Innovative Industrial Properties Inc

NYSE:IIPR

Earnings Call Transcript 2019-Q2

[Operator]

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.

[Brian Wolfe, Vice President, General Counsel and Secretary]

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?

[Alan Gold, Executive Chairman]

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?

[Paul Smithers, President and Chief Executive Officer]

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’ servicing state license, compliant operators and may also result in banks being more open to providing debt capital to these operators.

Aside from these, there have been numerous other initiatives taken by Congress, including the introduction of a number of bills in favor of various forms of cannabis legalization. As we indicated on our prior call, the federal regulatory environment is a rapidly evolving one for the cannabis industry. And we are monitoring all of these developments closely.

On to a general update of the medical-use cannabis markets nationwide. The industry continues to move forward with tremendous velocity. 33 states have legalized medical-use cannabis by popular vote for legislative process where a large majority of the U.S. population resides.

Medical-use cannabis continues to pull year-after-year, with 90 plus percent popular support in the United States. And the regulated cannabis industry is expected to continue to be a leading driver for U.S. jobs and tax revenues.

In fact, according to a study conducted by Leafly and Whitney. Economics in March of this year, there were more than 210,000 direct full time jobs in the state regulated cannabis industry. And this industry added more than 64,000 jobs in 2018 alone. Marijuana Business Daily’s recent projections support the view of tremendous continued momentum of the industry, projecting a 35% increase in U.S. regulated cannabis sales from 2018 to 2019 and reaching nearly $30 billion by 2023.

And now for a brief update on developments in the 12 state markets, where we own properties, which are New York, California, Massachusetts, Pennsylvania, Ohio, Michigan, Illinois, Maryland, Colorado, Arizona, Nevada, and Minnesota.

New York. As a reminder, we have owned two properties in New York since 2016 and 2017, which are leased on a long-term basis to two multi-state operators, PharmaCann and Vireo. As we have noted in past calls, New York's medical-use cannabis program has initially rolled out, had been described by many as one of the most restrictive and highly regulated. In response, and in order to enable broader access to treatment, New York has taken several positive steps over time. These steps include expansion of the pool of potential, recommending health professionals, expansion of the types of products that can be manufactured and distributed, streamlining the registration process, and expansion of the list of qualifying medical conditions, most notably for chronic pain, PTSD, and cannabis as an opioid alternative. Patient count growth continues to accelerate as a result with over 104,000 certified patients as of mid-July.

Regarding the potential adult-use legalization in New York. Despite the thoughtful analysis of the New York Department of Health, and Governor Cuomo's public statements showing support, the New York Legislature did not pass the bill in the 2019 session. However, New York did pass a legislation further decriminalizing cannabis use, including expunging many past cannabis possession conditions and reducing the penalties for small possession of cannabis from a misdemeanor to a violation.

California. Now on to California where we have been quite active acquiring a property in February, a portfolio of properties in April and another property just last month. As we discussed on the last call, California was the first state to permit the use of cannabis for medicinal purposes, adopting the Compassionate Care Act in 1996 and issued first licenses for the sale of adult-use cannabis just last year, following approval by California voters in November of 2016.

California continues to have challenges and delays in its licensing program, after numerous revisions to its rules, which has resulted in lower than anticipated in lower than anticipated regulated sales and license to operators, and a slower than anticipated move away from the deeply and trenched illicit cannabis marketplace. But the market opportunity for regulated cannabis remains tremendous and it’s calculated to be about the size of cannabis entire market in a few years time.

Massachusetts. We own three properties in Massachusetts, two of which we acquired in 2018 and one which we acquired just last month. Our two acquisitions in 2018 represented follow-on transactions with tenants Holistic Industries and PharmaCann as they continued their multi-state expansion and we are thrilled to have Trulieve as our tenant following our most recent transaction that closed in July. As we mentioned previously Massachusetts voters approved a legalization of adult-use cannabis in 2016. And first licenses for adult-use cannabis operators began to be issued in the summer of 2018.

Adult-use sales began in November 2018 generating $50 million in the first five months of 2019. While adult-use sales continue to ramp up significantly, medical-use cannabis sales are also expected to remain strong due in part to the tax advantages afforded to patients of medical cannabis.

Pennsylvania. In Pennsylvania we own three properties, two of which were acquired earlier this year. Pennsylvania enacted medical-use cannabis legislation in May of 2016 and dispensaries made their first sales in February of last year.

12 grower/processor licenses were issued in the first phase of this program with a total of 25 grower/processor licenses, all of which have been issued in the two phase roll out. Just last month the Pennsylvania Department of Health announced that they were more than 110,000 active certified patients and more than 1,600 physicians in the medical cannabis program. With the Pennsylvania Department of Health also approving effective as of July 20th, anxiety disorders and Tourette's syndrome to list the program’s serious medical conditions eligible for treatment with medical cannabis.

Ohio. We closed on our properties in Ohio with PharmaCann in March and with Vireo in May of this year. Ohio is the early stage state where we own property having kicked off sales at dispensaries in mid-January of this year and with the state’s registry opening for patients late last year. The State of Ohio Board of Pharmacy published its patient and care giver statistics for June, which included nearly 50,000 registered patients and over 3,400 registered care givers.

As of July of 2019 Ohio had awarded 17 tier 1 cultivation licenses and 13 tier 2 cultivation licenses. The state is also allowed to issue up to 40 processing licenses, of which seven have received certificates of operation and 56 dispensary licenses of which 24 have received certificates of operation. Ohio’s medical cannabis market is expected to be large with each permit having the potential to be extremely valuable given the state’s population and broad list of qualifying conditions. In light of that fact ArcView estimates Ohio’s medical cannabis sales to grow to nearly $300 million by 2022.

Michigan. In Michigan we own three properties, two of which we acquired this year and one which was acquired last year. Although the Michigan Marijuana Act was passed in 2008, the industry has operated as a highly permissive system, somewhat similar to how California’s system had operated historically prior to the establishment of a state licensing and regulatory framework, and is still one of the largest medical cannabis markets in the United States. Michigan has also significantly accelerated its licensing of medical cannabis operators with the Marijuana Regulatory Agency ruling on 213 medical cannabis business permit applications in May alone. As noted previously, Michigan residents also voted in November of 2016 to legalize adult-use cannabis and state authorities have indicated they will begin accepting licensed applications from operators in the fall. Taking into consideration all the dynamics of the Michigan market, ArcView expects Michigan's regulated cannabis market to continue to grow at a healthy pace, reaching nearly $1.4 billion by 2022.

Illinois. We own one property in Illinois, which we acquired in late 2018 and leased to Ascend Wellness. Similar to New York’s evolution, Illinois’ program as initially rolled out was highly restrictive, resulting in subdued growth for some time. In early 2019, the state regulatory authorities launched the Opioid Alternative Pilot program, which allows access to medical cannabis for individuals who have or could receive a prescription for opioids as certified by a doctor. Along with other loosening of restrictions in the market, these steps have led to strongly accelerating patient growth in the regulated market in 2018 and through 2019. In addition, in late June, Illinois became the 11th state to legalize cannabis for adult-use with the program expected to launch beginning in 2020.

Maryland. We purchased our property in Capitol Heights, Maryland in 2017. With the first dispensaries opening in late 2017, there are over 60,000 registered patients and 1,300 registered providers in the program as of May. Interestingly as well, as another indication of the continued evolution of the industry, in June, the University of Maryland School of Pharmacy introduced a new master's degree program in medical cannabis, which is thought to be the first of its kind in the United States.

Colorado. We entered the Colorado market in December of 2018 with our acquisition of a property in the Denver area and leased to The Green Solution. Colorado was one of the pioneers in the regulated cannabis industry, rolling out its adult-use cannabis program in 2014 as the first state to legalize recreational cannabis use. In May of this year, Colorado Governor Jared Polis, signed a measure that will allow physicians in the state to recommend medical cannabis in lieu of opioids. This move could influence sales of medical marijuana and is scheduled to go into effect in early August. The Colorado market is expected to reach approximately $2 billion by 2022, according to ArcView.

Arizona. Now in Arizona, where we own one property, which we purchased in late 2017. Having commenced medical-use cannabis sales in 2010, Arizona's medical-use cannabis program is further along in its maturity than many other states. According to the Arizona Department of Health Services, there were over 200,000 qualifying patients in Arizona's medical cannabis program as of June 2019, continuing a strong pace of growth. In May, the Arizona Supreme Court ruled that extracts including concentrates, edibles, and other infused products are legal under the state’s program. While the ruling did not have a significant economic impact to current operators, this ruling gives official legal approval for edibles in a few sales, which were previously in question. Patient usage has also witnessed strong growth. Sales for medical cannabis grew by 41% from 2017 to 2018, outpacing the growth of the patient pool by 2 to 1.

Nevada. We acquired our first property in Nevada just this past month, which Catherine will discuss later on in detail. Nevada voted to approve adult-use cannabis in November 2016 and put regulations in place very quickly, allowing for opening stores in July 2017. From 2016 to 2018, Nevada witnessed tremendous growth in the regulated cannabis market, see a shrinking illicit market and legal spending growing from $117 million in 2016 to an estimated $580 million in 2018, according to ArcView. In its first full year regulated adult-use cannabis sales, the state also brought in approximately $70 million in tax revenue, exceeding the state's expectations by approximately 40%.

And finally, Minnesota. We acquired our Minnesota property in 2017. As we mentioned on our last call, our tenant Vireo is one of only two licensed medical cannabis operators in the entire State of Minnesota, with each operator also operating four dispensaries. While a smaller market that began medical cannabis sales in mid-2015, registered medical cannabis patients in Minnesota have experienced significant and accelerating growth from less than 2000 for much of 2016 to over 17,000 as of July. Similar to New York, Minnesota's medical cannabis program was initially rolled out as a highly regulated and restrictive program, but has gradually expanded the program for treatment of additional medical conditions, including intractable pain and PTSD, autism, spectrum disorders, sleep apnea, and Alzheimer's disease. Intractable pain alone accounts for more than half of all patient certifications.

I'll now turn the call over to Catherine, who will walk you through our recent acquisitions, capital raising activity and financial results for the second quarter of 2019. Catherine?

[Catherine Hastings, Chief Financial Officer]

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. Assuming full payment of the additional funding, our total investment in this property will be $31 million.

Also in June, we acquired a 45,000 square foot industrial property in Michigan and entered into a long-term triple net lease with an affiliate of Emerald Growth with a total investment in the acquisition and redevelopment of the property expected to be approximately $10 million. The velocity of our acquisition activity continued through July with another four transactions closing after the quarter end. We acquired a 145,000 square foot industrial property in Michigan and entered into a long-term triple net lease with Ascend which intends to operate the facility for medical-use cannabis cultivation and processing upon completion of redevelopment. Our total investment in the acquisition and redevelopment of the property is expected to be approximately $19.8 million. This marks our second transaction with Ascend following our initial lease with them for our Illinois properties late last year as Ascend continues its multi-state growth initiative.

We then acquired a 43,000 square foot industrial property in Nevada and entered into a long-term triple net lease with MJardin for continued use as a regulated cannabis cultivation and processing facility. Our total investment in this property is expected to be $9.6 million which includes acquisition and redevelopment of the property, and marks our first acquisition in the Nevada regulated cannabis market.

We followed the MJardin transaction with the acquisition of a 35,000 square foot industrial property in California and long-term lease with DionyMed Brands for continued use as a regulated cannabis cultivation, distribution, processing and dispensary campus. Our total investment in this property is expected to be $15 million which includes our initial purchase price and commitment for redevelopment of the property. This marks our third transaction in California.

And finally, in late July, we acquired a 150,000 square foot industrial property in Massachusetts and entered into a long-term triple net lease with a subsidiary of Trulieve which intends to operate the facility for regulated cannabis cultivation and processing upon completion of redevelopment, with an initial purchase price of $3.5 million and an additional commitment to fund up to $40 million for redevelopment of the property, which funding is subject to reduction at Trulieve’s option within the first six months of the lease term.

Trulieve has had tremendous success and developed a track record of distinction in the Florida medical cannabis market, and we look forward to supporting their continued expansion and work in Massachusetts.

Now on to our results for the second quarter and first six months of the year. We generated rental revenues of approximately $8.3 million and $14.9 million for the three and six months ended June 30, 2019 respectively. The increases in both periods were driven primarily by the acquisition and leasing of new properties, additional tenant improvement allowances provided to tenants at certain properties that resulted in base rent adjustments and contractual rent escalations at certain properties.

Importantly, this revenue growth reflects only partial quarters of revenues from the numerous acquisitions and leases executed during the year, and is impacted by rent abatements or deferrals under certain leases that are expected to burn off in the next few months as we continue to account for all of our leases on a cash basis. Notwithstanding all of this, our Q2 rental revenues grew 155% year-over-year from Q2 of 2018.

For the three months ended June 30, 2019, we recorded net income of $3.1 million. Funds from operations, which adds back property depreciation to net income, was $4.7 million. Adjusted funds from operations, which adds back non-cash stock-based compensation and non-cash interest expense related to our exchangeable senior notes, was $5.8 million.

For the three months ended June 30, 2019, adjusted funds from operations for Q2 grew 176% from the prior year period. For the six months ended June 30, 2019, we recorded net income of $6.4 million, funds from operations of $9.2 million and adjusted funds from operations of $11.1 million. For the six months ended June 30, 2019, adjusted funds from operations increased by 215% from the prior year period.

As Alan mentioned, on July 15th, we paid our ninth consecutive quarterly dividend of $0.60 per share to common stockholders of record as of June 28th. The Q2 2019 common stock dividend reflects a 33% increase from the prior quarter, and a 140% increase from the prior year's second quarter. This serves as a reflection of our strong growth and operational performance over the past year, and our confidence in our acquisition pipeline.

And with respect to financing activity, in July 2019, we completed a follow on public offering of common stock, raising gross proceeds of about $188 million, including the exercise and flow of our underwriters’ option to purchase additional shares. We are truly grateful for all of our stakeholders' continued support. And we're focused exclusively on investing the proceeds from this offering with the best tenants.

And with that, I'll turn it back to Alan. Alan?

[Alan Gold, Executive Chairman]

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?

[Operator]

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

[Tom Catherwood, BTIG]

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?

[Alan Gold, Executive Chairman]

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.

[Tom Catherwood, BTIG]

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?

[Alan Gold, Executive Chairman]

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.

[Tom Catherwood, BTIG]

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?

[Paul Smithers, President and Chief Executive Officer]

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.

[Tom Catherwood, BTIG]

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?

[Alan Gold, Executive Chairman]

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.

[Operator]

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

[John Massocca, Ladenburg Thalmann]

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?

[Alan Gold, Executive Chairman]

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.

[John Massocca, Ladenburg Thalmann]

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?

[Catherine Hastings, Chief Financial Officer]

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.

[John Massocca, Ladenburg Thalmann]

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?

[Alan Gold, Executive Chairman]

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

[John Massocca, Ladenburg Thalmann]

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?

[Alan Gold, Executive Chairman]

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]

[Operator Instructions]

[Alan Gold, Executive Chairman]

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.

[Operator]

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