Innovative Industrial (IIPR) Earnings Transcript

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DATE

Tuesday, Feb. 24, 2026 at 12 p.m. ET

CALL PARTICIPANTS

• Executive Chairman — Alan Gold
• President & CEO — Paul Smithers
• Chief Investment Officer — Ben Regin
• Chief Financial Officer — David Smith

TAKEAWAYS

• Revenue -- $66.7 million reported for the quarter.
• AFFO -- $53.3 million, or $1.88 per share, marking a 10% increase compared to Q3 2025 AFFO of $1.71 per share.
• Full-Year Revenue -- $266 million for 2025, as directly stated by management.
• Full-Year AFFO -- $205 million for 2025.
• Operating Cash Flow -- Approximately $200 million generated from operations in 2025.
• New Investments -- $275 million deployed in 2025, including one cannabis acquisition and a strategic investment in IQHQ, with $150 million funded to date of a $270 million commitment.
• Leasing Activity -- New leases executed at four properties totaling 339,000 square feet during the year, with overall leasing, LOIs, or offers in process for over 900,000 square feet across troubled assets.
• Dispositions -- Three assets sold in 2025 located in California, Colorado, and Michigan, plus one dispensary in Phoenix sold in early 2026.
• Liquidity -- Total liquidity exceeded $105 million at year-end, including a new $100 million revolving credit facility added in October, at a 6.1% interest rate, secured by the IQHQ investment.
• Preferred Equity Raised -- Over $40 million issued in early 2026 at a yield just over 9.5%, surpassing 2025's total preferred issuance; Series A preferred stock now totals $95 million in par value outstanding.
• Balance Sheet Metrics -- Over $2 billion of unencumbered real estate, debt service coverage ratio above 10x, and net debt to adjusted EBITDA of 1.4x.
• Judgment Recovery -- $7 million secured for unpaid rent and damages in Massachusetts from former tenant Temescal Wellness.
• Cannabis Regulatory Milestones -- Referencing President Trump’s executive order on potential Schedule III rescheduling, management described as "a significant regulatory development."
• State Exposure -- Properties in Virginia, Pennsylvania, and Florida represent 26% of annualized base rent, and management is tracking adult-use legalization catalysts in these states.
• Life Science Investment Update -- Life science construction pipeline has decreased to 6 million square feet, the lowest since early 2019 and significantly below the 2023 peak of 37 million square feet.
• Legal Reserve Position -- Management confirmed no legal reserve has been taken, and auditors have not required it as disclosed in the 10-K.

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RISKS

• Receivership and legal proceedings with defaulted tenants, including Forefront Ventures, PharmaCann, and Gold Flora, continue, with potential for deferred or unrecovered rental income until resolution.
• Management noted that new lease rates on re-leased assets varied widely, including instances "around 50%, below 50% of contract," indicating rent roll-down risk on assets replaced after tenant defaults.
• Legal costs remain difficult to estimate, and no reserve has been set for pending SEC involvement, as "There will be costs, but it's hard to estimate at this point."
• Asset sale activity reflects ongoing portfolio pruning and carries risk if market conditions make future noncore asset sales less accretive.

SUMMARY

Innovative Industrial Properties (NYSE:IIPR) delivered a 10% sequential AFFO per share increase, primarily attributed to recoveries from defaulted tenants and the full-quarter benefit of IQHQ investment accretion. Management highlighted that over $40 million of preferred equity was raised in early 2026 at a yield just over 9.5%, exceeding prior-year issuance. The company secured a $7 million legal judgment for unpaid rent and damages and continues to progress on leasing for over 900,000 square feet previously tied to problematic tenants.

• Recent developments, such as President Trump’s executive order on potential cannabis rescheduling, may alter tenant cash flows and industry fundamentals, but the timing of regulatory implementation remains uncertain.
• Management reported continued asset sales and capital recycling, with a focus on both cannabis and life science real estate, as evidenced by $275 million invested in 2025 and a strategic $270 million IQHQ commitment.
• The company ended the quarter with significant liquidity resources and indicated flexibility in addressing upcoming bond maturities, supported by a large unencumbered asset base.
• A decline in life science real estate supply and renewed demand in Boston and San Francisco Peninsula were described as early signs of market stabilization, supporting the firm’s diversification thesis.

INDUSTRY GLOSSARY

• AFFO: Adjusted Funds From Operations, a REIT cash flow metric representing funds available for distribution to shareholders after maintenance capital expenditures and straight-line rent adjustments.
• LOI: Letter of Intent, a preliminary, nonbinding agreement outlining terms of a future property lease or acquisition.
• Receivership: A court-supervised process in which a receiver is appointed to manage the assets and operations of a defaulted property or tenant with the goal of maximizing recovery.
• IQHQ: A private life science real estate company in which IIPR has made a major strategic investment.
• 280E: Section 280E of the Internal Revenue Code, which currently prevents cannabis businesses from deducting normal business expenses, increasing their effective tax rates.

Full Conference Call Transcript

Alan Gold: Thanks, Eli, and 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 square feet, 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 JPMorgan Healthcare Conference continue 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. Now with that, I'll turn the call over to Paul.

Paul Smithers: Thanks, Alan. I'd like to begin by reinforcing the significance of the recent executive board 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, strengthens credit profiles and support additional investments across the industry. In addition, the Executive Board 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 square feet in those states accounting for approximately 26% of annualized base rent, and 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 nonperforming tenants and enhance the performance of our portfolio. Since then, receivership and legal proceedings have been ongoing for forefront Ventures, PharmaCann and Gold Flora where we have continued to actively pursue our legal rights and protect our interest 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 nonperforming 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 retenanting 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: Thanks, Paul. To recap our year in 2025, we executed new leases totaling 339,000 square feet across properties located in California, Massachusetts and Michigan, opportunistically closed on 3 dispositions and closed on approximately $275 million in new investment activity, including one 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 [ forefront ] 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 square foot Palm Springs asset during the fourth quarter, executed a lease agreement with a new tenant for our 204,000 square foot Desert Hot Springs asset last month, and we have received multiple offers for a 56,000 square foot 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 4 assets previously leased to Forefront, we have made significant progress on our re-tenanting initiatives for these assets.

This quarter, we reached a tentative agreement with the tenant to lease our 114,000 square foot Washington property and expect lease execution and rent commencement in the near term. For our 250,000 square foot 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 a 67,000 square-foot property in Georgetown, Massachusetts a stocking horse bidder has been selected by the receivership of state, 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 square foot 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 retenanting our 6 cultivation assets. In early 2025, we regained possession of our 205,000 square foot cultivation asset in Michigan and subsequently executed a lease with a new tenant in April. We also successfully regained possession of our 58,000 square foot 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 square foot 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 a 71,000 square foot vacancy in North Adams, Massachusetts.

In parallel with our leasing initiatives, we have also pursued selective asset sales to opportunistically recycle capital. During 2025, we sold 3 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 noncore 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, and 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 square feet is at its lowest level since early 2019 and is down sharply from the 2023 peak of more than 37 million square feet. 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 square feet, surpassing 2024 totals by approximately 72%. The San Francisco Peninsula recorded its first decline in vacancy in more than 2 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: 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 a $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 and 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 believe 1 benefit would be the potential to access lower cost capital, and we are pleased to see that come to fruition with the closing of this new credit facility. This continued access of 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 10x and a net debt to adjusted EBITDA of 1.4x. 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 was over $2 million 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?

Operator: [Operator Instructions] Your first question comes from Tom Catherwood with BTIG.

William Catherwood: 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? Or did you adjust your leasing strategy this past quarter? Or is there something else driving this increase in activity?

Alan Gold: Well, so first of all, 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 plus almost 10 years. And they're executing on the business plan that we -- we've set out in -- at the end of 2024 and throughout 2025, and continue, and we believe we're going to 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. .

And those green shoots have allowed, we believe, the operators in our -- 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. But we still believe that there are significant challenges in the cannabis industry, although we do see unique opportunities and working with some of the best growers that are in our portfolio and in the country, we believe that there are unique opportunities to take advantage of that -- of those. Ben, do you have anything or Paul, do you have anything else you want to add?

Ben Regin: This is Ben. Yes, 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 [indiscernible] Cresco among those. And I think they view these expansion opportunities is a relatively cost-effective way to move into what we believe are high-quality turnkey facilities, and we're really excited about the team's ability to convert that interest into the leasing activity that we've been talking about.

William Catherwood: I appreciate all those answers. And Ben, maybe as a follow-up to that. We there's a difference sometimes between headlines and kind of what's actually happening on the ground. And when we think of U.S. cannabis, we hear the headlines of oversupply in Massachusetts and Michigan and California. You've had success re-leasing in those markets, and you've also had success in stronger markets like the recent leases and LOIs in Illinois. How does the approach differ, if at all, between those 2 markets? Or is the headlines -- are the headlines kind of overstated when it comes to the ability to re-lease in more competitive states?

Ben Regin: I think that the headlines are just a very general high-level view of some of these markets. And I think when you really understand and using our experience over the last decade to really understand the nuances of each market they're finding the successful efficient operators in markets like California and Massachusetts and Michigan and 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.

William Catherwood: Got it. I appreciate that, Ben. And 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 3 buckets. It's either the receivership is working through and the rents are going to commence again at the end of the receivership process you -- or the second bucket is you're getting space back and obviously, releasing that? And then the third bucket is some tenants continued 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 re-leasing and then still fighting to regain properties buckets?

Alan Gold: Just -- I'll turn these questions over to both Paul and Dan. But just as a point of clarification, if we receive rent, we recognize rent. There is no and that's what we've done. So 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 that -- and once that money is released, we recognize that rent. So let's just -- this is a point of clarification. But with that, Paul.

Paul Smithers: It's Paul. So I would simplify it a little more. I really say 2 buckets. We look at the defaulting tenants that are in receivership and those that are currently in litigation. So we talked in detail about the receivership, Gold Flora and Forefront. I think we've had some great results in resolving those. And 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 ParmaCann that we are in the late stages of the litigation process with those cases. And we think we're going to have resolutions in the near future on those.

So we look at it a little more simplistically, those and receivers and those are not. But either way, we're very pleased where we are today compared to where we were a year ago. And I think Ben and his team have done an outstanding job releasing those assets where 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, but we prove those people wrong and done a good job releasing those.

Operator: Your next question comes from Aaron Grey with Alliance Global Partners.

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

Alan Gold: And 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: Yes, I think that's exactly right. And a great thing to keep in mind is we're typically square foot, $15 a square foot and below for these re-leasing activities. A lot of tenants that have come into our assets, if anything, have invested their own money to make additional improvements to our buildings. . So these rental rates come along with a minimal capital outlay on our end, which has been great to see.

Alan Gold: And all those factors go into the rental rate that is finally negotiated.

Unknown Analyst: Okay. Great. And second, regarding the dividend and earnings coverage going forward. On one end, you've had some more one-off payments from defaulted tenants, particularly in 4Q that aided the -- aided and bridging the dividend gap you also have the IQHQ interest income, which should continue to build along with new lease tenants from the previously defaulted. So on a normalized basis, do you feel in a better position to have the dividend fully covered in the near term or are incremental steps like getting more of the properties released needed?

Alan Gold: Well, I think, first of all, the dividend -- our dividend policy is set by our Board, and they review what has occurred in the past. And projections going forward. But what we're seeing is this return to growth, and we're seeing strong re-leasing activity which is driving revenues. And we continue to see -- and we have the resolutions of some of these major lease litigations. And with those resolutions, and the activity, the leasing activity we're seeing, we feel we continuously feel positive about where we are with regards to our dividend.

Operator: Your next question comes from Bill Kirk with ROTH Capital Partners.

William Kirk: So 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: Well, I think our tenants are -- as we've reported, are paying their rents. So -- and they're paying them on time and per the leases. But I'll turn that back -- I'll turn the question over to Paul to talk about the rescheduling and how it's benefited the industry.

Paul Smithers: Yes. I think, Bill, you follow it closely. 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 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. So there is some question as to when and how the EO will be implemented, but it's going to get done. I think that is the feeling from the industry now.

So despite the fact there is some uncertainty as to when there's -- we see a definite positive vibe just from the announcement of the executive order.

Alan Gold: And that's one of the green shoots that we've seen. But 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. .

William Kirk: And what -- there is a possible or looming, I guess, intoxicating hemp ban in the U.S. in mid-November. A lot of that intoxicating hemp products compete against your tenants. Is that in the -- in your improved outlook for re-leasing or the way the tenants are feeling about their prospects, having a potential intoxicating hemp competitor go away this year?

Alan Gold: It's an interesting comment. And I think that we're going to have to wait to see. We think that the strengthening of the market is a multifaceted situation. And every one of these small, incremental improvements help all our tenants.

Operator: The next question comes from Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb: 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. Hopefully, that can extend to the leases that have been resolved definitively versus in the works, it just helps with all the discussion. So a few questions here. First, just going to the opportunity set, you have that interesting table chart that shows the size of the cannabis industry, the lawful cannabis industry versus the various alcohol industries. And cannabis is pretty big, especially if you were to even include the illicit market. But just given how sizable it is, you guys talk more about going to life science.

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

Alan Gold: Well, I think that the diversification out of the -- into the life science industry is multifaceted also. And it's not only that -- I mean it's not only about the unique opportunity that we see -- that we saw in the life science industry, how that industry had perhaps hit rock bottom and that there were green shoots and the increasing opportunities and a way to use our cost of capital or take advantage of opportunities with our cost of capital. . So 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. And I think that we are executing on that and seeing some of the benefits of that as we move forward.

Alexander Goldfarb: And then along those lines on HQ, I think last time you updated us on the leasing or the leasing. I think it was -- the portfolio was roughly 25% leased. Is there an update? Has that changed at all or is still about where it was?

Alan Gold: 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. And 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. And we -- and we're seeing that come to fruition now.

Alexander Goldfarb: Okay. And then just the final question is, I noticed in the update in your K on litigation, the SEC is now entered the fray, but you guys don't have any legal reserve. Can you just comment on what we 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 have been paying. But can you just sort of give us 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: Yes, 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. And so we'll be working through that. There will be costs, but it's hard to estimate at this point.

Paul Smithers: I would add. This is Paul, Alex, a lot of the legal costs have been related to the tenant defaults and our efforts to [ oust ] them from the properties and go along with the receivership. So there's significant costs there. We think will be resolved in the next couple of quarters. So there will be some savings there on the legal fund.

Alexander Goldfarb: But what causes on the reserve? What causes the auditors to make a company, just generically a company to set aside a reserve versus no reserve. .

David Smith: Yes. I just -- I would just point to the statement in the 10-K where it says neither probable, nor unlikely. And until it becomes one of those probable, that could require something.

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

Alan Gold: Thank you. And first and foremost, I'd like to -- I need to thank the team for their great execution and a strong work to get us to where we are today and how we believe we're prepared for future opportunities as time evolves. And we also like to thank the support of our stakeholders. And with that, we'll end the call. Thank you.

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

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