Good day, and welcome to the Innovative Industrial Properties, Inc. Second Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded.I would now like to turn the conference over to Brian Wolfe, General Counsel. 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; and Catherine Hastings, Chief Financial Officer.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 1995. And actual results may differ materially due to a variety of risks, uncertainties and other factors.For a detailed discussion of some of the ongoing risks and uncertainties of the company’s business, I refer to you to the news release issued yesterday and filed with the SEC on Form 8-K as well as the company’s reports filed periodically with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.Before I hand the call over to Alan, I want to mention that we have limited time for the call today but we will answer as many questions as we can after our prepared remarks. Alan?

Thank you, Brian, and welcome everyone. Today, we get a chance to review and share our financial results for the second quarter plus year-to-date 2019 and provide our updated perspective on the business and the industry from our last call in March. As you know, 2018 was just our second full year since completing our IPO and purchasing our first property in December of 2016. Now into our third year of operations, the momentum of our business has been tremendous.To recap briefly, in the first seven months of 2019, we acquired 15 properties in six states representing over a $167 million of investments which included both follow-on transactions with our existing tenant partners to facilitate their continued expansion and new tenant relationships. Catherine will discuss our recent acquisitions in more detail.As of today, we own 26 properties in 12 states totaling over 2 million square feet, which are a 100% leased on a long-term basis to high quality licensed cannabis operators. Our current blended yield on these properties is 14.6%, with a weighted average remaining lease term of 15.5 years.In addition, we paid quarterly common stock dividend of $0.60 per share to stockholders on July 15, representing a 140% increase over our second quarter of 2018 dividend and a testament to our property portfolio’s operating performance, and confidence in our pipeline of acquisitions. This dividend was also supported by our tremendous 150% plus growth year-over-year in rental revenue, net income and AFFO.To reiterate, truly a remarkable track record for such a young company. Catherine will provide more detail regarding our financial results.The medical-use cannabis industry is one of the most dynamic growth industries in current times. And Paul will provide some detail on the industry and regulatory trends in our call today. We continue to be very optimistic about the future of this nascent industry and our ability to deliver results for our stakeholders and enduring value to our tenant partners by providing tailored real estate solutions that meet key operational and capital needs.And with that, I'd like to turn the call over to Paul. Paul?

Thanks, Alan. As in prior calls we will try to provide as effective an overview as we can with the short time we have today, focusing in on three main topics: One, the current regulatory environment; Two, the growth and evolution of the medical-use cannabis markets in the United States generally; And three, recent developments in our state markets.First, regarding the current federal regulatory environment. Of course, cannabis remains a Schedule 1 controlled substance, which currently prohibits all cannabis use and cannabis related commercial activity in the United States. That said, Congress has continued to enact spending bills since 2014, with a provision that has been interpreted by courts as preventing the Department of Justice from using funds to interfere with the implementation of state medical-use cannabis laws. That provision was again included in this year's congressional spending bill passed earlier this year, which carries through to September 30th.And just in June, the House of Representatives by a vote of 267 to 165 for the first time passed an amendment that extends the protections in place for state medical cannabis programs to state adult-use cannabis programs. While the amendment still requires passage in the Senate, and the President signature, the house action represents an historic step forward at the federal level. And last month, Senator Kamala Harris and Representative Jerry Nadler introduced the Marijuana Opportunity Reinvestment and Expungement Act or the MORE Act, which would among other things, provide for the de-scheduling of cannabis as a controlled substance under the Controlled Substance Act.Also in July, the Senate Banking Housing and Urban Affairs Committee for the first time met to discuss the issues surrounding financial services for the regulated cannabis industry, including the Safe Banking Act. The Safe Banking Act, if it became law, would provide greater federal protection to banks’…

Thanks, Paul. On the acquisitions front, as Alan mentioned, we continue to execute well on our strategy. Since the beginning of 2019, we've acquired 15 new properties in six states. Our leases at these properties are a mixture of high quality new tenants and follow-on transactions with our existing tenants, as they continue to grow their footprints in additional states.As of today, we own to 26 properties across 12 states, representing approximately 2 million square feet, including approximately 631,000 square feet under development or redevelopment. As it relates to the second quarter and July acquisition activity, specifically, it's been by far the busiest four months of our company's history.In April, we acquired five industrial properties in Southern California, totaling approximately 102,000 square feet for $27.1 million in the aggregate and entered into a long-term triple net lease for each of those properties with an experienced licensed operator.Also in April, we acquired a 51,000 square foot industrial property in Pennsylvania, and entered into a long-term lease with Maitri Genetics, with our total investment in the acquisition and redevelopment of the property expected to be $16.3 million.In May, we acquired an 11,000 square foot industrial property in Ohio and entered into another long-term lease with Vireo, with our total investment in the acquisition and redevelopment of the property being about $3.6 million. Also in May, we acquired a 266,000 square foot industrial property in Pennsylvania for $13 million and entered into a long-term triple net lease with Green Leaf for continued use as a medical cannabis cultivation and processing facility.In June, we amended our lease with Green Peak at one of our Michigan properties making available an additional $18 million in funding for a new 55,000 square foot expansion of the property to meet the demand of the Michigan regulated cannabis market.…

Thanks, Catherine. We've had a tremendous year-to-date for acquisitions far outpacing our expectations. With that, we are very excited about the opportunities to come in this fast growing industry and are singularly focused on executing on our business plan. I want to personally thank our stockholders for your continued support, as we aim to continue to create sustainable and long-term value for you.With that, I'd like to open it up to questions. Operator, could you please open the call up for questions?

We will now begin the question-and-answer session. [Operator Instructions]. Our first question today is from Tom Catherwood with BTIG. Please go ahead.

Thank you very much. So Alan, following along on your comments about acquisition pace, clearly it’s accelerated, more than surpassed the $90 million you guys did in 2018. So really a two part question. First, how is the pipeline sizing up for the balance of the year? And second, what are the key drivers behind the higher volume so far? Is it primarily tenants gaining a better understanding of the sale-leaseback structure or is it expanded state programs or is this something else?

Thanks, Tom. That's a multi-pronged question. I hope I can answer all of it. First, we're extremely excited about our pipeline. As you know I mean when you look back already this year, we've already acquired 15 new transactions. When we raised capital at the beginning of the year, we said that $200 million plus of capital we will be able to place in a six to 12 month period of time, and we obviously placed that well ahead of schedule. We are -- now having just raised another gross $188 million, we indicated that we'd be able to place that in a six to nine month period of time based on the size of the pipeline that we saw at that time.Since then, the pipeline has increased and continues to increase with some very exciting entities similar to the Trulieve Company that we just recently announced a transaction with. So what we're seeing are more mature companies looking at our program and coming away very excited and very interested in. And I think the reason for that is multi-pronged. One, as you described, the program is becoming more recognized as a way to raise capital. Two, Innovative Industrial Properties is certainly becoming the extremely well known within the industry. And three, I think the Canadian capital markets have slowed down somewhat giving our -- these mature companies a pause as to where capital can be raised. And certainly, we are a significant and exciting positive source for that capital.

And then kind of sticking with that, that Trulieve deal, and I know, Cat, you provided more information on it. But when we go back to your comments on the 4Q '18 call, you mentioned trying to break into the Florida market, you've always been interested in that but the challenges around that, obviously, as Cat mentioned, Trulieve has a big presence in Florida. Is the ideal kind of situation here that this transaction in Massachusetts opens up more opportunities with them in Florida, or is this just really a one-off transaction?

So we're really excited about the growers that we underwrite, and spend a great deal of time getting to know and bringing them into our portfolio. And as we've indicated in the past, typically we see about 30% of our pipeline in the form of -- transactions with existing growers. And we continue to see the same sort of demand in our pipeline from that. We're very excited about the Florida market. We think that, that is a very strong market. And we think that by penetrating that market with one of the stronger growers, we will be in great position. I just can't say how pleased we are with and how excited we are about the size and the quality of our pipeline today.

And I guess one for Paul. In the past you've talked about looking at some select retail opportunities but being very cautious around that. Cat mentioned that the only med deal included a store front as part of that production and cultivation facility. How are you looking at the retail side of the business from an investment standpoint right now?

Yes. Thanks, Tom. So as we talked about before, we are considering the retail opportunities. These are coming to us more likely as the last transaction, the DYME transaction is part of perhaps the cultivation, package or portfolio package. So we’re looking at these as they come across but they do have different yields typically and different lease terms. So we look at each one individually but we’re open-minded to them.

Got it. And then last one from me just kind of thinking about the deals that you’ve done over the past quarter. How many of the deals would you say you are looking at right now or one-off type transactions? And then how many deals are more strategic like relationships, where as Alan you alluded to 30% of the business is just previous tenants. Is a lot of that kind of work going forward along the same lines or is there still lot of one-off in the pipeline?

I think rarely do we do a one-off transaction with -- that is the thought process that the growers are going to be looking to us for future opportunities or future capital. So I mean I look at -- we look at every one of our growers as a potential source for new transactions. And as we expand it just shows you why our -- as we expand our portfolio of tenants, you can see why our pipeline continues to grow and increase significantly over time.

Next question comes from John Massocca with Ladenburg Thalmann. Please go ahead.

So what were maybe some of the factors that drove against the relatively lower cap rate on the Trulieve transaction? I mean is it driven by the quality of the tenant, competition in Massachusetts market, anything broader, just any color there would be helpful?

Yes, I mean I think that -- one, as I’ve described just a minute ago, we are seeing more mature companies come into our universe and into our pipeline. And Trulieve is one of the strongest growers out there having generated tremendous positive EBITDA and strength in that market. And so we’re very excited about that. I think as we talked about who our primary competition is, it’s the competition for capital that these very mature companies have with -- throughout the -- through the capital markets and that’s who we are competing with, with this transaction.So we’re actually -- when we underwrote that transaction, we spent a great deal of time with the management team, with the opportunity, with the corporate guarantee, the strength of their marketing prowess, the strength of their financials. And we thought that the yield was appropriate for the risk that we were taking on that specific transaction.

And was that transaction still -- I mean more of a detail oriented front, what were some of the factors that -- with regards to kind of the ability that Trulieve has to maybe scale back the TI reimbursement commitment, when does that window open and kind of was that $40 million more kind of a broad range you gave them or they really would only need like 20 million or 30 million or is that just in case they can build this facility or redevelop this facility cheaper than they anticipated?

Yes, John, it's really kind of a latter. I mean understanding the facility and where they were in the budgetary process. We allowed some flexibility to them over the next six months to understanding what that budget is and draw accordingly to the costs that are going to go into the project.

Okay. And then, on the acquisition side, maybe more broadly, are you seeing any more interesting your real estate solutions being generated by kind of operator M&A activity that's happening in the cannabis space? I mean there it seems like one of those kinds of situations. Is that increasing the deal flow you're seeing?

We do see a significant deal flow occurring from our group of -- our growers expanding and acquiring other growers. We do see that, yes.

Okay. And then on your own balance sheet, how are you looking at -- I know, it's still early days, a lot of capital to deploy here. But as you maybe look on the horizon, additional debt financing, is that something that might interest you, especially, it seems like the fairly active debt market with some of the specialty finance providers for the operator side of things, but could that be an attractive way to raise additional capital here as you guys continue to grow?

That's I think a very good question. We do have additional capacity given the fact that we raised additional common equity to perhaps take on more debt than we have on the balance sheet right today, although our preference does lean more towards the equity side of our balance sheet.

[Operator Instructions]

Operator, it sounds like we're done with questions. With that, I'd like to thank our stakeholders again, and more importantly, thank the team for their incredible dedication to this exciting and growing company and their ability to execute on this very exciting business plan. Thank you all.

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