Innovative Industrial Properties Inc. Fourth Quarter 2025 Earnings Call - Receivership Wins and Re-tenanting Drive AFFO Recovery

Conference Call Operator: Hello, welcome to the Innovative Industrial Properties Inc. fourth quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to turn the conference over to Eli Kantor, Director of Finance. You may begin.

Eli Kantor, Director of Finance, Innovative Industrial Properties Inc.: Thank you for joining the call. Presenting today are Alan Gold, Executive Chairman, Paul Smithers, President and Chief Executive Officer, David Smith, Chief Financial Officer, and Ben Regin, Chief Investment Officer. Before we begin, I’d like to remind everyone that some of the statements made during today’s conference call, including those regarding potential transactions under letters of intent, are forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995, and subject to risk and uncertainties. We refer you to our SEC filings, specifically our most recent report on Form 10-K, for a full discussion of risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

We are not obligated to update or revise any forward-looking statements, whether due to new information, future events, or otherwise, except as required by law. In addition, on today’s call, we will discuss certain non-GAAP financial information such as FFO, normalized FFO, and AFFO. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in our earnings release issued yesterday, as well as in our 8-K filed with SEC. I’ll now hand the call over to Alan. Alan?

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: Thanks, Eli. Good morning. Thank you for joining our call. 2025 was a year defined by disciplined execution, balance sheet strength, and strategic repositioning for long-term growth. For the full year, our diversified platform of over $2.5 billion of gross assets generated approximately $200 million of cash flows from operations. In addition, since our inception in 2016, we have returned $1.1 billion to shareholders through dividends, reflecting the durability of our business model and our continued focus on sharing our cash flows with our shareholders. We invested capital in 2025 selectively and accretively, committing $275 million across our real estate portfolio and through our strategic investment in IQHQ, further strengthening and diversifying our platform. Operationally, we made meaningful progress across the portfolio.

During the year, we executed new leases at 4 properties, totaling approximately 339,000 sq ft, reinforcing our belief in the quality of our assets and the ability of our team to drive performance within our portfolio. For the year, we generated total revenues of $266 million and AFFO of $205 million. We also strengthened our liquidity position for the year by raising $100 million under a new revolving credit facility in October and issuing approximately $25 million of preferred stock through our ATM. For 2026, we continue to access the capital markets opportunistically and have raised over $40 million of preferred stock at an attractive yield of just over 9.5%, surpassing the amount we raised in all of 2025.

We exited the year with total liquidity exceeding $105 million, including cash and availability under our credit facilities. As we diversify our platform, we remain confident in the long-term fundamentals supporting the life science sector. Discussions at the recent J.P. Morgan Healthcare Conference continued to reinforce our conviction that the sector is exhibiting early signs of renewed momentum, including improving capital availability for well-capitalized life science companies, increased strategic activity among large pharmaceutical companies, and continued innovation. Together, these trends are supporting sustained demand for specialized real estate within leading life science markets. Before I turn the call over to Paul, I’d like to briefly address the recent regulatory development impacting the cannabis industry. President Trump’s executive order, directing the rescheduling of cannabis to Schedule III, represents a significant regulatory development for the industry.

While the timing and ultimate implementation remains uncertain, we believe this development is directionally positive for the industry, our tenants, and our shareholders. Our actions in 2025 reflect a meaningful step in our evolution and our return to growth. We believe the combination of a diversified portfolio across cannabis and life science, a strong balance sheet, and an experienced management team positions us to continue strengthening our platform and delivering long-term value for our shareholders. With that, I’ll turn the call over to Paul.

Paul Smithers, President and Chief Executive Officer, Innovative Industrial Properties Inc.: Thanks, Alan. I’d like to begin by reinforcing the significance of the recent Executive Order, directing the rescheduling of cannabis to Schedule III. While the timing and final implementation remain unclear, this represents one of the most substantial regulatory developments for the industry in many years. If enacted, rescheduling may eliminate the punitive impact of 280E for our tenants, which we believe would meaningfully improve operator cash flows, strengthen credit profiles, and support additional investments across the industry. The Executive Order highlighted concerns regarding the proliferation of hemp-derived THC products. Recent legislation closing certain loopholes under the 2018 Farm Bill is expected to restrict hemp-derived THC products beginning in November 2026, which should reduce unregulated products and support consumer safety across the U.S.

At the state level, we are tracking several meaningful catalysts on the horizon, including the potential commencement of adult-use sales in Virginia and possible adult-use legalization in Pennsylvania and Florida. We own 16 properties, totaling approximately 2.6 million sq ft in those states, accounting for approximately 26% of annualized base rent. We believe our real estate and tenant base are well-positioned to benefit as those markets transition to adult use. Regarding our current portfolio, as you recall, last March, we announced initiatives to replace non-performing tenants and enhance the performance of our portfolio. Since then, receivership and legal proceedings have been ongoing for 4Front Ventures, PharmaCann, and Gold Flora, where we have continued to actively pursue our legal rights and protect our interests under those leases. We have been actively engaged across these assets and are pleased with the significant progress that has been made.

We have signed leases, LOIs, and are in various stages of review for over 900,000 square feet of leasing activity related to those assets, which Ben will discuss in more detail. We believe we are at an inflection point in our efforts to bring resolution to the previously non-performing assets in the portfolio and believe future quarters will reflect the realization of earnings upside from these actions. We are extremely proud of our team’s execution and track record of re-tenanting our assets quickly and efficiently, maximizing value of our portfolio and driving long-term value for our shareholders. Lastly, we are also pleased to share a legal update. Last month, we received a judgment in our favor of $7 million for unpaid rent and damages due from Temescal Wellness, a former tenant at a property in Massachusetts.

I’d like to now turn the call over to Ben to provide additional details on our leasing success and to discuss our other investment activities. Ben?

Ben Regin, Chief Investment Officer, Innovative Industrial Properties Inc.: Thanks, Paul. To recap our year in 2025, we executed new leases totaling 339,000 sq ft across properties located in California, Massachusetts, and Michigan, opportunistically closed on 3 dispositions, and closed on approximately $275 million in new investment activity, including 1 cannabis acquisition and our strategic investment in IQHQ, of which we have funded $150 million to date. We’ve continued to build on this momentum heading into 2026. As Paul described, we’ve been very pleased with the activity we are seeing related to the Gold Flora and 4Front receiverships, as well as our legal pursuits related to PharmaCann. Gold Flora filed for voluntary receivership in March of 2025, and we have since made meaningful progress releasing our 3 properties.

We executed a lease agreement with a new tenant for our 70,000 sq ft Palm Springs asset during the fourth quarter, executed a lease agreement with a new tenant for our 204,000 sq ft Desert Hot Springs asset last month, and we have received multiple offers for our 56,000 sq ft Palm Springs asset. Overall, we are very pleased with the outcome of the receivership proceedings and the resolution achieved with respect to these properties. Regarding our four assets previously leased to 4Front, we have made significant progress on our re-tenanting initiatives for these assets. This quarter, we reached a tentative agreement with a tenant to lease our 114,000 sq ft Washington property and expect lease execution and rent commencement in the near term.

For our 250,000 sq ft asset in Illinois, we have executed an LOI for the full building with a new operator, which is expected to go into effect at the closing of receivership proceedings anticipated in the coming quarters. For our 67,000 sq ft property in Georgetown, Massachusetts, a stalking horse bidder has been selected by the receivership estate, and we have agreed to lease terms with this bidder. We also expect this new lease agreement to become effective upon the conclusion of the receivership process. For our 57,000 sq ft property in Holliston, Massachusetts, we have received multiple offers to lease the building, which are currently under review. We look forward to continuing to move these transactions forward and bring resolution to these properties.

Moving on to our properties leased to PharmaCann, we continue to be pleased with the progress we have made re-tenanting our six cultivation assets. In early 2025, we regained possession of our 205,000 sq ft cultivation asset in Michigan and subsequently executed a lease with a new tenant in April. We also successfully regained possession of our 58,000 sq ft cultivation asset in Massachusetts and executed a lease with a new tenant in November. In Illinois, as we reported last quarter, the judge ruled in our favor with respect to our 66,000 sq ft cultivation property, and we successfully regained possession of the asset in late December, subsequently signing an LOI with a new tenant for the property in January.

Looking ahead, we expect to receive similar rulings from the courts in Pennsylvania, Ohio, and New York, and are encouraged by the inbound interest we have already received across these assets. Apart from these properties, we are also pleased to report that we signed an LOI in February with a new tenant for our 71,000 sq ft vacancy in North Adams, Massachusetts. In parallel with our leasing initiatives, we’ve also pursued selective asset sales to opportunistically recycle capital. During 2025, we sold three assets located in California, Colorado, and Michigan, and also closed on the sale of a dispensary in Phoenix earlier this month. These dispositions reflect our ongoing efforts to opportunistically prune non-core assets from our portfolio, enhance overall portfolio quality, and redeploy capital towards other investments.

Regarding our strategic investment in IQHQ, to date, we have funded $150 million of our $270 million commitment, with the additional $120 million expected to be funded over time. We are encouraged by this investment, we believe the life science real estate market is continuing to stabilize following a prolonged period of elevated supply. The current construction pipeline of approximately 6 million sq ft is at its lowest level since early 2019 and is down sharply from the 2023 peak of more than 37 million sq ft. Signs of stabilization are beginning to emerge in key markets. Recent reports from Cushman & Wakefield and Colliers highlight improving fundamentals in select regions. In Boston, annual new demand totaled 2.1 million sq ft, surpassing 2024 totals by approximately 72%.

The San Francisco Peninsula recorded its first decline in vacancy in more than two years in Q4 2025. Continued growth among life science and AI tenants is expected to support sustained improvement in market conditions in 2026 as supply moderates and demand gradually improves. With that, I’ll turn the call over to David.

David Smith, Chief Financial Officer, Innovative Industrial Properties Inc.: Thank you, Ben. For the fourth quarter, total revenues were $66.7 million, and AFFO totaled $53.3 million, or $1.88 per share, representing a 10% improvement compared to our third quarter 2025 AFFO of $1.71 per share. This quarter-over-quarter improvement was primarily driven by $3.7 million, or $0.13 per share, of payments received for unpaid rent due during the Gold Flora receivership and a full quarter’s benefit of earnings accretion from our initial investment in IQHQ. For the first quarter of 2026, as Ben detailed, we continue to pursue the recovery of unpaid rents for certain default tenants, and so far have received an additional $3 million, $0.10 per share, related to our Gold Flora and PharmaCann properties.

On the capital markets front, we have raised over $145 million of attractively priced debt and preferred equity since October 2025. For preferred stock, during the fourth quarter of 2025, we issued approximately $5 million on our ATM. We have already issued over $40 million of preferred equity at an attractive yield of just over 9.5% early in the first quarter of 2026, reflecting continued strong investor demand for this perpetual security. We have now grown our Series A preferred stock to $95 million of par value outstanding through our ATM issuances. On the debt front, during the fourth quarter, we added a new $100 million revolving credit facility secured by our investment in IQHQ, which provides us with low-cost, flexible capital at an attractive rate of 6.1% and further enhances our liquidity profile.

When we announced our IQHQ transaction in August, we believed one benefit would be the potential to access lower-cost capital. We are pleased to see that come to fruition with the closing of this new credit facility. This continued access to capital strengthens our ability to fund growth opportunities while maintaining a conservative balance sheet. Our balance sheet remains strong, supported by over $2 billion of unencumbered real estate and a conservative capital structure, with a debt service coverage ratio exceeding 10 times and a net debt to adjusted EBITDA of 1.4 times. We ended the quarter with over $107 million in total liquidity, including cash on hand and availability under our revolving credit facilities, which was further improved with our year-to-date preferred stock ATM issuances I mentioned earlier.

As it relates to our bond maturity at the end of May, we are actively evaluating a range of alternatives to address the obligation, including potential refinancing and other capital sources. We believe our unencumbered asset base of over $2 billion of real estate and our strong credit profile position us well as we pursue these alternatives. With that, we thank you for joining the call, and we’d like to open it up for questions. Operator, could you please open the call for questions?

Conference Call Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Please ensure that your phone is not on mute when called upon. Thank you. Your first question comes from Thomas Catherwood with BTIG. Your line is open.

Thomas Catherwood, Analyst, BTIG: Thank you, and good morning, everybody.

David Smith, Chief Financial Officer, Innovative Industrial Properties Inc.: Good job.

Thomas Catherwood, Analyst, BTIG: This was great to see the leasing progress in the fourth quarter and obviously so far this year in 2026. In terms of this uplift, are cannabis operators looking to expand again, or are they looking to move up the quality spectrum with new space? Did you adjust your leasing strategy this past quarter, or is there something else driving this increase in activity?

Ben Regin, Chief Investment Officer, Innovative Industrial Properties Inc.: Well, first of all, you know, thanks for the question. I think that there’s a lot of things going on here. One, we have an extremely experienced management team that’s been involved with this industry for the last 8+, almost 10 years. They’re executing on the business plan that we’ve set out.

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: ... and at the end of 2024 and throughout 2025, and continue, and we believe we’re gonna continue to execute that business plan, throughout 2026. This return to growth is, comes from, as we described in our past quarters, that we were seeing some green shoots in the industry. Those green shoots have allowed, we believe, the operators, the strong operators in our industry, to take advantage of some of the weaker operators who haven’t been able to navigate these difficult times in the industry, as well. We still believe that there are significant challenges in the cannabis industry, although we do see unique opportunities.

Working with some of the best growers, in, you know, that are in our portfolio and in the country, we believe that there are unique opportunities to take advantage of that, of those. Now, Ben, do you have anything, or Paul, do you have anything else you want to add? Go ahead.

Ben Regin, Chief Investment Officer, Innovative Industrial Properties Inc.: Yeah, this is Ben. Yeah, I would just add, I think the rescheduling news is certainly seen as a positive amongst the operators. We’ve seen a number of our top tenants successfully execute refinancings or new debt raises in the last handful of months. Curaleaf, Trulieve, GTI, Cresco among those. I think they view these expansion opportunities as a relatively cost-effective way to move into what we believe are, you know, high-quality turnkey facilities. We’re really, you know, excited about the team’s ability to convert that interest into the leasing activity that we’ve been talking about.

Thomas Catherwood, Analyst, BTIG: Appreciate all those answers. Ben Regin, maybe as a follow-up to that, you know, there’s a difference sometimes between headlines and kind of what’s actually happening on the ground. When we think of U.S. cannabis, we hear the headlines of oversupply in Massachusetts, Michigan, and California. You’ve had success releasing in those markets, and you’ve also had success in stronger markets, like, you know, the recent leases and LOIs in Illinois. How does the approach differ, if at all, between those two markets, or are the headlines kind of overstated when it comes to the ability to release in more competitive states?

Ben Regin, Chief Investment Officer, Innovative Industrial Properties Inc.: Yeah, I mean, I think that the headlines are just a very general high-level view of some of these markets. I think when you really understand and, you know, using our experience over the last decade to really understand the nuances of each market, they’re, you know, finding the successful, efficient operators in markets like California, Massachusetts, and Michigan, and, you know, identifying the groups that we believe in, that we think that can grow their business in a profitable way and bring them into our portfolio, we think makes a lot of sense. I think it’s the same approach that we would take in any market.

Thomas Catherwood, Analyst, BTIG: Got it. Got it. Appreciate that, Ben. Thank you. Then last one for me, just wanted to clarify on the tenants that are in default. It sounds like kind of the outcomes are falling into three buckets. It’s either the receivership is working through, and the rents are gonna commence again at the end of the receivership process. Or the second bucket is you’re getting space back and obviously, you’re releasing that. And then the third bucket is some tenants continue to pay, though you’re not necessarily recognizing that rent and continue to look to regain their facilities. Of those, who falls in the rent could commence near term at the end of receivership, and who falls into the, you know, releasing and still fighting to regain properties buckets?

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: Just I’ll turn these questions over to both Paul and Ben. Just as a point of clarification, if we receive rent, we recognize rent. There’s. That’s what we’ve done. I think that third bucket of there are tenants that are in default, and the court has ordered them to pay rent or put rent in escrow, and once that money is released, we recognize that rent. Let’s just as a point of clarification. With that,

Paul Smithers, President and Chief Executive Officer, Innovative Industrial Properties Inc.: Hey, this is Paul. Hey, Tom. I would simplify it a little more. I’d really say two buckets. We look at the defaulting tenants that are in receivership and those that are currently in litigation. You know, we talked in detail about the receivership, Gold Flora and 4Front Ventures. I think we’ve had some great results in resolving those. Understanding that receivership, typically there’s administrative costs, and that’s deferred rent that we’re not getting currently, and we get that at the end of the receivership, typically. The other bucket is primarily PharmaCann that we are in the late stages of the litigation process with those cases, and we think we’re gonna have resolutions in the near future on those.

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: You know, we look at it a little more simplistically, you know, those in receivers and those are not. Either way, we’re very pleased, where we are today compared to where we were a year ago. I think Ben and his team have done an outstanding job releasing those assets, where, you know, a year ago there was some question I know people had, "Gee, these are tough markets. Are we going to have difficulty entering these leases?" We proved those people wrong and done a good job releasing those.

Bill Kirk, Analyst, Roth Capital Partners: Got it. Appreciate all the answers. Thanks, everyone.

Conference Call Operator: Your next question comes from Aaron Grey with Alliance Global Partners. Your line is open.

John, Analyst, Alliance Global Partners: Hi, this is John, on for Aaron. Thank you for the questions. Regarding the LOIs that have been signed or new term agreements you’ve come to with the 4Front assets, could you provide some color on the new rental rates and how that differs versus the rates paid by the respective tenant prior to default? You know, obviously, it probably varies by each property and state, but any detail on a broad haircut that might have needed to be applied would be helpful.

Ben Regin, Chief Investment Officer, Innovative Industrial Properties Inc.: Yeah. Hey, John, this is Ben. I think a couple of things there. Obviously, for, you know, some of these deals, you know, these and others are still in negotiations, you know, for competitive reasons, you know, we won’t be disclosing the exact numbers deal by deal. I think broadly speaking, you know, we have seen a variety. There’s some unique circumstances where, in certain assets historically, you know, you could be around, you know, 50%, below 50% of contract, and we’ve had instances where you’re, you know, pretty much right on top of the prior lease rates. It’s a pretty wide range, yeah, depending on each individual situation.

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: I would also add that, we’ve seen some very positive situations where CapEx has been significantly lower on re-leasing than anybody has anticipated. Is that right?

Ben Regin, Chief Investment Officer, Innovative Industrial Properties Inc.: Yeah, I think that’s exactly right. A great thing to keep in mind is, you know, we’re typically, you know, $10 a sq ft, $15 a sq ft and below for these re-leasing activities. You know, a lot of tenants that have come into our assets, if anything, have invested their own money to make additional improvements to our buildings. You know, these rental rates, you know, come along with a minimal capital outlay on our end, which has been great to see.

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: All those factors go into the rental rate that is finally negotiated.

John, Analyst, Alliance Global Partners: Okay, great. Thank you. Second, regarding the dividend and earnings coverage going forward, on one end, you’ve had some more one-off payments from defaulted tenants, you know, particularly in 4Q, that aided in bridging the dividend gap, but you also have the IQHQ interest income, which should continue to build along with new lease tenants from the previously defaulted. On a normalized basis, do you feel in a better position to have the dividend full covered in the near term, or are incremental steps, you know, like getting more of the properties re-leased, needed?

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: Well, I think, I think first of all, our dividend policy is set by our board, and they review, what has occurred in the past and, the projections going forward. What we’re seeing, is this return to growth, and we’re seeing strong re-leasing activity, which is driving revenues. We continue to see. We have the resolutions of some of these major lease, or major, litigations. With those resolutions and the activity, the leasing activity we’re seeing, we continuously feel positive, about where we are with regards to our dividend.

John, Analyst, Alliance Global Partners: Great. Thank you. I’ll hop back in the queue.

Conference Call Operator: Your next question comes from Bill Kirk with Roth Capital Partners. Your line is open.

Bill Kirk, Analyst, Roth Capital Partners: Hey, everybody. Following the executive order, what have you seen in regards to tenant health and maybe more importantly, like, willingness to be prompt payers? I know we already talked a little bit about the 280E elimination and how that improves future health, but what about now, before the rescheduling change, what are you seeing from tenant willingness and tenant health?

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: Well, I think there are tenants, as we’ve reported, are paying their rents. They’re paying them, you know, on time and per the lease, per the leases. I’ll turn the question over to Paul to talk about the rescheduling and how that’s benefited the industry.

Ben Regin, Chief Investment Officer, Innovative Industrial Properties Inc.: Yeah, you know, I think, Bill, you follow it closely. You know, the announcement 2 months ago by the president on the executive order was very significant, and that’s created a lot of buzz, I think, and some positive feelings in the industry, especially with, you know, our larger MSOs that are looking to grow, looking to acquire leases in new states, as evident by our re-leasing activity that we reported. You know, there is some question as to when and how the EO will be implemented, but.

Paul Smithers, President and Chief Executive Officer, Innovative Industrial Properties Inc.: ...it’s gonna get done. I think that is the feeling from the industry now. you know, despite the fact there is some uncertainty as to when, there is a definite positive vibe just from the announcement of the executive order.

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: Right. I.

Bill Kirk, Analyst, Roth Capital Partners: Thank you.

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: That’s one of the green shoots that we’ve seen. The closing of the border, the tightening of wholesale pricing in some of the markets, all of those, I think, go to helping the health of our tenants improve.

Bill Kirk, Analyst, Roth Capital Partners: Thank you. There’s, you know, a possible or looming, I guess, intoxicating hemp ban in the U.S. in mid-November of 2026. A lot of that intoxicating hemp product compete against your tenants. Is that in the approved, you know, in your improved outlook for releasing or the way the tenants are feeling about their prospects, having a potential intoxicating hemp competitor go away this year?

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: It’s an interesting, it’s an interesting comment, and I think that we’re, we’re going to have to wait to see. We think that the strengthening of the markets is a multifaceted situation, and every one of these small incremental improvements help all our tenants.

Bill Kirk, Analyst, Roth Capital Partners: Thank you, guys. All the best.

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: Thank you.

Paul Smithers, President and Chief Executive Officer, Innovative Industrial Properties Inc.: Thanks, Bill.

Conference Call Operator: The next question comes from Alexander Goldfarb with Piper Sandler. Your line is open.

Alexander Goldfarb, Analyst, Piper Sandler: Hey, good morning out there. Just a few questions. First, thank you for the increased, the new table on the troubled tenants and how much they’ve paid over time. You know, hopefully, that can extend to, you know, the leases that have been resolved, you know, definitively versus in the works. It just helps with all the discussion. A few questions here: First, just going to the opportunity set, you know, you have that interesting table chart that shows the size of the cannabis industry, the lawful cannabis industry, versus the various alcohol industries. You know, cannabis is pretty big, especially if you were to even include the illicit market. But, you know, just given how sizable it is, you know, you guys talk more about going to life science. Is it...

You know, as we think about the company over the next few years, even as more states contemplate legalizing, and perhaps, you know, the cannabis is downgraded to Schedule III, is it your view that the life science offers a better, you know, risk-adjusted return over the next several years, even if cannabis is able to resolve, you know, its current issues and get back to more of a growth arena?

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: Well, I think that the diversification out of the, or into the life science industry is multifaceted also. It’s not only that. I mean, it’s not only about the unique opportunity that we saw in the life science industry, how that industry had perhaps hit rock bottom, and that there were green shoots and increasing opportunities and a way to use our cost of capital or take advantage of opportunities with our cost of capital.

I think you have that as one of the reasons for diversification, but you also have the fact that, by diversifying, we might open ourselves up to greater avenues of capital and giving us the opportunity to reduce our overall cost of capital with that diversification. I think that we’re executing on that and seeing some of the benefits of that as we move forward.

Alexander Goldfarb, Analyst, Piper Sandler: Along those lines, on HQ, I think last time you updated us on the pre-leasing or the leasing, I think it was, the portfolio was roughly 25% leased. Is there an update? Has that changed at all or it’s still about where it was?

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: They’re a private organization. They haven’t disclosed anything publicly yet, although we are seeing a significant increased leasing activity in the markets in general, specifically in the Boston markets, Boston and then the Bay Area. It’s historically what we’ve seen when the industry recovers, when the life science real estate sector recovers, it recovers first in the Boston area, and then the Bay Area, and then it moves to San Diego. We’re seeing that come to fruition now.

Alexander Goldfarb, Analyst, Piper Sandler: Just the final question is, I noticed in the update in your K on litigation, the S.E.C. has now entered the fray, but you guys don’t have any legal reserve. Can you just comment, you know, on, you know, what we just should expect for legal costs this year? I think it’s averaged about $2 million over the past few years, and obviously, that’s all-encompassing. It’s a variety of things. You’ve clearly been pursuing various tenants who haven’t been paying. Can you just sort of give us an expectation for legal costs, and what causes a company to set aside a legal reserve versus right now, you don’t have one?

David Smith, Chief Financial Officer, Innovative Industrial Properties Inc.: Yeah, Alex, it’s David. I mean, on the legal reserve, we have not taken that. Our auditors have not required to do it either, as was disclosed in the 10-K. We’ll be working through that. There will be costs, but it’s hard to estimate at this point.

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: Right. I would also add, this is Paul. Alex, that, you know, a lot of the legal costs have been attributed to the tenant defaults in our efforts to, you know, oust them from the properties and to go along with the receivership. There’s significant costs there we think will be resolved in the next couple of quarters. There will be some savings there on the legal fund.

Alexander Goldfarb, Analyst, Piper Sandler: What causes on the reserve, what causes the auditors to make a company, you know, just generically, a company to set aside a reserve versus, you know, no reserve?

David Smith, Chief Financial Officer, Innovative Industrial Properties Inc.: Yeah, I would just point to, you know, the statement in the 10-K, where it says neither probable, you know, nor unlikely, and until it becomes one of those, you know, probable, that could require something.

Alexander Goldfarb, Analyst, Piper Sandler: Okay, that’s helpful. Listen, thank you.

David Smith, Chief Financial Officer, Innovative Industrial Properties Inc.: All right. Thanks, Alex.

Conference Call Operator: This concludes the question and answer session. I’ll turn the call to Alan Gold for closing remarks.

Alan Gold, Executive Chairman, Innovative Industrial Properties Inc.: Thank you. First and foremost, I’d like to thank the team for their great execution, their strong work to get us to where we are today, and how we believe we’re prepared for future opportunities as time evolves. We also like to thank the support of our stakeholders. With that, we’ll end the call. Thank you.

Conference Call Operator: This concludes today’s conference call. Thank you for joining. You may now disconnect.