Innovative Industrial Properties, Inc.

Welcome to the Innovative Industrial Properties and Q2 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist for 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 touchtone phone. To withdraw your question, please press star, then two. Please note, today's event is being recorded. I now would like to turn the conference over to your host today, Ryan Wolfe. Mr. Wolfe, please go ahead.

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

Thank you, Brian, and welcome, everyone. I know one of the biggest questions for today's call has to do with Kings Garden and what happened. To recap, Kings Garden leased six properties, the total base rent of which was approximately $5.5 million for the second quarter, or approximately 8% of our base rents collected for the quarter. Of these six properties, four were operational, with a ground-up expansion project also at one of those properties, which we will call the 19th Street Expansion. The other two properties were in development or redevelopment, Perez Street and Inland Center Drive. On July 13th, Kingsgarden defaulted on their lease obligations, and on July 14th, we filed an AK regarding that default. Later in July, we filed a suit with the state court asking for immediate access to our properties, among other demands. To date, Kingsgarden remains in default And on August 2nd, we amended our suit making further claims regarding construction at the properties, among other things. Okay, that is what happened. And unfortunately, we will not be able to answer any questions regarding the legal proceedings. I ask for your understanding, and please know, we are doing all that we can to pursue our interests. With that said, and before we start with the great results of our second quarter, I want to spend a few minutes reminding all of us of our vision and why we remain excited and resolute in our belief in the future success of innovative industrial properties. Our vision has always been to create a company that would profit from a nascent, emerging, and fast-growing industry using a straightforward business model that consists of 1. The U.S. legal cannabis industry, in which legal sales are expected to top $52 billion by 2026, nearly doubling 2021's total of $27 billion. Two, the acquisition of real estate that is critical to the operations of the industry. There can't be legal sales of cannabis unless the cannabis is grown in a secured, licensed, specifically designed facility or property. In our business model, The acquisition of their real estate comes from a long-term lease with rental income commencement with the risks. Three, a portfolio with geographic diversification and a focus on limited licensed states and careful investments in other states with strong growth possibilities. And four, a tenant roster of professionally managed operators with strategic footprints, strong growth potential, and since no tenants or legal growing facilities existed prior to the individual state implementing a regular cannabis program, we focused on investing with multi-state operators. Today, over 80% of our committed capital is invested with multi-state operators. With this vision, we bring together a team of experienced real estate and industry professionals. We now have what we believe to be one of the strongest and most experienced team of real estate professionals in the cannabis industry. a high-quality portfolio, and most importantly, a strong and flexible balance sheet producing strong and consistent cash flows. We plan to review our strong second quarter results and to provide what we can about recent developments in our portfolio. We are proud to provide you all our quarterly financial supplement that we published for the first time yesterday and expect to continue to publish on a quarterly basis. As we are constantly monitoring our markets and our tenants, we will provide information regarding the general industry dynamics, our overall portfolio metrics, and our recent investments. In broader macroeconomic terms, in recent months we have seen a broad-based tightening of the financial conditions across the U.S. economy generally, and in the capital raising market for the regulated cannabis industry as well. Total capital raising activity for the regulated cannabis industry in the US is down over 60% in the first six months in comparison to the prior year period. Inflation has also impacted operators' cost structure, including labor, production inputs, and construction costs. At the same time, we are seeing general unit pricing in the cannabis industry decline, which is further driving operators to continue to focus on efficiency in their operations. We continue to be resolute believers in the long-term growth and prosperity of the regulated cannabis industry. As with any industry undergoing rapid growth and change, we expect to experience headwinds along the way. That said, this team will continue to be focused on positioning the company in the best possible way for long-term success and value creation. With that, I will now turn the call over to Paul to discuss industry dynamics.