing pricing stabilize in your tenants in these key states to kind of further strengthen that tenant health from that standpoint? Sorry, a long-winded question there, but I just want to dig deeper into that. All right. So Scott, this is Alan.

Speaker Change: Although earnings are coming up here shortly for 'twenty four as far as the Capex, but what are you hearing from your.

Speaker Change: From your tenants kind of moving 40, if we get the federal relief, obviously, you highlighted that the cash flow from.

Speaker Change: From the tax savings will be generated by the msos that could be.

Speaker Change: Two the pricing, but also they are looking to grow right and just kind of give a sense for that your tenants and what are you hearing from them as far as regarding sale leaseback opportunities going into later in 'twenty four into 25 compared to the last two three quarters.

Alexander David Goldfarb: So, you know, from the very beginning, our business model and business plan was to provide capital to some of the smartest and best growers in the country. And we've done that. We have a very strong portfolio, and as it was noted earlier that, you know, over 90 percent of our portfolio is MSOs, and, as a matter of fact, over 62 percent of our tenants are public, and the majority, if not almost all of them, are now cash flow break-even or EBITDA break-even or positive. And the business model is to provide them with capital so that they can create very efficient spaces, and they are the ones who are focused on the efficiency of their operations.

Speaker Change: Their capex expectations, just kind of the the temperature around your tenants from that standpoint.

Speaker Change: Improving alright. So this is Alan again.

Alexander David Goldfarb: And our first of all I think that.

Alexander David Goldfarb: I think as.

Alexander David Goldfarb: As we have stated we believe that 24 is going to look kind of similar to 'twenty. Three we believe there is still tremendous demand for our our capital and the type of capital that we provide and there are significant opportunities. As we has we've also shown that we've been able to to.

Alexander David Goldfarb: And as you can see, they've been the ones doing that work and continue to do that work and are successful, are, I think, doing a very good job of keeping up with the technology and the efficiencies to be able to deal with pricing pressures and the macroeconomic issues that the broader economy is exhibiting. Um... So I think that that would be how we would look at it. Now as to, I don't know if Paul or Ben want to talk about the overall pricing pressures on wholesale prices, but just keep in mind that, as both Paul and Ben have reiterated that, you know, we deal with an indoor grow primarily for facilities and products and or have tenants that deal with those type of products as opposed to the outdoor grow product that is exhibiting the most pricing pressure. Hey, Scott, this is Ben.

Alexander David Goldfarb: We take advantage of some investment.

Alexander David Goldfarb: Investment opportunities.

Alexander David Goldfarb: Most recently in and which has allowed us to generate that are above average growth.

Alexander David Goldfarb: <unk> growth year over year.

Alexander David Goldfarb: So we still think that that's a that is out there, but we're being cautious and I think I think Ben you would agree that we're you know.

Ben Regan: I think even the tenants out there remaining cautious yes, I think I think that's fair I think Louisville, being very strategic and disciplined in investing additional capital I think as Alan mentioned 'twenty forward looking like 23, where we.

Ben Regan: We're able to source very accretive and attractive opportunities to support our tenants grow our portfolio.

Ben Regan: Tend to continue to do that in the future.

Speaker Change: And that's great and then one go ahead I'm sorry, maybe you know Paul you talked about the overall industry growth rate in yeah.

Ben Regan: To follow up on Alan's comments on pricing, I think we've been very pleased to see the stabilization, in particular, some of the markets people have been focusing on, historically being California and Michigan. And the sentiment there has certainly gotten better, and I think that's evidenced by the leasing success we've had in those two markets. I mean, a good chunk of the nearly 600,000 square feet of leasing activity we mentioned was both in Michigan and California. And most recently, the Harvest Park facility that Green Peak intends to move out of, after they announced that, we received a tremendous amount of interest, multiple offers, and were able to successfully put that under an LOI before Green Peak even moved out of the building. So I think that really speaks to the way operators on the ground in those markets and their confidence going forward in the pricing stability in the markets overall. I appreciate that color.

Speaker Change: Thank you.

Speaker Change: When you talk about.

Speaker Change: Relatively slower years in 'twenty, three and maybe Gulfport 'twenty four we can't lose back then.

Paul Smithers: We had a 12% increase in the overall market in 'twenty three and.

Looking forward in 2024 is projected to have a 10% increase so those are not insignificant numbers and I think we look at potential states coming on primarily Florida and Pennsylvania.

Paul Smithers: Perhaps with the adult use programs this year.

Paul Smithers: Exciting and I think that's not lost on a lot of our operators, especially in those states.

Paul Smithers: So theyre excited and there's that excitement I think even if you put aside the rescheduling conversation.

Paul Smithers: So.

Paul Smithers: We see significant growth with or without rescheduling and so.

Paul Smithers: He is excited about that.

Paul Smithers: We have you know that.

Alexander David Goldfarb: And maybe a follow-up on this discussion, you know, in 23, we saw a year of retrenchment by your tenants. Obviously, CapEx for most of the major MSOs that you work with came off, you know, anywhere from 30 to 50 percent. And kind of similar expectations, although earnings are coming up here shortly, kind of for 24 as far as CapEx. But what are you hearing from your tenants about moving forward if we get this federal relief? Obviously, you highlighted that the cash flow from the tax savings will be generated by this MSO. And that could be, you know, passed through the pricing. But also, they are looking to grow, right?

Paul Smithers: You're young last year, Oklahoma, and Minnesota, Delaware, Ohio.

Paul Smithers: Pass or programs.

Paul Smithers: And we're looking at 24 to.

Paul Smithers: They have some development in those so you know.

Paul Smithers: As those states new potential states for adult use are a pretty exciting for the industry.

Speaker Change: No I agree completely, Ohio, Minnesota, and Virginia are all expected really come on board to the last question real quick just from a housekeeping side of things and congrats on kind of the pre leases an LOI in place to just follow up on the amended.

Speaker Change: At least that you had from 'twenty three are those now being fully paid back.

Speaker Change: The increase towards the pro rata payback, we're supposed to start January 24 is that starting going forward here.

Alexander David Goldfarb: And just kind of give a sense of that your tenants and what you're hearing from them as far as regarding sales leaseback opportunities going into later in 24, into 25, compared to the last, you know, two, three quarters versus kind of their CapEx expectations, just kind of the temperature around your tenants from that standpoint. All right, so this is Alan again, and, you know, first of all, I think that, as we've stated, we believe that, you know, 24 is going to look kind of similar to 23. We believe that there's still tremendous demand for our capital and the type of capital that we provide, and there are significant opportunities, as we've also shown that we've been able to opportunistically take advantage of some investment opportunities most recently, which has allowed us to generate that above-average growth year over year.

Speaker Change: So I have a cat address that but.

Speaker Change: Just it goes it goes to the strength of our tenants and how how well there was some need to provide some additional relief I think.

Speaker Change: Things seem to be.

Speaker Change: Proceeding very well.

Speaker Change: We were pleased to really see the <unk>.

Speaker Change: <unk>.

Speaker Change: So we had some of our tenants last quarter.

Speaker Change: And they've all started paying rents again cash rent.

Speaker Change: So, let's take tenneco at forefront, whereas the three tenants that we would offer that program too and.

Speaker Change: We're happy to see them start paying cash out again.

Speaker Change: Great. Thank you for all the detail thanks.

Speaker Change: Thanks Scott.

Speaker Change: Again, if you have a question. Please press Star then one.

Speaker Change: And the next question comes from Alexander Goldfarb from Piper Sandler. Please go ahead.

Alexander David Goldfarb: So we still think that that is out there, but we're being cautious, and I think, Ben, you would agree that we're, you know... I think even the tenants out there are remaining cautious. Yeah, I think that's fair. I think we will be very strategic and disciplined in investing additional capital. I think, as Alan mentioned, 24 looks like 23 where we are. We're able to source very accretive, attractive opportunities, support our tenants, grow our portfolio, and intend to continue to do that. And then one, go ahead.

Alexander David Goldfarb: Hey, good morning, good morning out there.

Alexander David Goldfarb: A few questions.

Alexander David Goldfarb: For me first you know.

Alexander David Goldfarb: Just thinking about the that the spaces that you guys have recaptured and then re letting how much NOI is coming back online. This year from this spaces that you recaptured last year or previous and that you've now backfill them have tenants that are opening up this year just wanted to get a sense for how much.

Paul Smithers: Oh, I'm sorry. Maybe, you know, Paul, you talked about the overall industry growth rate. Yeah, you know, I think it's... You know, when you talk about, you know, relatively slower years in 23 and maybe going for 24, we can't lose track that, you know, we had a 12% increase in the overall market in 23 and looking forward, in 2024, it's projected to have a 10% increase. So you know, those are not insignificant numbers. And I think, you know, the potential states coming on, primarily Florida and Pennsylvania, perhaps with the adult youth programs this year, are really exciting. And I think that's not lost on a lot of our operators, especially in those states. So they're excited and eager to go.

Why that is on an annualized basis, and then when that NOI will come online this year from a earnings perspective.

Alexander David Goldfarb: Yes.

As Ben I would just say that each each situation's going to be different some of the deals that we mentioned are under LOI. We are.

Alexander David Goldfarb: Diligently working through lease negotiations, but.

Alexander David Goldfarb: Real estate company that takes some time, so I can't give you an exact number as to when that revenue will commence given the status of negotiations.

Alexander David Goldfarb: But again I think we as a company are very very happy with.

Alexander David Goldfarb: Not only the amount of leasing activity of the pace of leasing activity the quality of the tenants that we've been able to source to tobacco.

Paul Smithers: And there's that excitement, I think, even if you put aside the rescheduling conversation. So, we see significant growth with or without rescheduling, and so our operators are excited about that. Also, you know, we have, you know, last year Oklahoma, you know, Minnesota, Delaware, Ohio, they passed their programs, and we're looking at 24 to have some development in those.

Alexander David Goldfarb: These properties.

Alexander David Goldfarb: I think it's been a tremendous amount of progress that we've made.

Alexander David Goldfarb: But as to specific timing of approval, we will continue to report and provide updates as we can throughout the year.

Speaker Change: Okay, but been along those lines.

Speaker Change: Is there a sense of how much in aggregate NOI there is or.

Speaker Change: Is it sounds like this is this leasing that you guys have done really is more of a 2025 impact just trying to get a sense. Because you clearly have been busy you spoke positively about some of the markets that are stabilized and the intensity of the leasing in California, and Michigan, which is a good thing.

Paul Smithers: So, you know, those states, the new potential states for adult use, are pretty exciting for the industry. I agree completely. Ohio, Minnesota, and Virginia are all expected to really come on board too.

Catherine Hastings: Last question real quick, just from the housekeeping side of things, congrats on the kind of pre-leases and LOIs in place, but just follow up on the amended. Lisa, you had 23. Are those now being fully paid back as the increased or the pro rate payback was supposed to start January 24? Is that starting going forward here? You know, so I'll have Kat address that, but it goes to the strength of our tenants and how, while there was some need to provide some additional relief, I think things seem to be proceeding very well.

Speaker Change: Just trying to see you know when we should expect it to hit the bottom line and it almost sounds like it's more of a 'twenty five.

Speaker Change: I mean, you know.

Speaker Change: Hi.

Speaker Change: Without it we don't want to get into providing guidance, we don't want to get into specific deal terms I would say that we're very happy with the returns that we're getting on our investment and the use of these assets in each case again. These things take time and will work through LOI is the work that leases and get tenants in the space get them up and running and get them revenue January.

Speaker Change: Writing.

Speaker Change: As fast as we can to continue to providing or drive revenue growth.

Catherine Hastings: Yeah, we were pleased to really see the limited deferrals that we had issued to some of our tenants last quarter, and they've all started paying rent again, cash rent. Holistic, Temescal, and Forefront were the three tenants that we had offered that program to, and we're happy to see them start paying cash rent again. Great, thank you for all the detail. Thanks, Jeff. Again, if you have a question, please press star, then 1. The next question comes from Alexander Goldfarb from Piper Sandler. Please go ahead. Hey, morning out there.

Speaker Change: And provide value to our shareholders.

Speaker Change: Okay.

Speaker Change: Question is Paul I think I think it was you who spoke about the difference in pricing and how Youre indoor product is commanding a premium outdoor and hothouse product is under pricing pressure and then I guess separately there would be.

Paul Smithers: Yeah, the the illicit market.

Paul Smithers: I'm going to go back to a theme that you and I have spoken about before especially with fat and all.

Paul Smithers: Are you seeing it sounds like the the market is finally coming around to understanding there the regulatory benefits of the product Thats grown in your in your facilities is that the case and do you think that gives you a leg up versus the illicit market or does the cannabis market remain purely <unk>.

Ben Regan: A few questions for me. First, you know, just thinking about the spaces that you guys have recaptured and then relet. How much NOI is coming back online this year from the spaces that you recaptured last year or previous and that you've now backfilled and have tenants that are opening up this year? Just want to get a sense for how much NOI that is on an annualized basis and then when that NOI will come online this year from an earnings perspective. Hey Alex, this is Ben.

Paul Smithers: <unk> driven and therefore people don't pay don't put a volume premium on the quality that you guys provide versus what's going on in from the illicit market or other sources.

Ben Regan: I would just say that each each situation is going to be different. Some of the deals that we mentioned are under LOI. We were diligently working through lease negotiations, but, It's a real estate company that takes some time, so it can't give you an exact number as to when that revenue will commence, given the status of negotiations. But again, I think we, as a company, are very, very happy with the results, not only the amount of leasing activity, the pace of leasing activity, the quality of the tenants that we've been able to source to back-build, properties, and I think it's been a tremendous amount of progress that we've made, but, you know, as to specific timing, we'll... We will continue to report and provide updates as we can throughout the week.

Paul Smithers: Yes, so Alex this is Alan before I turn it over to Paul I, just want to just remind you and all of the listeners.

Paul Smithers: We don't touch the plant, we don't sell a single yeah, I didn't yeah, sorry about that Alan I'm, sorry, sorry.

Paul Smithers: But our tenants, who do who are working in the work and the product come in with perhaps Paul you want it.

Paul Smithers: So yeah, we talked about this Alex and you're right.

Paul Smithers: No.

Paul Smithers: A product wrong in a controlled environment is vastly superior to a product that's grown outdoors and is subject to everything outdoors, including paths and variances in the weather. So you just start with the idea that when you can control the growth you would get a better product and that's certainly true for the medical products.

Paul Smithers: <unk>, which can be.

Ben Regan: Okay, but Ben, along those lines, is there a sense of how much in aggregate NOI there is, or does it sound like this leasing that you guys have done really is more of a 2025 impact? Just trying to get a sense, because you clearly have been busy, you spoke positively about some of the markets that have stabilized and the intensity of the leasing in California and Michigan, which is a good thing, or just trying to see when we should expect And it almost sounds like it's more of a 25.

Paul Smithers: Manipulated and central way during the growth to address very certain medical condition. So.

Paul Smithers: Medical product really needs to be grown indoors. When you talk about the quality of the adult use product is also somewhere because you can really maintain potency consistency in the indoor environment and that's very important I think for consumers and when you talk about the illicit.

Paul Smithers: But certainly a risk that people do take consumer stake buying in off the street corner as you don't have consistency of product.

Alexander David Goldfarb: I mean, I, you know, I, without, we don't want to get into providing guidance. We don't want to get into specific deal terms. I would say that we're very happy with the returns that we're getting on our investment in each of these assets. Again, these things take time, and we'll work through LOIs, work through leases, and get tenants in the space, get them up and running, and get them revenue-generating as fast as we can to continue to provide, you know, drive revenue growth and provide value to our shareholders. Okay, next question is Paul. I think I think it was you who spoke about the difference in pricing and how your indoor product is commanding a premium while your outdoor and hothouse product is under pricing pressure.

Paul Smithers: And that's very important and you don't have the quality controls with the testing so yes, I do believe that.

Paul Smithers: And foreign consumers certainly are going to the.

Paul Smithers: The regulated cannabis environment for their product but.

Paul Smithers: People.

Paul Smithers: Our people our people and there is a price driving quotient too and I think.

Paul Smithers: Some of the states that.

Paul Smithers: Really did create an artificial pricing structure based on taxing are coming around it and California is one of them and figuring out that.

Paul Smithers: When they overtax a product it makes it really hard for the consumer to buy it. So we're very optimistic that the states will come around and <unk>.

Alexander David Goldfarb: And then I guess separately, there would be, you know, the illicit market. I'm going to go back to a theme that you and I have spoken about before, especially with fentanyl. It sounds like the market is finally coming around to understanding the regulatory benefits of the product that's grown in your facilities. Is that the case, and do you think that gives you a leg up versus the illicit market? Or does the cannabis market remain purely price driven, and therefore people don't put a volume premium on the quality that you guys provide versus what's going on from the illicit market or other sources? So, Alex, this is Alan.

Paul Smithers: Pricing will be more in line, where it should be and.

Paul Smithers: Yes, the indoor product will remain the choice of and foreign consumers.

Paul Smithers: And just follow the Unsafety, Okay and then just the final question is on the 280 E. Given the administration sort of pro cannabis.

Paul Smithers: Our mindset is there anything that's going on within the the discussions or the process that gives you pause that it may not happen or is this merely going through a typical governmental timeline and it's gotta go through X.

Alexander David Goldfarb: Before I turn it over to Paul, I just want to remind you and all the listeners that we don't touch the plant. We don't sell a single... Yeah, yeah, yeah. I didn't.

Paul Smithers: <unk> process, whatever but this will happen I'm just trying to figure out if if any if there's any holdup or if this is just typical government processing. The news came out a while ago and now we just have to sit around and wait out the shot clock.

Alexander David Goldfarb: I... Yeah, sorry about that, Alan. Sorry. Sorry. Yeah. But our tenants who do, who are working on the product... I mean, perhaps, Paul, you want to talk about it?

Paul Smithers: Well you know this is Alan.

Paul Smithers: Yeah. So, yeah, we've talked about this, Alex, and you're right that, you know, a product grown in a controlled environment is vastly superior to a product that's grown outdoors and is subject to everything that happens outdoors, including pests and variances in the weather. So, you just start with the idea that when you can control the growth, you get a better product. And that's certainly true for the medical product, which can be, you know, manipulated in such a way during growth to address very certain medical conditions. So, a medical product really needs to be grown indoors. When you talk about the quality of an adult-use product, it is also similar because you can really maintain potency consistency in the indoor environment.

Alexander David Goldfarb: Before I turn it over and I'm sure Paul is going to say the same thing as you know.

Alexander David Goldfarb: Our job is not to.

Alexander David Goldfarb: We're not we're not politicians went out in the government we're not in the government.

Alexander David Goldfarb: And the political process takes a long time.

Alexander David Goldfarb: We're operating our business with a very strong and solid balance sheet that will allow us to deal with.

Alexander David Goldfarb: Any any different tailwind or headwind.

Alexander David Goldfarb: Headwinds that may come from any actions that occur in the broader economy or the broader market.

Alexander David Goldfarb: Yeah, Yeah, obviously.

Alexander David Goldfarb: We're kind of reading, what you're reading and Theres, a lot of guesswork going on as to.

Alexander David Goldfarb: When there'll be an announcement, what the announcement will be but it's guesswork. What we do know is the DEA did confirm that it is conducting its review. So that's effect. We know so that's a very positive thing I think so.

Paul Smithers: And that's very important, I think, for consumers. And when you talk about the illicit market, certainly a risk that people do take, consumers take, you know, buying it off the street corner, is you don't have consistency of product. And that's very important. And you don't have quality controls with testing.

Alexander David Goldfarb: We're gonna stay tuned and.

Alexander David Goldfarb: If history.

Alexander David Goldfarb: As any indicator.

Alexander David Goldfarb: Does typically follow HHS regulations, but that certainly doesn't mean they have to.

Alexander David Goldfarb: So.

Alexander David Goldfarb: We'll see but we are optimistic like the rest of the world but.

Alexander David Goldfarb: Anything can happen.

Paul Smithers: So, yes, I do believe that, you know, informed consumers certainly are going to the regulated cannabis environment for their product. But, you know, people are people, and, you know, there is a price driving quotient, too. And I think, you know, some of the states that really did create an artificial pricing structure based on taxing are coming around, and California is one of them, and figuring out that when they overtax a product, it makes it really hard for the consumer to buy it.

Alexander David Goldfarb: Okay.

Speaker Change: Thank you very much.

Speaker Change: Thank you.

Speaker Change: The next question comes from Eric dealers from Craig Hallum Capital Group. Please go ahead.

Eric Dealers: Great. Thank you for taking my questions.

Eric Dealers: First one a bit of a high level question for me.

Eric Dealers: Understanding the mechanics behind the rent collection statistics so.

Eric Dealers: Just kind of wondering if you can help me understand what happens.

Eric Dealers: Candidly tell statistics, when a tenant stops paying them we have them.

Paul Smithers: So we're very optimistic that the states will come around, and pricing will be more in line with where it should be, and yes, the indoor product will remain the choice of informed consumers. Okay, and just the final question is, on 280E, given the administration's sort of pro-cannabis mindset, is there anything that's going on within the discussions or the process that gives you pause that it may not happen, or is this merely going through a typical governmental timeline, and it's got to go through... you know, the Monsex process, whatever, but this will happen? I'm just trying to figure out if, you know, if there's any hold up or if this is just a typical government process. And the news came out a while ago, and now we just have to sit around and wait out the shot clock.

Eric Dealers: Default the properties and development properties. Some operational property is not fully leased from security deposits being applied towards rent, but then rent collection statistics remain at 100%. So could you maybe just walk us through the mechanics of what happens to your rent collection statistics, when a tenant stops paying and then maybe to help with modeling is there.

Eric Dealers: Simple way to quantify the difference between the rents you're collecting from tenants in any given quarter versus what you would be collecting a if your portfolio was a 100% operational 100% leased 100% rent collection.

Speaker Change: Yeah, there's a way to quantify sort of the rent that you're actually collecting versus the total potential rent to be collected I think that'd be helpful. Thank you.

Speaker Change: So I mean in general I mean, we think that we have a very strong portfolio in one and we are operating.

Alexander David Goldfarb: This is Alan, and before I turn it over to Paul, our job is not to, we're not politicians, we're not in the government, the political process takes a long time, and we're operating our business with a very strong and solid balance sheet that will allow us to deal with any different tailwinds or headwinds that may come from any actions that occur in the broader economy or the broader market. Yeah, yeah, obviously. We're kind of reading what you're reading, and there's a lot of guesswork going on as to when there'll be an announcement, and what the announcement will be, but it's guesswork. What we do know is the DEA did confirm that it is conducting its review. So that's a fact we know.

Speaker Change: Very very similar to what other real estate companies do if a property.

And some of the properties that we.

We happen to get back we're in a development stage, we put them in a development portfolio because there's work that has to be done and it's very hard to lease a property that.

Speaker Change: It's not completed it or need it or needs additional work to actually get it.

Speaker Change: <unk> statement, but if it was a fully completed.

Speaker Change: Uh huh.

Speaker Change: Asset.

Paul Smithers: So that's a very positive thing, I think. So, you know, if history is any indicator, the DEA does typically follow HHS regulations, but that certainly doesn't mean they have to. So... We'll see, but we are optimistic like the rest of the world, but anything can happen.

Speaker Change: And then it would stay in our operating portfolio and it would.

Speaker Change: Our relationship Statistics, an example of an asset not.

Speaker Change: That went into our development portfolio was <unk>.

Speaker Change: The San Marcos, Texas.

Speaker Change: Asset, which was really just a.

Speaker Change: The land of the <unk> and to note.

Speaker Change: Ben you know what do we collect on that.

Paul Smithers: So, thank you. Thank you very much. Thank you. The next question comes from Eric DeLars from Craig Hallam Capital Group. Please go ahead.

Ben Regan: Yeah, so our basis in that.

Ben Regan: Asset its about $8 million and we collected over $6 million in rent from the tenants during their occupancy, but it's still just land and in order for us to re lease it.

Eric DeLars: Great. Thank you for taking the time to answer my questions. First one, a bit of a high-level question from me, just kind of understanding the mechanics behind the rent collection statistics. So I'm just kind of wondering if you can help me understand what happens sort of mechanically to those statistics when a tenant stops paying. We have some defaulted properties, some development properties, some operational properties not fully leased, some security deposits being applied towards rent, but the rent collection statistics remain at 100%.

Ben Regan: We'd have to.

Ben Regan: Either build it out or find a a a tenant who wanted to actually complete the fully fully designed projects.

Ben Regan: It was designed by.

Ben Regan: Parallel at the time, so that's why that's in our development portfolio.

Ben Regan: Part of our.

Ben Regan: Operating statistics.

Ben Regan: Yeah.

Speaker Change: Okay and is there a way to sort of help.

Speaker Change: To help us help us calculate or quantify the difference between sort of total rent potential and then what's your collecting especially as some of these are development properties in.

Alexander David Goldfarb: So could you maybe just walk us through the mechanics of what happens to your rent collection statistics when a tenant stops paying? And then maybe to help with modeling, is there a simple way to quantify the difference between the rent you're collecting from tenants in a given quarter versus, you know, what you would be collecting if your portfolio was 100% operational, 100% leased, 100% rent collection? Yeah, there's a way to quantify sort of the rent that you're actually collecting versus the total potential rent to be collected. I think that'd be helpful.

Speaker Change: You know other lease properties potentially start collecting.

Speaker Change: Collecting revenue or I guess collecting rents and.

Speaker Change: 24, just kind of trying to help.

Speaker Change: Quantify the potential impact here given the rent collection.

Speaker Change: For me that 100% because there is something that we'll have to get back to offline. If you don't mind on that and if you can I'm sure.

Speaker Change: Okay.

Speaker Change: The best Alright. Thank you all right no problem and then just last question from me is just kind of a bit of a housekeeping wants to be property expenses and tenant reimbursements.

Alexander David Goldfarb: Thank you. So, in general, I mean, we think that we have a very strong portfolio and we are operating very, very similar to what other real estate companies do. If a property and some of the properties that we happen to get back, were in a development state, we put them in a development portfolio because there's work that has to be done. It's very hard to lease a property that is not completed or needed or needs additional work to actually get it in a lease state.

Speaker Change: Is this still these property expenses are they still being 100%.

Speaker Change: <unk> reimbursed and so that's where there is a difference between property expense and the amounts reimbursed it just kind of a timing issue.

Speaker Change: So that's I guess my first question here and then the second one is how should we think about this going forward it's increased each quarter.

Speaker Change: Past two years here is this related to a specific tenant or a specific property.

Let's begin to decrease at any time, just any kind of insight can do you know how to model. These these property expenses would be great. Thank you yeah sure. Eric This is David So one thing I will just clarify your comment.

David J. Smith: But if it was a fully completed asset, then it would stay in our operating portfolio, and it would affect our leasing statistics. An example of an asset that went into our development portfolio was the San Marcos, Texas, asset, which was really just land. And to note, I think Ben, what did we collect on that? Yeah, so our basis in that asset is about $8 million, and we collected over $6 million in rent from the tenant during their occupation. But it's still just land, and in order for us to release it, we'd have to either build it out or find a tenant who wanted to actually complete the fully designed projects that were designed by Parallel at the time.

David J. Smith: So the net expense that we've had throughout this year from Q1 to Q3 is actually gone gone down gone up versus what you said.

Speaker Change: But separately.

David J. Smith: I think you are alluding to going from Q3 to Q4, we did see an increase in the overall net expense.

David J. Smith: So in other words, the reimbursements, we received from tenants.

David J. Smith: Lastly of taxes and insurance that we paid that was driven by the properties. We took back from Kings Guard in September.

Ben Regan: So that's why it's in our development portfolio and not part of our operating statistics. David Smith. Thank you. Thank you. Okay, and is there a way to sort of help us calculate or, you know, quantify the difference between sort of total rent potential and then what you're collecting and especially if some of these development properties and, you know, other lease properties potentially start collecting revenue or I guess collecting rent in 24 hours, just kind of trying to help quantify the potential impact here, given that rent collection statistics remain at 100%? It is something that we'll have to get back to you offline, if you don't mind that, and if you can, that would be best.

David J. Smith: And parallel Pennsylvania in October so we did have.

David J. Smith: Elevated property expenses in Q4, just because we are on the hook for those expenses.

David J. Smith: That being said.

David J. Smith: Given what Paul and.

David J. Smith: Ben mentioned on our re leasing activity that we've had those will go down over time, just given again the substantial re leasing efforts at that we've announced today with which our results.

Speaker Change: Yes, sorry, maybe just to clarify here so.

Speaker Change: Referring to the first line item and the expenses of the property expenses, which are.

Speaker Change: Increased each quarter here in my understanding was that those were basically.

Speaker Change: Those are also reflected in revenue and that they were simply kind.

Speaker Change: Kind of reimbursement that you had recognized the expenses out and then got reimbursed so.

Speaker Change: That helps clarify my question, but I was just.

David J. Smith: All right. Thank you. All right. No problem. And then this last question for me is just kind of a bit of a housekeeping one.

Speaker Change: Looking at that first line item yeah, Yeah, if youre looking at just that line item that's correct, but those can also go up.

Eric DeLars: So the property expenses and tenant reimbursements, is this still 100% reimbursed? And so in the instances where there is a difference between property expenses and the amount reimbursed, it's just kind of a timing issue. So that's, I guess, my first question here.

Speaker Change: We're going to see inflationary increases in insurance and property taxes, but to your point, Eric the actual reimbursement from the tenants that's coming through the revenue line as well so you really need to net those two together.

Speaker Change: But they can't.

David J. Smith: And then the second one is, you know, how should we think about this going forward? It's increased each quarter for the past two years here. Is this related to a specific tenant or a specific property? Will this begin to decrease at any time? Just any kind of insights into, you know, how to model these property expenses would be great.

Speaker Change: They can be episodic to your point, depending on when windows.

Speaker Change: When those come through.

Speaker Change: For the taxes and insurance so that there can be a timing difference as well.

Speaker Change: Okay, and then I guess, just kind of glass last thing on this overall I mean, they've had been increasing each quarter or is this what we should expect to continue going forward. Just give me I mean, assuming inflation steady inflationary environment I guess I'm just trying to.

David J. Smith: Thank you. Yeah, sure. Eric, this is David.

David J. Smith: So one item I'll just clarify in your comment. So the net expense that we've had throughout this year, from Q1 to Q3, has actually gone down, not gone up, versus what you said. But separately, I think you're alluding to going from Q3 to Q4, we did see an increase in the overall net expense. So in other words, the reimbursements we received from tenants, less the taxes and insurance that we paid.

Speaker Change: Understand that first.

Speaker Change: Sorry about that.

Speaker Change: Sure Yes.

Speaker Change: Just go back to my prior comment on that Eric where you did see the expenses increase from Q3 to Q4 and again that was driven by taking back properties from King's yard and in parallel so as those properties get released.

David J. Smith: That was driven by the properties we took back from Kingsgarden in September and Parallel Pennsylvania in October. So we did have, you know, elevated property expenses in Q4 just because we are on the hook, you know, for those expenses. You know, that being said, given what Paul and Ben mentioned about the releasing activity that we've had, those will go down over time just given, again, the substantial releasing efforts that we've announced today with our results. Yeah, sorry, maybe just to clarify here.

Speaker Change: With the releasing activities that Ben had mentioned.

Speaker Change: Youll see some of those come down over time.

Speaker Change: Alright, thank you.

Speaker Change: Thanks, Eric.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Alan Gould for any closing remarks.

Alan Gould: Thank you.

Alan Gould: And I'd like to thank all of the stakeholders for your continued support thank God all of the team here at the innovative industrial properties for their continued hard and fantastic work. Thank you all and with that well.

Speaker Change: We'll sign off thank you all.

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

David J. Smith: So I'm referring to the first line item in the expenses, the property expenses, which have increased each quarter here. And my understanding was that those were basically, those were also reflected in revenue, and that they were simply kind of reimbursements that you recognized the expenses of and then got reimbursed. So I don't know if that helps clarify my question, but I was just looking at that first line item. Yeah, if you're looking at just that line item, that's correct. But those can also go up. You're going to see inflationary increases in insurance and property taxes. But to your point, Eric, the actual reimbursement from the tenants is coming through the revenue line as well. So you really need to net those two together. But they can be episodic, to your point, depending on when those come through for taxes and insurance. So there can be a timing difference as well.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Eric DeLars: Okay. And then I guess just kind of last thing on this, like overall, I mean, these have been increasing each quarter. Is this what we should expect to continue going forward? I mean, assuming inflation, a steady inflationary environment. I guess, I'm just trying to understand that first expense line item and how to think about that going forward.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: [music].

David J. Smith: Sure. Yep. I would just go back to my prior comment on that, Eric, where you did see the expenses increase from Q3 to Q4. And again, that was driven by taking back properties from Kingsyard and Parallel. So as those properties get released, with the release activities that Ben had mentioned, you'll see some of those come down over time.

Eric DeLars: All right, thank you. Thanks, Eric. This 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 I'd like to thank all the stakeholders for your continued support. Thank all the team here at Innovative Industrial Properties for their continued hard and fantastic work. Thank you all. And with that, we'll sign off. Thank you all. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. BF-WATCH TV 2021, Have you heard of the the

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].