Q2 2024 Innovative Industrial Properties Inc Earnings Call
Operator: Good day and welcome to the Innovative Industrial Properties second quarter 2024 earnings conference call. All participants will be in listen on. For assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Brian Wolfe, General Counsel. Please go ahead.
Operator: Good day and welcome to the Innovative Industrial Properties Second Quarter 2024 earnings conference call. All participants will be in listen all existence. Please signal a conference specialist by pressing the star key followed by zero.
Good day and welcome to the innovative industrial properties second quarter 2024 earnings Conference call.
Spence will be in listen.
Speaker Change: Interesting. Please signal a conference specialist by pressing the star key followed by zero.
Operator: After today's presentation, there will be an opportunity to ask questions to ask a question. You may press star, then one on your telephone keypad to withdraw your question. Please press star, then two.
Speaker Change: After todays presentation, there will be an opportunity to ask questions. You ask a question you May Press Star then one on your telephone keypad. The Jai a question. Please press Star then two.
Operator: Please note. This event is being recorded.
Speaker Change: Please note this event is being recorded.
Brian Wolfe: I would now like to turn the conference over to Brian Wolfe, General Counsel. Please go ahead. Thank you for joining the call.
Speaker Change: I would 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 Operating Officer; and Ben Regin, Chief Investment Officer. Before we begin, I'd like to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties, and other factors.
Speaker Change: 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: 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 Regin, chief investment officer.
Brian Wolfe: Before we begin, I'd like to remind everyone that statements made during today's conference call. Maybe a team forward looking statements within the meeting 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. You are not obligated to publicly update or revive any forward-looking statements, whether as a result of new information, future events, or otherwise.
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 statement. You are not obligated to publicly update or revise any forward-looking statement, 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.
Speaker Change: 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 of the private Securities Litigation Reform Act of 1995 and.
Speaker Change: Actual results may differ materially due to a variety of risks uncertainties and other factors.
Speaker Change: 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.
Speaker Change: 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 <unk> normalized <unk> and adjusted <unk> you can fire.
Brian Wolfe: 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 gap financial measure in our earnings release issued yesterday, as well as in our 8-K filed with SEC.
Brian Wolfe: You can find this information, together with reconciliations to the most directly comparable GAAP financial measure, in our earnings release issued yesterday, as well as in our 8-K filed with the SEC. I'll now hand the call over to Alan.
Speaker Change: This information together with reconciliations to the most directly comparable GAAP financial measure in our earnings release issued yesterday as well as in our 8-K filed with the SEC.
Alan Gold: We'll now hand the call over to Alan. Thank you, Brian, and welcome everyone. Q2 was another solid quarter for IIP, generating $80 million in total revenues and $2.29 in AFFO per share. That performance enabled us to sequentially increase our Q2 common stock dividend by 4.4% to $1.90. Continuing our track record of increasing our dividend every year since our inception in 2016.
Speaker Change: I'll hand, the call over to Alan.
Alan Gold: Thank you, Brian, and welcome everyone. Q2 was another solid quarter for IIP, generating $80 million in total revenues and $2.29 in AFFO per share. That performance enabled us to sequentially increase our Q2 Common Stock Dividend by 4.4% to $1.90, continuing our track record of increasing our dividend every year since our inception in 2016. We achieved these results without the full impact of the rents for new leases that we executed in late 2023 and year-to-date, in addition to certain pre-leased properties under development where construction needs to be completed.
Alan: Thank you, Brian and welcome everyone Q2 was another solid quarter for IP generating $80 million in total revenues and $2 29, and <unk> <unk> per share.
Speaker Change: That performance enabled us to sequentially increase our Q2 common stock dividend by four 4% to $1 90, and continuing our track record of increasing our dividend every year since our inception in 2016.
Alan Gold: We achieved these results without the full impact of the rents for new leases that we executed in late 2023 and year-to-date, in addition to certain pre-leased properties under development, where construction needs to be completed. Ben and Catherine will provide further updates on our progress here. On the investment front, in June, we announced our newest acquisition and long-term lease with Air Wellness for a full-order property, which will undergo redevelopment for use as a regular basis. We have a calculated cannabis cultivation facility with an expected total investment upon completion of $43 million. Air is an existing tenant partner of ours in Ohio, and we are excited to expand our long-term partnership with them.
Speaker Change: We achieved these results without the full impact of the rents for new leases that we executed in late 2023 and year to date. In addition to certain pre leased properties under development, where construction needs to be completed Ben and Catherine will provide further updates on our progress here.
Alan Gold: Ben and Catherine will provide further updates on our progress here. On the investment front, in June, we announced our newest acquisition and long-term lease with Ayer Wellness for a Florida property, which will undergo redevelopment for use as a regulated cannabis cultivation facility with an expected total investment upon completion of $43 million.
Speaker Change: On the investment front in June we announced our newest acquisition and long term lease with air wellness for our Florida property, which will undergo a redevelopment for use as a regulated cannabis cultivation facility with an expected total investment upon completion of $43 million.
Erez: Erez and existing tenant partner of ours in Ohio, and we are excited to expand our long term partnership with them.
Alan Gold: As we reiterated in the past, we are really pleased with our capital position, especially in light of the macroeconomic environment impacting real estate companies and the cannabis industry. Industry. Our total available liquidity exceeded $210 million as of quarter-end, including another up-sized capacity under our Revolving Credit Facility in Q2 to $50 million. And fully fund any remaining development commitments we have, along with providing ample drive power for additional strategic investments. Additionally, we have one of the lowest-leverage balance sheets in the reading industry at 11% debt-to-total gross assets.
Erez: As we reiterated in the past we are really pleased with our capital position, especially in light of the macroeconomic environment impacting real estate companies in the cannabis industry. Our total available liquidity exceeded $210 million as of quarter end, including another upsizing capacity under our revolving.
Erez: Having credit facility in Q2 to $50 million and fully funds any remaining development commitments, we have along with providing ample dry power for additional strategic investments.
Erez: Additionally, we have one of the lowest levered balance sheets in the REIT industry at 11% debt to total gross assets.
Alan Gold: No variable rate debt, no debt maturities until May 2026, and David will provide more detail as well as our financial results in capital position for the quarter.
Erez: No variable rate debt.
Erez: No debt maturities until May 2026, and David will provide more detail as well as our financial results and capital position for the quarter.
Alan Gold: From a regulatory perspective, all eyes continue to be focused on a potentially rescheduling of cannabis from Schedule I to Schedule III under the Control Substance Act. Paul will discuss our thoughts in more detail on this rescheduling process and state-level dynamics that we are seeing, in addition to some green sheets that we are seeing regarding a potential strengthening of capital availability for cannabis operators.
Speaker Change: From a regulatory perspective, all I continue to be focused on a potential rescheduling of cannabis from schedule one to schedule III under the controlled substance.
Speaker Change: Paul will discuss our thoughts in more detail on this rescheduling process and state level dynamics that we're seeing in addition to some green shoots that we're seeing regarding a potential strengthening of capital availability for cannabis operators.
Paul Smithers: And we'll now turn the call over to Paul to discuss market dynamics and regulatory developments. Paul? Thanks, Alan. Market developments. As we have noted for some time now, from a state market perspective, we continue to see divergence in performance and dynamics, with new markets experiencing a high growth, while some mature markets become increasingly competitive, especially after the extended period of price compression and the challenges in competing with the illicit markets that we have highlighted in past calls. For example, as we noted in our last call, 2023 saw strong rollouts for adult use sales in Missouri and Maryland, both of which also benefited from cross-border purchasing by residents in neighboring states with either a medical use-only program or no program at all.
Speaker Change: I will now turn the call over to Paul to discuss market dynamics and regulatory developments Paul.
Paul: Thanks, Sean market developments as we have noted for some time now 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 the extended period of price compression and the Chi.
Paul: <unk> you competing with the illicit market that we have highlighted in past calls.
Paul: For example, as we noted in our last call 2023 saw strong rollouts for adult use sales in Missouri, and Maryland, both of which also benefited from cross border purchasing by residents in neighboring states with either a medical use only program where no program at all in fact from July two.
Paul Smithers: In fact, from July 2023 through June 2024, Maryland's first year total adult use cannabis sales topped $1.1 billion, and Missouri's annual regulated cannabis sales for 2023 totaled over $1.3 billion. Ohio, which legalized adult use in November, began issuing operational licenses for adult use cannabis cultivation last month. Ohio is expected to be one of the fastest growing markets in the near future and follows on the heels of very successful adult use introductions in Missouri and Maryland. As we have discussed on other calls, while New York has struggled since the adoption of its adult use program, we are seeing some level of turnaround in the New York regulated market with the increased pace of license dispensary openings for the adult use program and increased enforcement on stores operating illicitly.
Paul: 23 through June 2020 for Maryland's first year total adult use cannabis sales up $1.1 billion and miseries annual regulated cannabis sales for 2023 totaled over one 3 billion.
Paul: Ohio, which legalized adult use in November began issuing operational licenses for adult use cannabis cultivation last month.
Paul: Ohio is expected to be one of the fastest growing markets in the near future and follows on the heels of very successful adult use introductions in Missouri in Maryland.
Paul: As we have discussed on other calls while New York has struggled since adoption of its adult use program. We are seeing some level of turnaround in the New York regulated market with the increased pace of license dispensary openings for the adult use program and increased enforcement on stores operating illicitly.
Paul Smithers: Regulated sales in New York have increased from about $150 million for all of 2023 to over $260 million in the first six months of 2024. While this progress and the associated increase in regulated sales is welcome, this still represents just a fraction of the NYS Office of Cannabis Management's projection for the regulated cannabis industry in New York to generate $4.2 billion in revenue annually with 63,000 jobs.
Paul: Regulated sales in New York have increased from about $150 million for all of 2023 to over $260 million in the first six months of 2024.
Paul: While this progress and the associated increase in regulated sales is welcome. There's still represents just a fraction of the N Y S office of cannabis management's projection for the regulated cannabis industry in New York to generate $4 $2 billion in revenue annually with 63000 jobs.
Paul Smithers: With regard to state level legislative developments, I would also like to provide a further update from our prior call on two other states that are in the running for adoption of adult youth programs in the near term: Florida and Pennsylvania. The Fox News has support above that threshold, and just last month the Libertarian Party of Florida announced its support of the initiative. In Pennsylvania, lawmakers have been signaling that a bill to legalize marijuana could be advanced shortly, with an added sense of urgency as more neighboring states' markets come online, like Ohio. Lawmakers also touted a recent study conducted by advocacy organization Responsible PA in consultation with FTI Consulting, which estimated that the state could generate upwards of $1.7 billion to $2.8 billion in adult youth sales in the first year of rollout alone, creating an estimated $26,250 to $44,500 for Pennsylvanians.
Speaker Change: With regard to street level Legislative developments I would also like to provide a further update from our prior call on two other states that are in the running for adoption of adult use programs in the near term, Florida and Pennsylvania.
Speaker Change: In Florida, we continue to monitor support levels per amendment three.
Speaker Change: Which is expected to appear on the November ballot to legalize adult use cannabis.
Speaker Change: Well the threshold for approval of the measure is 60% recent polling from Florida politics, and Fox News has support above that threshold and just last month, the Libertarian Party of Florida announced its support of the initiative.
Speaker Change: In Pennsylvania lawmakers have been signaling that a bill to legalize marijuana could be advanced shortly with an added sense of urgency has more neighboring states markets come online like Ohio lawmakers also touted a recent study conducted by Abbvie see organization responsible P E and consultation with <unk>.
Speaker Change: F T I consulting, which estimated that the state could generate upwards of 1.7 billion to $2.8 billion in adult use sales in the first year rollout alone, creating an estimated 26000 to 50 244500 jobs.
Speaker Change: Pennsylvania's.
Paul Smithers: Capital raising and M&A. From a capital raising and M&A perspective, the regulated cannabis industry continues to be challenged, that we are seeing some recent encouraging developments. According to a Viridian, the regulated cannabis cultivation and retail operators close on 44 capital raises for approximately $870 million year-to-date through July 19, with both the number of capital raises and total amount raised down over 40% from the prior year's period. M&A for regulated operators for that same time period appeared no better, with the total number and dollar amount of M&A transactions down 37% and 66% from the prior year's period, respectively.
Speaker Change: Capital raising and M&A.
Speaker Change: From a capital raising and M&A perspective, the regulated cannabis industry continues to be challenged but we are seeing some recent encouraging developments. According to iridium the regulated cannabis cultivation and retail operators closed on 44 capital raises for approximate $870 million year to date.
Speaker Change: Through July 19, with both the number of capital raises and total amount raised down over 40% from the prior year's period.
Speaker Change: M&A for regulated operators for that same time period fared no better with the total number and dollar amount of M&A transactions down, 37% and 66% from the prior year's period, respectively.
Paul Smithers: That said, we are seeing signs of more acceptance in the debt markets for MSO refinancing, most notably evidenced by our tenant, a SANS recent closing on a private placement of $235 million of senior secured notes due in 2029, representing the first MSO to raise more than $100 million in debt since 2022.
Speaker Change: That said, we are seeing signs of more acceptance in the debt markets for M. S O refinancing most notably evidenced by our tenants are sands recent closing on a private placement of $235 million of senior secured notes due in 2029, representing the first M. S O to raise more than 100 million.
Speaker Change: Dollars in debt since 2022.
Paul Smithers: Federal legislation. From the federal perspective, we, of course, tracking closely the DEA's progress for rescheduling cannabis from Schedule 1 to Schedule 3. Process-wise, the DEA received tens of thousands of submissions through late July during the public comment period on its rescheduling proposal. The process from here is hardly clear, and a large part is up to the discretion of the federal government, which could include DEA responses to certain of these comments and/or holding an administrative hearing before any potential final rule is published in the Federal Register. If and when such a final rule is published, it is then subject to a 30-day period for opponents to file suit against the move, which could also serve to significantly delay or altogether prevent the final rule from taking effect.
Speaker Change: Federal legislation.
Speaker Change: From the federal perspective, we are of course tracking closely the dea's progress for rescheduling cannabis from schedule one to schedule III <unk>.
Speaker Change: Process wise the D. He received tens of thousands of submissions through late July during the public comment period honest rescheduling proposal the process from here its hardly clear and a large part up to the discretion of the federal government, which could include D. E responses to certain of these comments and or holding an administrative here.
Speaker Change: <unk> before any potential final rule is published in the Federal Register.
Speaker Change: If and when such a final rule was published is just subject to a 30 day period for opponents to file suit against the move which could also served to significantly delay where altogether prevent the final rule from taking effect.
Paul Smithers: So while we remain optimistic on rescheduling, there remains some very significant hurls, and if rescheduling occurs, there's a great deal of uncertainty as to when that may actually happen.
Speaker Change: So while we remain optimistic on rescheduling there remains some very significant hurdles and if rescheduling occurs there's a great deal of uncertainty as to when that may actually happen.
Ben Regin: I'd like to now turn the call over to Ben to discuss our investment and leasing activity in Q2 and year to date. Ben, thanks, Paul. We've been very pleased with the activity we've seen in recent quarters, both on new investment opportunities as well as releasing of our vacant assets. Year to date, we have retenanted four properties covering 69 million invested capital and selectively closed on new investments of just over 65 million. As we noted on our prior call, in April, we committed $6.1 million across two existing projects. We provided an additional allowance to Battle Green and Ohio to complete construction and expand their production capacity in advance of Ohio's adult use for all out and provided an additional allowance to Forefront and Illinois to round out development of our 250,000 square foot production facility.
Speaker Change: I'd like to now turn the call over to Ben to discuss our investment and leasing activity in Q2 and year to date then.
Ben: Thanks, Paul.
Ben: We've been very pleased with the activity we've seen in recent quarters, both on new investment opportunities as well as re leasing of our vacant assets year to date, we have re tenanted four properties, covering 69 million and invested capital and selectively closed on new investments of just over $65 million.
Ben: As we noted on our prior call in April we committed $6 $1 million across two existing projects. We provided an additional allowance to battle green in Ohio to complete construction and expand their production capacity in advance of Ohio's adult use rollout and provided an additional allowance to forefront in Illinois to round out development.
Ben: Of our 250000 square foot production facility.
Ben Regin: And in June, we closed on the acquisition of a 145,000 square feet of industrial space on 16 acres in Florida, executing a long-term lease with Air Wellness, a publicly traded MSO with operations across eight states. We acquired the property for $13 million or $90 per square foot and committed an additional $30 million for air to redevelop the main 98,000 square foot. We also had industrial building for use as a regulated cannabis cultivation facility. Air maintains a strong presence in Florida, operating more than 60 dispensaries with 745,000 square feet of production capacity, excluding our property.
Ben: And in June we closed on the acquisition of 145000 square feet of industrial space on 16 acres in Florida executing a long term lease with air wellness publicly traded M. S O with operations across eight states.
Ben: We acquired the property for $13 million or $90 per square foot and committed an additional $30 million for air to redevelop the main 98000 square foot industrial building for use as a regulated cannabis cultivation facility.
Speaker Change: Air maintains a strong presence in Florida operating more than 60, dispensaries with 745000 square feet of production capacity, excluding our property.
Ben Regin: As Paul discussed, we are closely watching the developments in Florida with regards to the November election and potential adoption of adult use cannabis. Also in Q2, we closed on the disposition of our property in Los Angeles, which was leased up until the sale for total consideration between the sales price and lease termination fee exceeding the property's net carrying value. This property was never fully built out for cannabis use, and the sale provides us additional capital to recycle into other opportunities that we believe will provide superior risk-adjusted returns. We continue to track an active pipeline across markets, actively evaluating opportunities and look forward to executing on new investment opportunities on a very selective discipline basis.
Speaker Change: As Paul discussed we are closely watching the developments in Florida with regards to the November election, and potential adoption of adult use cannabis.
Speaker Change: Also in Q2, we closed on the disposition of our property in Los Angeles, which was leased up until the sale.
Speaker Change: For total consideration between the sales price and lease termination fee exceeding the property's net carrying value.
Speaker Change: This property was never fully built out for cannabis use and the sale provides us additional capital to recycle into other opportunities that we believe will provide superior risk adjusted returns.
Speaker Change: And we continue to track and active pipeline across markets actively evaluating opportunities and look forward to executing on new investment opportunities on a very selective disciplined basis.
Catherine Hastings: With that, I'll turn it over to Katherine. Katherine? Thanks, Ben. We've made a lot of progress in 2024 year-to-date on closing out or nearing completion on many of our tenants' remaining development projects. From our last call, we highlighted completion of three leased projects totaling 200 million of invested committed capital. Furious 325,000 square foot expansion in New York, 4 fronts, 250,000 square foot ground-up development in Illinois, and Battlegreens 157,000 square foot ground-up development in Ohio. In Q2, we completed development of the 23,000 square foot Perez Road development project in California, which is fully leased and operational, and just completed the 104,000 square foot cultivation components of our summit building in Michigan in July.
Kathryn: With that I will turn it over to Kathryn Kathryn.
Kathryn Kathryn: Thanks Ben.
Kathryn Kathryn: Made a lot of progress in 2024 year to date on closing out or nearing completion on many of our tenants remaining development projects.
Kathryn Kathryn: From our last call, we highlighted completion of three leased projects totaling $200 million of invested committed capital.
Speaker Change: He is 325000 square foot expansion in New York.
Speaker Change: Forefront 250000 square foot ground up development in Illinois, and Battle Greens 157000 square foot ground up development in Ohio.
Speaker Change: In Q2, we completed development of the 23000 square foot Perez, rather development project in California, which is fully leased and operational and just completed the 104000 square foot cultivation component of our summit building in Michigan in July.
Catherine Hastings: As you may recall, the 97,000 square foot processing section of that building was previously approved for operation, and the entire project is leased. We're also pleased to note that Lume, the new tenant at our Harvest Park facility, has received approvals to operate and is now occupying that facility. While we agreed to provide Lume up to $2 million in qualifying infrastructure enhancement to the facility, we see this new lease as a good example of the general reusability of our facilities that has been built out for cannabis use. The overall layout and build out of the facility has worked for the replacement tenants we've brought in, with very little change to the overall design of the facility.
Speaker Change: As you May recall, the 97000 square foot processing section of that building was previously approved for operation and the entire project is leased.
Speaker Change: We're also pleased to note that Liam the new tenant at our Harvest Park facility has received approvals to operate and is now occupying that facility. While we agreed to provide loomed up to $2 million in qualifying infrastructure enhancement to the facility. We see this new lease is a good example of the general reused.
Speaker Change: Ability of our facilities that have been built out for Canada.
Speaker Change: The overall layout and build out of the facility has worked for the replacement tenants. We brought in with very little change to the overall design of the facility.
Catherine Hastings: Regarding our portfolio, as of June 30, we own 108 properties across 19 states, comprising 9 million rentable square feet, including 722,000 square feet under development or redevelopment. Of these 108 properties, 104 properties are included in our operating portfolio, which was 95.6 percent leased at quarter end, with a weighted average remaining lease term of 14.4 years. Of the four properties under development, redevelopment, two were pre-leased at quarter end. Our portfolio continues to be well diversified, with no one tenant representing more than 18 percent of our annualized base rent and no state representing more than 15 percent of our annualized base rent.
Speaker Change: Regarding our portfolio as of June 30, we owned 108 properties across 19 states, comprising 9 million rentable square feet, including 722000 square feet under development or redevelopment.
Speaker Change: Of these 108 properties 104 properties are included in our operating portfolio, which was 95, 6% leased at quarter end with a weighted average remaining lease term of 14.4 years.
Of the four properties under development redevelopment to where pre leased at quarter end.
Speaker Change: Our portfolio continues to be well diversified with no one tenant representing more than 18% of our annualized base rent and no state representing more than 15% of our annualized base rent.
Catherine Hastings: We have relationships with some of the largest and most experienced operators in the industry, with our leased operating portfolio comprised of 91 percent multi-state operators and 62 percent lease to public company tenants. The total amount of capital invested and committed across our operating portfolio equates to $279 per square foot, which we believe remains significantly below replacement cost.
Speaker Change: We have relationships with some of the largest and most experienced operators in the industry with at least operating portfolio comprised of 91% multistate operators and 62% leased to public company tenants. The total amount of capital invested and committed across our operating portfolio equates to 279.
Speaker Change: <unk> per square foot, which we believe remains significantly below replacement cost.
David Smith: And with that, I'll turn it over to David. David? Thank you, Catherine. For the second quarter, we generated total revenues of 79.8 million, a 4 percent increase from Q2 of last year. The increase was primarily driven by activity in prior periods for the acquisition and leasing of new properties. Additional funding and building improvements provided attendance at certain properties that resulted in base rent increases and contractual rental oscillations, along with a 3.9 million disposition contingent lease termination fee paid to us concurrently with a sale of our Los Angeles, California property. This increase in total revenues was partially offset by a loss in revenue for properties we took back possession of since the second quarter of 2023, and 1.3 million in rent received during the quarter, but not recognized in total revenues due to a reclassification of two leases as sales-type leases as of January 1st, 2024, as we discussed in depth on last quarter's call.
David: And with that I'll turn it over to David David.
David David: Thank you Catherine for the second quarter, we generated total revenues of $79 8, Million% to 4% increase from Q2 of last year. The increase was primarily driven by activity in prior periods for the acquisition and leasing of new properties.
David David: Additional funding and building improvements provided to tenants at certain properties that resulted in base rent increases.
David David: And contractual rental escalations, along with a $3 9 million disposition contingent lease termination fee paid to us concurrently with the sale of our Los Angeles, California property.
David David: This increase in total revenues was partially offset by a loss in revenue for properties. We took back possession of since the second quarter of 2023.
David David: And $1.3 million in rent received during the quarter, but not recognized in total revenues due to a reclassification of two leases as sales type leases as of January one 2024, as we discussed in depth on last quarter's call.
David Smith: Revenues for the quarter were also up sequentially versus the first quarter of this year, primarily relating to the lease termination fee, in addition to modest sequential increases in rental revenues and tenant reimbursements. In the second quarter, we sold a property in Los Angeles, California, for 9.1 million and recognized a loss on sale of 3.4 million. Billion. However, we also earned a 3.9 million disposition contingent lease termination fee. As a result, the total consideration received on the sale of 13 million exceeded our carrying value of the property as of the end of the first quarter, resulting in a net gain of 0.5 million.
David David: Revenues for the quarter were also up sequentially versus the first quarter of this year, primarily relating to the lease termination fee. In addition to modest sequential increases in rental revenues and tenant reimbursements.
David David: In the second quarter, we sold a property in Los Angeles, California for $9 1 million and recognized a loss on sale of $3 4 million.
David David: However, we also earned a $3 9 million disposition contingent lease termination fee.
David David: As a result, the total consideration received on the sale of $13 million exceeded our carrying value of the property as of the end of the first quarter, resulting in a net gain of zero point $5 million.
David Smith: As this goes in our second quarter earnings materials, I want to note that given the disposition contingent nature of the lease termination fee, we subtracted out the net positive impact of a loss on sale of real estate and lease termination fee when arriving at our FFO calculation for the quarter. Interesting come for the 3 months ended June 30, 2024, increased by 1.7 million to 4.0 million, compared to 2.3 million for the 3 months ended June 30, 2023. The increase is primarily due to higher cash interest received on our secured construction loan for a property in California where we are the lender and included a low maturity extension fee paid to us of 0.3 million in the quarter to extend the maturity date of the loan from June 30 to the end of this year.
David David: As disclosed in our second quarter earnings materials I want to note that given the disposition contingent nature of the lease termination fee, we subtracted out the net positive impact of a loss on sale of real estate and lease termination fee when arriving at our <unk> calculation for the quarter.
David David: Interest income for the three months ended June 30th 2024 increased by 1.7 million to 4.0 million compared to $2 3 million for the three months ended June 32023.
David David: The increase was primarily due to higher cash interest received on our secured construction loan for a property in California, where we are the lender and included a loan maturity extension fee paid to us of <unk> 3 million in the quarter to extend the maturity date of the loan from June 30 to the end of this year.
David Smith: A FFO for the second quarter was 65.5 million or $2.29 per share, a 1% increase compared to the second quarter of 2023, and a 4% increase versus the first quarter of 2024, driven primarily by the increase in interest income associated with the construction loan that I just discussed. As we noted on our first quarter call, while we expect the releasing activity we achieved year-to-date to contribute meaningfully to our long-term earnings, the timeline to rent stabilization may differ between the properties as there are state and local approvals needed for these transitions, additional regulatory requirements to be completed at certain assets, and some level of rent abatement is negotiated to allow for a ramping of our new tenants' operations.
David David: F O for the second quarter was $65 5 million or $2 29 per share a 1% increase compared to the second quarter of 2023.
David David: And a 4% increase versus the first quarter of 2024, driven primarily by the increase in interest income associated with the construction loan that I just discussed.
David David: As we noted on our first quarter call, while we expect our releasing activity we achieved year to date to contribute meaningfully to our long term earnings the timeline to rent stabilization may differ between the properties as there are state and local approvals needed for these transitions.
David David: Additional regulatory requirements to be completed at certain assets and some level of rent abatement as negotiated to allow for a ramping of our new tenants operations.
David Smith: That being said, we are very pleased with our substantial activity on the releasing front, which has been discussed in detail, and happy to see our tenant Loom receive its approvals for operation at our Harvest Park facility in Michigan.
David David: That being said we are very pleased with our substantial activity on the releasing front has been discussed in detail and happy to see our tenant move receive its approvals for operation at our harvest Park facility in Michigan.
David Smith: As a result of our significant releasing progress to date and consistent earnings, our board increased our quarterly dividend by 4% to $1.90 per share. The dividend was paid on July 15th to common stockholders of record as of June 28th. As Alan noted, our dividend remained covered by our AFFO during the quarter, with a payout ratio of 83%, which is in line with the board's targeted payout ratio of 75-85% of AFFO. This dividend increase continued our track record of increasing the dividend every year since our inception in 2016.
David David: As a result of our significant re leasing progress to date inconsistent earnings our board increased our quarterly dividend by 4% to $1 90 per share.
David David: The dividend was paid on July 15th to.
David David: To common stockholders of record as of June 28.
David David: As Alan noted our dividend remained covered by our <unk> during the quarter with a payout ratio of 83%.
Alan: Which is in line with the board's targeted payout ratio of 75% to 85%.
Alan Gold: of AFFO. This dividend increase continued our track record of increasing the dividend every year since our inception in 2016.
David David: <unk>.
Alan: This dividend increase continued our track record of increasing the dividend every year since our inception in 2016.
David Smith: Our balance sheet remained strong during the quarter with 2.6 billion total gross assets and our only debt consisting of 300 million and 6 rate unsecured bonds, not maturing until May 26th. Furthermore, we continued to maintain re-industry-leading credit metrics with a net debt to EBITDA of less than one times, a debt to gross assets ratio of 11%, and a debt service coverage ratio of 17 times.
Alan: Our balance sheet remained strong during the quarter with $2 6 billion and total gross assets and our only debt consisting of $300 million in fixed rate unsecured bonds not maturing until may 2026. Furthermore, we continued to maintain REIT industry, leading credit metrics with a net debt to EBITDA of less than one times.
Alan: Debt to gross assets ratio of 11% and a debt service coverage ratio of 17 times.
David Smith: Moving on to liquidity, we finished the second quarter with over 210 million of total liquidity comprised of our cash, short-term investments, and availability under our revolving credit facility. As Alan noted, we successfully increased our revolving credit facility during the second quarter to 50 million, with the addition of a New York-headquartered bank. We are continuing to have dialogue with numerous banks regarding your interest in joining our credit facility to continue to increase your overall capacity.
Alan: Moving on to liquidity, we finished the second quarter.
Alan: Over $210 million of total liquidity comprised of our cash.
Alan: Short term investments and.
Alan: And availability under our revolving credit facility as Alan noted, we successfully increased our revolving credit facility during the second quarter to $50 million with the addition of a New York headquartered bank.
Alan: We are continuing to have dialogue with numerous banks regarding their interest in joining our credit facility to continue to increase the overall capacity.
David Smith: Finally, we terminate our existing at-the-market equity offering program and entered into a new ATM program during the second quarter to provide for the issuance from time to time of shares of our common stock and Series A preferred stock. We also took this opportunity to add a forward component for our sales of our common stock, allowing us to more precisely match fund our investments with a goal of reducing the overall devoutive impact of future equity raises through the program. As you can see, we continue to be well positioned for continued growth with a conservative balance sheet, access to multiple capital markets, and continue progress on expanding our banking relationships to increase the size of our credit facility.
Alan: Finally, we terminated our existing at the market equity offering program and entered into a new ATM program. During the second quarter to provide for the issuance from time to time of shares of our common stock and series a preferred stock.
Alan: We also took this opportunity to add a four component for our sales of our common stock, allowing us to more precisely match fund our investments with a goal of reducing the overall dilutive impact of future equity raises through the program.
Alan: As you can see we continue to be well positioned for continued growth with a conservative balance sheet access to multiple capital markets.
Alan: And continued progress on expanding our banking relationships to increase the size of our credit facility with that I will turn it back to Alan Alan.
Alan Gold: With that, I'll turn it back to Alan.
Alan Gold: Alan? Thanks, David.
Alan: Thanks, David.
Alan Gold: I'd like to note the following closer. Our team continues to execute on our plan to maximize the value of our portfolio for the benefit of our stockholders through our leasing, investment, and disposition activities, and to continually evaluate capital options with the goal of maintaining a strong balance sheet and liquidity position. I'm proud of this team's performance and believe this core focus will serve our stockholders well over the long term.
Alan: I'd like to note the following closing.
Alan: Our team continues to execute on our plan to maximize the value of our portfolio for the benefit of our stockholders to our leasing investment and disposition activities and to continually evaluate capital options with the goal of maintaining a strong balance sheet and liquidity position I'm.
Alan: I'm proud of this team's performance and believe this core focus will serve our stockholders well over the long term.
Operator: With that, I'd like to open it up to questions.
Speaker Change: With that I'd like to open it up to questions. Operator could you. Please open the call up for questions.
Operator: Operator, could you please open a call up for questions? Thank you. To ask a question, you may press star, then one on your telephone key pass. If you're using a speaker phone, please pick up your headset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.
Speaker Change: Thank you.
Speaker Change: You ask a question.
Speaker Change: Star then one on your telephone keypad.
Speaker Change: We're gonna Speakerphone, please pick up your handset before pressing the cool with that.
Speaker Change: Your question has been addressed and you would like a Italia question. Please press star two.
Tom Capagard: The first question comes from Tom Capagard with BTIG. Please go ahead. Thank you so much.
Speaker Change: Our first question comes from Tom Catherwood BPH.
Speaker Change: <unk>. Please go ahead.
Tom Catherwood: Thank you so much and maybe starting with Paul appreciate the commentary on.
Paul Smithers: Let me start with Paul. Appreciate the commentary on your capital formation trends in the cannabis sector so far. Typically, CapEx spending for the operators follows capital availability, but in this case, are you seeing any positive movement on the CapEx side driven by new state adult use program expansions despite tighter capital markets? Thanks for the question, Tom. There is a lot of enthusiasm in the industry. I think, as you know, built around the rescheduling issue. And we talked to our operators, and we think that there's a lot of excitement, but there is some wait and see about when is rescheduling going to happen.
Speaker Change: Lower year over year capital formation trends in the cannabis sector so far.
Speaker Change: Year to date.
Speaker Change: Typically capex spending for the operators follows capital availability, but in this case are you seeing any positive movement on the Capex side, driven by new state adult use program expansions, despite tighter capital markets.
Speaker Change: Okay.
Honda Civic: Honda Civic go ahead, yeah, sorry, Paul Yes, no got it alright.
Speaker Change: Alright. Thanks.
Speaker Change: Thanks for the question Tom.
Speaker Change: No there is.
Speaker Change: There is a lot of enthusiasm in the industry I think as you know.
Speaker Change: Around the rescheduling issue.
Speaker Change: And we talk to our operators and we think that there's a lot of excitement, but there is some wait and see.
Speaker Change: <unk>.
Speaker Change: When is rescheduled going to happen when artists to 80, we leave going to hit the bottom line.
Paul Smithers: When are the 280 relief going to hit the bottom line? So I think there is a lot of built up capital that's going to hit the market. Once there is more clarity on the timing and actual effect of the 280 relief. So I think you're well aware of the schedule, and we're pretty pleased, Tom, about where we are today with the rescheduling process. It's gone as quick as we thought it would. But right now, of course, in the hands of DEA, they received 40,000 comments on the rescheduling; over 90% positive. And in fact, a big percentage of those would want them to go further than rescheduling and get it to descheduling.
Speaker Change: So.
Speaker Change: I think there is a lot of built up.
Speaker Change: Capital, that's going to hit the market once there is more clarity on the timing and.
Speaker Change: Actually the effect of the 280 relief. So you know I think you're well aware of the schedule and yeah, we're pretty pleased about where we are today.
Speaker Change: With the rescheduling process, it's got as quick as we thought it would but right now it's of course in the hands of DEA. They received 40000 comments.
Speaker Change: On the rescheduling over 90% positive and in fact, a big percentage of the dollars would want them to go further than rescheduling and get it to D. Scheduling. So we're waiting to see what the da is going to do next in order and issued a final order and final ruling, which we think could happen really any day.
Paul Smithers: So we're waiting to see what the DA is going to do next in order and issue the final order and final ruling, which we think could happen really any day. Once that happens, of course, there's a 30-day period that a lawsuit can be filed by any aggrieved party that wants to do so. So we're waiting and seeing, and we do think, as we said in prior calls, that once that 280 relief does hit the bottom line. For people that don't really follow it closely and understand the significance of it, when 280E goes away if we get rescheduled to three, I mean, there's a lot of things that operators now can't deduct, such as rent, salaries and wages, utility costs, maintenance and repairs, marketing, advertising, health insurance. All these things add up, of course.
Speaker Change: Once that happens of course, there's a 30 day period that a lawsuit can be filed by any agreed party.
Speaker Change: It wants to do so so we're waiting and seeing and yeah. We do think as we've said in prior calls at once that 280 relief does hit the bottom line.
Speaker Change: For people that don't really follow it closely and understand the significance of it you know when to 80. He goes away if we get rescheduled to three I mean, there's a lot of things that.
Speaker Change: Operators now can't deduct such as rent salaries and wages utility costs maintenance and repairs marketing advertising health insurance. All these things add up of course and once those things hit the bottom line, we think theres going to be a lot more capital available for Capex expansion.
Paul Smithers: And once those things hit the bottom line, we think there's going to be a lot more capital available for CAPEX. expansion.
Paul Smithers: Totally fair, and Paul may be sticking with that item. Could there be an impact on rescheduling from either the recent Chevron ruling or a potential change in administration that might either slow up or completely change the progress when it comes to rescheduling activity? Yeah, so let's talk about the recent Supreme Court case that took away Chevron. I think actually it's a positive, and I know you're going to get people that say no, it's going to complicate. So for people that aren't following the US Supreme Court ruling closely, what that recent case did is get rid of Chevron doctrine, which says that when there's an ambiguity in a federal statute, the courts leave it up to the administrative body to interpret what Congress meant.
Speaker Change: Yeah.
Speaker Change: Totally fair and Paul maybe sticking with with that item.
Speaker Change: There be an impact on rescheduling.
Paul: Either the recent chevron ruling or a potential change.
Speaker Change: In administration that might either slow up award or completely changed the progress when it comes to to.
Speaker Change: So rescheduling activity yeah. So let's talk about the recent Supreme Court case that.
Speaker Change: It took away Chevron you know I think actually it's a positive and I know you're going to get people and say now it's going to complicate. So for people that aren't following the U S. Supreme Court rulings closely what that recent case did is get rid of Chevron doctrine, which says that when there's an ambiguity and a federal statute.
Speaker Change: The courts leave it up to the administrative body.
Speaker Change: To interpret what the Congress met so in order to get to Chevron you really have to have an ambiguity in this case would be in the controlled substance Act and I would certainly argue that there was no ambiguity in the CSA because its Esa explicitly allows the DEA to reschedule.
Paul Smithers: So in order to get to Chevron, you really have to have an ambiguity, in this case, would be in the Control Substance Act, and I would certainly argue that there was no ambiguity in the CSA because the CSA explicitly allows the DEA to reschedule, control substances at their distress. So I don't think you even get to the Chevron, so that's a, I don't think it's going to happen. Question about who's president next year, I think, is a fair question, and we look so far, former President Trump has not updated his stance that I'm aware of on cannabis.
Speaker Change: Controlled substances at their distress, so I don't think even get to the chevron so.
Speaker Change: That said.
Speaker Change: Don't think it's going to happen.
Speaker Change: Question about you know who's President next year I think is a fair question Ann.
Speaker Change: We look.
Speaker Change: So far.
Speaker Change: Didn't Trump former President Trump is not.
Speaker Change: Updated his stats that I'm aware of on cannabis. He has always been a supporter of medical cannabis.
Paul Smithers: He has always been a supporter of medical cannabis and has supported research. So my thought is when we get rescheduling to three, I expect him to be supportive of it because it does follow the thought of more support from medical and more research. So while yes, he could instruct the DEA to undo, I don't think it's going to happen because by then I think it's a political issue, and as we've discussed in prior calls certainly, the overwhelming majority of voters in this country support medical cannabis. So it could happen, but I would say not.
Speaker Change: And has supported research. So my thought is when we get rescheduling to three.
Speaker Change: We expect him to be supportive of it because it does follow the thought of more support for medical and more research. So while yes he could.
Instruct D a to undo.
Speaker Change: I don't think it's going to happen because by then I think it's a political issue and as we've discussed in prior calls certainly the overwhelming majority of voters in this country support medical cannabis so it could happen, but I would say not.
Tom Capagard: I really appreciate those thoughts. Thank you, Paul.
Speaker Change: I really appreciate those thoughts thank you Paul.
Paul Smithers: And maybe on the last one for me, then you'd mention pursuing new investments on a highly selective basis. What characteristics does a sale leaseback or follow-on investment have to include to meet your underwriting, and have these requirements changed at all in recent quarters? I think before Ben starts with that, I just like to remind, not only you talk about everybody, but that the sale leaseback concept is our basic business model that we've been following since for the last eight years. And it seems to be, it has continued to produce what we think of as below average risks for above average returns.
Paul: Maybe on the last last one for me then you'd mentioned pursuing new investments on a highly selective basis.
Speaker Change: What characteristics does a sale leaseback or or follow on investments have to include to meet your underwriting and having these requirements changed at all in recent quarters.
Paul: Hey, you know what I think.
Speaker Change: No.
Speaker Change: Before Ben starts with that I just like.
Speaker Change: Okay.
Speaker Change: Mine, not only time, but everybody, but that the sale leaseback concept is are our basic.
Speaker Change: The business model that we've been following for the last eight years and it seems to be it has.
Speaker Change: Continued that.
Speaker Change: Produce what we think.
Speaker Change: Oh, Hello average risks for above average returns now with that I'm going to turn it over to Ben to go ahead and describe that.
Ben Regin: Now, with that, I'm going to turn it over to Ben to go ahead and describe that. of what we do in a fairly specific position in the under way. Yeah, sure. Hey, Tom. I wouldn't say that our underwriting criteria has necessarily changed over the years. I think we're still highly selected on the types of opportunities in markets we like, with tents we like, as we have been since our inception. I think we're very pleased with the state of the pipeline. We're still seeing the load and bid teens yields on the opportunities in the pipeline. I think we're cautiously optimistic that we will hit our goal of north of 100 million investment activity this year, as we did in 2023.
Ben: But what we do in a sale leaseback.
Ben: So Shannon underway.
Ben: Yeah, sure, Hey, Tom and I wouldn't say that our underwriting criteria has necessarily changed over the years and I think we're still highly selective on the types of opportunities in markets, we like with tenants, we like as we have been since our inception.
Ben: I think we're very pleased with the state of the pipeline.
Ben: No we're still seeing the low to mid teens yields on the opportunities in the pipeline I think we're cautiously optimistic that we will hit our goal of north of $100 million in investment activity. This year as we did in 2023.
Ben Regin: You know, on top of the investment activity that we've seen year to date and very pleased with the leasing activities, well, reteniting $69 million worth of assets year to date and over $125 million worth of assets over the last three quarters. So, between that, executing on selective pipeline opportunities, you know, feel very good about the state of the pipeline and the portfolio overall. God appreciates those answers.
Ben: On top of the investment activity that we've seen year to date and very pleased with the leasing activity as well returning $69 million worth.
Ben: Of assets year to date and over $125 million worth of assets over the last three quarters.
Ben: So between that executing on on selective.
Ben: Pipeline opportunities and feel very good about about the state of the pipeline and the portfolio overall.
Ben: Got it I appreciate those answers that's it for me thanks, everyone. Thanks, Tom.
Tom Capagard: That's it for me. Thanks, everyone. Thanks, Tom.
Connor Mitchell: The next question comes from Connor Mitchell with Piper Sandler. Please go ahead. Hey, thanks for taking my question. Maybe just continuing on that and really focusing on the tenets. I'm just wondering how you guys think about balancing investments with new external tenets and then the existing tenets in terms of additional investment commitments, reteniting, etc. I think that's a really good question because, you know, throughout our history, we spent a great deal of time in capital supporting our existing tenets and seeing what we believe is a very strong real estate partner for them in this industry.
Ben: The next question comes from Connor Mitchell with Piper Sandler. Please go ahead.
Connor Mitchell: Hey, Thanks for taking my question.
Connor Mitchell: Maybe just continuing on that and really focusing on the tenant.
Connor Mitchell: I'm just wondering how you guys think about balancing.
Speaker Change: Investments with.
Speaker Change: With the new.
Speaker Change: External tenants and then the existing tenants in terms of.
Speaker Change: Additional investment commitment to re tenant it.
Speaker Change: Et cetera.
Speaker Change: I think that's a really good question.
Speaker Change: Isn't it.
Speaker Change: Throughout our history, we've we spent a great deal of time, Inc.
Paul Smithers: Capital, supporting our existing tenants and being what we believe is a very strong real estate partner for them in this industry. And we continue to believe that focusing on our tenants and giving them the greatest chance of success in a very competitive and, as we've discussed, a difficult general macroeconomic environment.
Speaker Change: Capital supporting our existing tenants.
Speaker Change: Alright, and thing, but we believe it was a very strong.
Speaker Change: Real estate partner for them.
Speaker Change: In this industry and we continue to believe that focusing on.
Alan Gold: And we continue to believe that focusing on our tenets and giving them the greatest chance for success and a very competitive competitive. And as we discussed, you know, a difficult general macroeconomic environment is fast. But you know, maybe then you could, then you might want to talk about the, you know, how we look at new tenets and how we support our existing tenets.
Speaker Change: Our tenants and giving them the greatest chance for success in a very competitive competitive and as we've discussed they you know are difficult.
Speaker Change: General macroeconomic environment as well.
Yes.
Speaker Change: You know, maybe then you could.
Speaker Change: Might want to talk about the how we look at new tenants in.
Speaker Change: And how do we support our existing.
Ben Regin: Yeah, sure, Connor. It sounds describing, feels very good about our current tenant roster. Of our 30 tenants, north of 90% of our revenue comes from multi-state operators, and we really feel that we have, you know, some of the best operators in the industry in our portfolio and have continued to support them over the years, while also maintaining a well-diversified portfolio across our tenant base as well as across markets. We, of course, will look at new opportunities to work with new operators as we see fit, with management teams that we like, that have strong financials, a track record of performance, in the same rigorous underwriting criteria that we've used historically for our existing tenants.
Speaker Change: Yeah sure it counter Allen's describing feel very good about our.
Speaker Change: Our current tenant roster of art 30 tenants north of 90% of our revenue comes from Multistate operators and we really feel that we have.
Speaker Change: Some of the best operators in the industry.
Speaker Change: In our portfolio and have continued to support them over the years while also.
Speaker Change: Maintaining a well diversified portfolio across our tenant base as well as across state markets.
Speaker Change: We of course will look at new opportunities to work with new operators.
Speaker Change: As we see fit with management teams that we liked that have strong financials.
Speaker Change: Our track record of performance and the same.
Speaker Change: And our rigorous underwriting criteria that we've used historically for our existing tenants.
Alan Gold: Okay, that's helpful. And then you guys have done a pretty good job of releasing some spaces that have come available over the past 12 or 18 months. Just wondering if you could provide an update on any current spaces that are unoccupied and the leasing efforts or possibly like selling efforts of those properties? No, I think before I turn it over to Catherine, I can't even provide those details. I do really want to complement again our team for the unbelievable execution on releasing as many people who have been involved with our company from the inception. There's a great belief that our properties would be very difficult to release, and they would be too specialized.
Speaker Change: Okay. That's helpful. And then do you guys have done a pretty good job of re leasing some spaces that have come available.
Speaker Change: For the past 12 or 18 months.
Speaker Change: Just wondering if you could provide an update on any current spaces that are unoccupied and the leasing efforts or possibly like selling efforts of those properties.
Speaker Change: Yeah, No I think.
Speaker Change: Before I turn it over to Kathy.
Speaker Change: Okay.
Kathy: Those details I do I really want to compliment again our team for their.
Kathy: Unbelievable execution on relation.
Kathy: Is many people who've been involved with the company from the subs.
Kathy: <unk> it was a great belief that our properties would be very difficult to re lease.
Kathy: They would be to specialize and Oh, we have continually continuously believed that we've underwritten them properly that we have a very reasonable cost per square foot.
Catherine Hastings: And we continue to continuously believe that we've underwritten them properly, that we have a very reasonable cost per square foot given the amount of infrastructure that goes into these facilities. I think that's proven out with the releasing efforts.
Kathy: Given our given the amount of <unk>.
Kathy: Infrastructure that goes into these facilities and I think that's proven out with our re leasing efforts.
Catherine Hastings: Catherine, want to provide more details? Yeah, thanks, Alan. Connor, as Alan was talking about, I think the team is just really pleased with the success of our releasing and the attractiveness of the facilities to those new tenants. Really speaks to the general reusability of those facilities. And we plan to bring that same success to the remaining assets that we have, which are really just down to a handful of properties. We have 160,000 square feet of cannabis, real estate in Pittsburgh, 238,000 square feet of warehouse space in California, and a 12-acre personal land in Texas. We also have two small retail properties in Michigan that total about 6,000 square feet.
Pat: Pat do you want to provide more details.
Pat: Yeah. Thanks Alan.
Conor: Conor as Elena.
Pat: Talking about I think the team has just really pleased with the with the success of our re leasing and the attractiveness of the facilities to those new tenants.
Pat: Really speaks to the general Reusability of those facilities.
Speaker Change: And we plan to bring that same success to the remaining assets that we have which are really just down to a handful of properties. We have 160000 square feet of Canada real estate in Pittsburgh 238000 square feet of warehouse space in California, and a 12 acre parcel of land in Texas.
Speaker Change: We also have two small retail properties in Michigan that totaled about 6000 square feet.
Catherine Hastings: And overall, we're really confident in the talent of our team to continue to position these assets in the future and hope to have additional updates as we work through those.
Speaker Change: And overall, we're really confident in the talent of our team to continue to position. These assets some in the future and hope to have additional updates as we work through those.
Alan Gold: Okay, then maybe one more question for me. You get to have a pretty good handle on correcting any issues or fixing any issues you've had with tenants in the system. Just wondering if you can provide an update on maybe a watch list or a tenant credit update, if anything might be brewing or you guys feel pretty good about the environment as it is. So, I think that's the statement that we talk about when we talk about a watch list is that we've watched all of our tenants. So, you know, with the 30 tenants, so we think we have that pretty well in hand.
Speaker Change: Okay, and then maybe one more question for me.
Speaker Change: You guys have had a pretty good handle on.
Speaker Change: On correcting any any issues or fixing any issues you've had with with tenants in the system. I'm. Just wondering if you could provide an update on maybe a watch list or a tenant credit update.
Speaker Change: If anything might be brewing or you guys feel pretty good about the environment as it is.
Speaker Change: So I think that's the statement that we talk about when we talk about a wash lapses that we watch all of our tenants and you know what.
Speaker Change: 30 tenants so.
Speaker Change: We think we have that pretty well in hand.
Alan Gold: We've reminded the audience about the difficult macroeconomic environment and, in general, particularly in the cannabis industry, we're still working for the industry; we're still working through some of those issues. And we believe that there are tenants that, because of supply chain issues or getting up to speed with the changing environment, there will be some difficulties. But in general, we're very as feminine and kept as indicated.
Speaker Change: We keep our we've reminded the audience about the difficult market.
Speaker Change: Macroeconomic environment and no.
Speaker Change: Yeah.
Speaker Change: In general again, and particularly in the cannabis industry in which we're still working with the industry is still working through some of those issues and we believe that.
Speaker Change: But there there are tenants.
Speaker Change: That.
Speaker Change: Yeah, because of the supply chain issues or.
Speaker Change: Getting up to speed with the.
Speaker Change: The changing environment that there will be some difficulties.
Speaker Change: But in general.
Speaker Change: We're very as Ben and Cat.
Speaker Change: Is indicated we're very pleased with the quality and strength of our time.
Connor Mitchell: We're very pleased with the quality and strength of our okay, appreciate all the colors. Thank you. Thank you, Connor.
Speaker Change: Okay I appreciate all the color. Thank you.
Got it.
Scott Fortune: The next question comes from Scott Fortune with Rock Capital Partner. Please go ahead. Good morning or afternoon, and thanks for the questions. Just to follow up, maybe Kat on the properties that you're looking to read these obviously regulations and gain those licenses in place that kind of developing them out.
Scott <unk>: The next question comes from Scott <unk> with Roth Capital Partners. Please go ahead.
Scott <unk>: Good morning, or afternoon, and thanks for the questions just a follow up.
Speaker Change: Cat on the property that you're looking to re lease.
Speaker Change: We see regulation and gain those licenses in place that kind of developing them out.
Scott Fortune: Is there is a timing kind of still in place where we expect this to happen towards in the year, early next year, just kind of an update on the timing for these turning into kind of at least revenue moving forward and the progression there with the regulation side of them. Scott, thank you for the question. Perhaps Ben, you might want to address the timing associated with the assets that are already built out in the service. Yeah, sure, no problem. He's got again talking about the leasing activity, which again, have been very pleased with the over $125 million worth of investments that we've retenited over the last three quarters.
Speaker Change: There is a timing kind of still in place where we expect this to happen towards the end of the year early next year, just kind of an update on the timing for these turning into.
Speaker Change: Rent lease revenue moving forward and the progression there wish with deregulation.
Speaker Change: Yep.
Scott Fortune: Scott, thank you for the question. Perhaps, Ben, you might want to address the timing associated with the assets that are already built out as cannabis.
Speaker Change: Thank you for the question perhaps.
Speaker Change: And then you might want to address the timing associated with the assets that are.
Speaker Change: And they're already built out as the cannabis.
Speaker Change: <unk>.
Speaker Change: Yeah sure no problem, Hey, Scott I'm again talking about the leasing activity, which again, we've been very pleased with over $125 million worth of investments that we re tenanted over the last three quarters and.
Ben Regin: And just want to remind everyone that the timelines can vary state by state, market by market, for any build out that might be required. Any licensing that might be required, so that can take anywhere from a relatively short period of time to 12 plus months, again, depending on the municipality in that particular situation.
Speaker Change: Just want to remind.
Speaker Change: Ryan to everyone that the timelines can vary state by state market by market.
Any build out that might be required.
Speaker Change: Any licensing that might be required.
Speaker Change: So that can take anywhere from.
Speaker Change: A relatively short period of time to 12 plus months, depending on the municipality and that particular that particular situations. So knowing that a lot of this activity has happened Q4 last year into the first half of this year, we would expect.
Scott Fortune: So knowing that a lot of this activity has happened Q4 last year and the first half of this year, we would expect rent to commence depending on the asset, more likely into 2025, late 2024, but it's really an asset by asset basis on that. Okay, I appreciate that update. And then, you know, just a little more color, obviously that helps the campus industries. We've seen kind of early to key reporting, being very positive from a revenue growth margin expansion, and these operators continue to focus on cash flow generation to operate in the environment without 280, kind of benefit from that standpoint.
Rent to commence a depending on the asset.
Speaker Change: More likely into 2025 late 2024.
Speaker Change: But it's really an asset by asset.
Speaker Change: On that.
Speaker Change: Okay. I appreciate that and then then you know I'm just a little more color Odyssey hopefully canvas industries. We've seen early two key reporting things a positive from a revenue growth margin expansion and these operators continue to.
Focus on cash flow generation to operate in this environment without T D.
Speaker Change: Benefit from that standpoint, we're seeing some M&A pick up here environments. It seems like some some capital is starting to go to work.
Paul Smithers: We're seeing some emanate and pick up here environments that seems like some capital is starting to go to work. But just a question kind of on expanding your portfolio in different states, you know, with large markets, Ohio coming on board, you guys were positive on New York, saying to ramp up more there and don't use and then potential capacity as we're seeing a lot of the operators ad capacity in Florida. Just to act out, can you call out states? What were you seeing a pickup in discussions or potential opportunities to be added to the portfolio?
Speaker Change: But just a question kind of on.
Speaker Change: On expanding your portfolio in a different stage with large markets, Ohio coming on Board you guys were positive on New York, saying to ramp up more there in adult use it and then potential capacity as we are seeing a lot of the operators add capacity in Florida.
Speaker Change #100: With this backdrop can you pull out the states, where you're seeing a pickup in discussions or potential.
Speaker Change #101: Potential opportunities to be added to the portfolio.
Paul Smithers: Yeah, you know, oh, do you want to address that? I think you talked about the states that are expecting approvals and moving forward. Sure. So, yes, God, I know you fall this closely, but you know, today could be really kind of a special day in Ohio, and I'm waiting to see if the store is actually open today. If not today, probably tomorrow when Ohio actually rolls out sales in the adult use. So, you know, that could be a really great example of a new state that's going to do it right. And we're really excited the way Ohio did it by, you know, co-licensing the existing medical operators with the adult use license so they could hit the ground running.
Speaker Change #100: Yeah.
Speaker Change #101: Do you want to you want to address that.
Speaker Change #101: You've talked about this states.
Speaker Change #103: Uh huh.
Ben Regin: We are expecting approvals and moving forward. Sure, so.
Speaker Change #105: Expecting approvals on and moving forward sure so.
Speaker Change #105: Yes, Scott I know you follow this closely but you know today it could be really kind of a special day in Ohio, and I'm waiting to see if the stores actually opened today, if not today, probably tomorrow, when Ohio actually rolls out sales.
Speaker Change #105: In the adult use so that could be a really great example of it.
Speaker Change #105: New state that's going to do it right and we're really excited the way, Ohio did it by.
Speaker Change #105: Co co licensing the existing medical operators with the adult use license. So they can hit the ground running so absolutely Ohio is exciting.
Paul Smithers: So, absolutely, Ohio is exciting. You know, I remember, you know, a year ago talking about New York, and then we just got kind of disappointed about the rollout. But boy, there's some really positive news coming out in New York. You know, with the governor finally making some really concrete moves, and, you know, she had reported that just last month, you know, as a result of issuing new licenses. And I think, more importantly, as a result of actually padlocking some of the illegal stores, that sales have been up as much as 50% in New York City.
Speaker Change #105: You know I remember a year ago talking about New York and then we just got kind of disappointed about the rollout, but boy, there's some really positive news coming out of New York.
Speaker Change #105: With the Governor finally.
Speaker Change #105: Making some really concrete moves and she had reported that just last month.
Speaker Change #105: As a result of issuing new licenses and I think more importantly, as a result of.
Speaker Change #105: Actually pad locking some of the illegal stores that sales have been up as much as 50%.
Paul Smithers: So, you know, is New York turning around? Boy, sure looks like it. So, we get excited about that. And Florida, we can't, you know, really, I think overstate how we think if Florida hits what amazing market that can be. You know, we have talked in detail about the 60% threshold for the vote, and certainly it's in the news about the opposition is well funded and picking up more. But the polling still remains positive. So, we think that's got a good shot of hitting Pennsylvania. You know. We like Pennsylvania, and that's in the legislature right now, and there's some, I think, horse trading going on in the legislation in Pennsylvania between the Republicans and the Democrats in the Assembly.
Speaker Change #105: In New York City so.
Speaker Change #105: Is new York turnaround Boyd sure it looks like it so we get excited about that.
Speaker Change #105: In Florida, we can't.
Speaker Change #105: No really I think overstate, how we think Florida hits, what amazing market that can be.
Speaker Change #105: No we have talked in detail about the 60% threshold for the vote and certainly.
It's in the news about the opposition is well funded and taking up more but the polling still remains positive.
Speaker Change #105: So we think that's got a good shot at hitting <unk>.
Speaker Change #105: Pennsylvania.
Speaker Change #106: You know.
Speaker Change #106: We like Pennsylvania, and that's in the legislature right now and there's some I think horse trading going on.
Speaker Change #106: And the legislation in Pennsylvania.
Speaker Change #106: <unk>.
Speaker Change #106: The Republicans and Democrats and the assembly.
Paul Smithers: The governor, of course, is very pro adult use, so we think that we'll get across the finish line before not too long.
Speaker Change #106: The Governor of course is very pro adult use so we think that will get across the finish line before not too long. So those states we think.
Paul Smithers: So, you know, those states we think we continue to be really excited about what's going on there. No, I appreciate the color. Yeah, it's going to be needed production in those states as they approval don't use.
Speaker Change #106: We continue to be really excited about what's going on there.
Speaker Change #107: No I appreciate the color Yeah. This is gonna be needed production in those states in the approved adult use and then one last quick one for me Paul.
Paul Smithers: And then one less quick one for me, Paul. You know, obviously VP Harris is now the Democrat elect. There's been this view that the Democrats look to kind of different shape by moving forward canvas policy ahead of election. And that seems that now that's kind of moving forward on the rescheduling process. I know you provide an update there, but anything new about VP Harris being on the ticket now that will kind of help get the final draft rule over the finish line here in the coming months ahead of the election or just kind of thoughts around that with the new Democrat elect here.
Speaker Change #108: You know obviously VP here as he is now the Democrats are left.
Speaker Change #109: There's been this view that the Democrats look to kind of differentiate by moving forward canvas policy you had an election and that seems that now that it's kind of moving forward on the rescheduling process. I know you provided an update there but.
Speaker Change #110: Any anything new about VP Harris being on the ticket now that that will kind of help.
Speaker Change #110: The final draft rule over the finish line here in the coming months I had an election or just kind of thoughts about surround that with a new Democrat to let here yeah. So.
Paul Smithers: Yeah, so it is fun to watch, and just this morning, of course, she announced the Minnesota governor as a running mate, and he has a very strong history of being pro-cannabis, which we're very happy to see, of course. So, I think between the two of them on the Democratic ticket, it's very pro cannabis. And I think that we will see possibly an acceleration, but certainly stay the course. I cannot see the Democratic ticket with Harris at the top doing anything but supporting the rescheduling and getting it before the voters in November. So, we think it's a positive, and you know, as I talked earlier, you know the idea about if prompt gets elected, you know, will you undo these things.
Speaker Change #111: It is it is fun to watch and just this morning of course, she are announced.
Minnesota Governor as they're running made and he has a very strong history of being pro cannabis, which we're very happy to see of course, so I think between the two of them on.
Speaker Change #111: On the Democratic ticket, it's very pro cannabis.
Speaker Change #111: And I think that we will see.
Speaker Change #111: Possibly an acceleration, but certainly stay the course I cannot see.
Speaker Change #111: The Democratic ticket with Harris at the top doing anything, but supporting the rescheduling and getting it before the voters in November so.
Speaker Change #112: We think it's a positive and you know.
As I talked earlier.
Speaker Change #113: The idea about if Trump gets elected William do these things I don't see it.
Paul Smithers: I don't see it. I just think it's too; they'll have too much momentum by then, and he won't risk that with the voters. So, to answer your question, we think that Harris and her new VP running mate are nothing but a positive for rescheduling. Thanks. I appreciate all the detail.
Speaker Change #114: I think it's too they'll have too much momentum by then and.
Speaker Change #114: He won't risks out with the voters so to answer your question that we're we think that Harris and her new VP running mate.
Speaker Change #115: But a positive for rescheduling.
Speaker Change #116: Thanks, I appreciate all the detail.
Eric DeLoyer: The next question comes from Eric DeLoyer with Craig Column Capital Group. Please go ahead. Great, thank you for taking my questions. First one for me in terms of your pipeline. You talk about the mix of demand you're seeing from existing tenants versus new tenants. That's nice to see this lease with air, of course, but wondering if there's sort of a longer term natural trend of decreasing demand from existing operators and increasing demand from new tenants just given this relatively fixed number of industrial properties with existing tenants and sort of the more sell lease backs you do, the less that remain.
Eric <unk>: The next question comes from Eric <unk> with Craig Hallum Capital Group. Please go ahead.
Eric <unk>: Great. Thank you for taking my questions.
Eric <unk>: First one from me in terms of your pipeline can you talk about the mix of demand you're seeing from existing tenants versus new tenants. That's nice to see this lease with air of course, but wondering if there's sort of a longer term natural trend of decreasing demand from existing operators and increasing demand from new tenants just.
Speaker Change #118: Given the relatively fixed number of industrial properties with existing tenants and sort of the more sale leasebacks you do the less that remain how should we think of this longer term and kind of where are you now in this trend.
Paul Smithers: How should we think of this longer term and kind of where are you now in this trend? Yeah, Ben can take that, but just keep in mind that opportunities come not only from existing tenants growing and existing markets, but when new markets and new approvals occur, that there's additional additional demand. Yeah, so that with that, you know, Ben want to take. Yeah, sure. Eric, I mean, I think it is a mix, as you mentioned, of our 30 tenants. As we've said, 91% of the revenue comes from multi-state operators. We have a lot of the largest and best-in-class MSOs in our portfolio, so it's natural that there will be follow-on opportunities as we continue to support those tenants with their growth initiatives.
Speaker Change #118: Yeah.
Speaker Change #119: Ben can take that but just keep in mind that the other opportunities come not only from existing tenants growing in existing markets, but one when new markets and.
Speaker Change #119: Our new approvals occur.
Ben: There's additional additional demand.
Ben: So with that.
Ben: Ben one once you take that question yes.
Ben Regin: Yeah, sure. Eric, yeah, I mean, I think it is a mix, as you mentioned, of our 30 tenants. As we've said, 91% of the revenue comes from multi-state operators. We have a lot of the largest and best-in-class MSOs in our portfolio, so it's natural that there will be follow-on opportunities as we continue to support those tenants with their growth initiatives. That said, we are always sourcing additional opportunities. We're very pleased with the state of the pipeline as it is today, between a mix of existing opportunities with existing tenants as well as potential new tenants into the portfolio that we are underwriting, and this really goes across markets, some established markets as well as some of these that we've been describing on the call.
Ben: Yeah sure Eric Yeah, I mean, I think it is a mix as you mentioned you know of our of our 30 tenants as we've said 991% of the revenue comes from Multistate operators, we have a lot of the largest and best in class Msos in our portfolio. So it's natural that there will be follow on opportunities as we continue to support.
Ben: Those tenants with their growth growth initiatives.
Ben Regin: That said, we are always sourcing additional opportunities. We're very pleased with the state of the pipeline, as it is today, between a mix of existing, you know, opportunities with existing tenants, as well as potential new tenants into the portfolio that we are underwriting. This really goes across markets, established markets, as well as some of these that we've been describing on the call.
Ben: That said, we are always sourcing additional opportunities, we're very pleased with the <unk>.
Ben: The pipeline as it is today between a mix of.
Ben: Existing.
Ben: Opportunities with existing tenants as well as potential new tenants into the portfolio.
Ben: We are underwriting and this really goes across markets.
Ben: Established markets as well as some of these that we've been describing on the call.
Ben Regin: Long-term, I think it will continue to be a mix as we look to balance continuing to support our existing tenants, as we've done since our inception, as well as continuing to diversify our tenant base, both across tenants and markets, as we continue to grow the portfolio. That makes sense. I appreciate that.
Ben Regin: Long-term, I think it will continue to be a mix as we look to balance continuing to support our existing tenants, as we've done since our inception, as well as... both across tenants and markets as we continue to grow the portfolio.
Ben: Long term I think it will continue to be a mix as we look to balance.
Ben: Continuing to support our existing tenants as we've done since our inception.
Ben: As well as.
Ben: Continuing to diversify our tenant base.
Ben: Both across tenants in markets.
Ben: We need to grow the portfolio.
Ben: Okay.
Speaker Change #121: That makes sense I appreciate that.
Eric DeLoyer: And the last question is on New York State. So, you know, nice to see the improvement in that market. Obviously, as you mentioned, it's still sort of a fraction of its potential. I'm wondering if these improvements are having a material impact on the profitability of some of your tenants there, or at least, you know, the serviceability of these leases. Obviously, you have sort of two of your largest leases are in New York. I was wondering how you view that risk in relation to this current ramp. Seems like, you know, if the ramp sort of continues at a slow pace, perhaps there's a possibility that kind of something's got to give.
Speaker Change #122: My last question just on New York State.
Speaker Change #123: Nice to see the improvement in that market I'll say as you mentioned still sort of a.
Speaker Change #124: A fraction of its potential I'm wondering if these improvements are having a material impact on the profitability of some of your tenants there or at least the serviceability of these leases you know obviously you have sort of.
Speaker Change #125: Two of your largest leases are in New York I was wondering how you view that risk.
Speaker Change #126: And in relation to this current ramp.
Speaker Change #125:
Speaker Change #127: It seems like.
Speaker Change #125: If the ramp sort of.
Speaker Change #127: Continues at a slow pace.
Speaker Change #128: Perhaps there's a possibility that something's got to give you just sort of wondering how comfortable you are with those leases and how we should think about your willingness to kind of potentially help your tenants through slow ramp period. If they are in fact still.
Paul Smithers: I'm just sort of wondering how comfortable you are with those leases and how would you think about your willingness to kind of potentially help your tenants through slow ramp period if they are, in fact, still, you know, feeling any pressures. Thank you. Paul, aren't you Paul or Ben? I think you talked about how strong the New York market is. I don't know. We're not giving any indication of anybody looking for any rent relief in New York. Yeah, this is Paul. So that's correct. You know, we're very pleased with the performance of our New York tenants.
Speaker Change #129: Feeling any pressures.
Speaker Change #130: Thank you.
Speaker Change #131: Oh, why don't you call are Ben that quickly.
Speaker Change #132: You talked about how strong the New York market.
Speaker Change #133: I don't where we're not giving any indication of any.
Speaker Change #133: No, but they are looking for.
Speaker Change #135: Rent relief in New York, but go ahead.
Speaker Change #135: Yeah. This is Paul so that's correct.
Speaker Change #135: Very pleased with the performance of our New York tenants.
Paul Smithers: And, you know, I think this whole idea, when we talk about, you know, a 50% bump in sales, that's at the retail level, of course. And I think that's going to carry through and, you know, really get that demand up. And, you know, taking away the illicit market in New York is huge. And that, along with issuing these new licenses, it's such a positive. And, you know, I think, as I mentioned, our New York leases are performing very well. So just with this added positive news, I think it's just, you know, more of a positive indicator that, you know, the potential for New York market, which is huge.
Speaker Change #135: And.
Speaker Change #136: I think this whole idea of when we talk about a 50% bump in sales thats at the retail level of course, and I think that's going to carry through and.
Speaker Change #136: Really get that demand up.
Speaker Change #136: <unk>.
Speaker Change #136: Taking away the illicit market in New York is huge and that along with it.
Speaker Change #136: Issuing these new licenses is such a positive and.
Speaker Change #136: I think as I mentioned, our New York leases are performing very well. So just with this added positive news I think it's just.
More of a positive <unk>.
Speaker Change #136: Indicators that the potential for New York market, which is huge.
Eric DeLoyer: It's definitely turned the corner, and it's on its way to realizing just how big that market can be. And our tenants are well positioned to take advantage of that market. We think they're in a great position. I appreciate the color. Thank you, Eric.
Speaker Change #136: Is.
Speaker Change #136: Definitely turned the corner as honest way to realizing just how big that marketing our tenants or are well positioned to take advantage of that market. So we think they're in a great position.
Speaker Change #137: That's great to hear I appreciate the color. Thank you. Thank you Eric.
Operator: This includes our question and answer session.
Speaker Change #137: This concludes our question and answer session I would like to turn conference back over to Alan Gold for any closing remarks. Please go ahead.
Alan Gold: I would like to turn conference back over to Alan Gold for any clothing remarks. Please go ahead. Thank you all for joining us here today, and thank you to the team for your continued hard work and efforts with that. We include the call. Thank you all.
Alan Gold: Thank you.
Alan Gold: Thank you all for joining us here today and thank you for that.
Speaker Change #139: So the team for your continued hard work and efforts with that we conclude the call. Thank you.
Operator: This concludes today's conference. Thank you for attending today's presentation. You may now disconnect. .
Operator: This concludes today's webinar.
Speaker Change #139: This concludes.
Speaker Change #140: Today's conference. Thank you for attending today's presentation you may now disconnect.
Speaker Change #140: [music].
Speaker Change #140: Yeah.
Speaker Change #140: [music].