Second quarter dividend increased 4.4%,
continuing track record of increasing dividend every year since
inception in 2016
Innovative Industrial Properties, Inc. (IIP), the first and only
real estate company on the New York Stock Exchange (NYSE: IIPR)
focused on the regulated U.S. cannabis industry, announced today
results for the second quarter ended June 30, 2024.
Second Quarter 2024
Financial Results and Dividend
- Generated total revenues of $79.8 million and net income
attributable to common stockholders of $41.7 million, or $1.44 per
share (all per share amounts in this press release are reported on
a diluted basis unless otherwise noted).
- Recorded adjusted funds from operations (AFFO) and normalized
funds from operations (Normalized FFO) of $65.5 million and $58.8
million, respectively.
- Paid a quarterly dividend of $1.90 per common share on July 15,
2024 to stockholders of record as of June 28, 2024 (an AFFO payout
ratio of 83%), representing a 4.4% increase over IIP’s first
quarter 2024 dividend and an annualized dividend of $7.60 per
common share.
Three Months Ended June
30,
(Per share)
2024
2023
$ Change
% Change
Net income attributable to common
stockholders
$
1.44
$
1.44
$
—
0
%
Normalized FFO
$
2.06
$
2.07
($
0.01
)
(0
%)
AFFO
$
2.29
$
2.26
$
0.03
1
%
Financing Activity
- Upsized IIP’s revolving credit facility to $50.0 million, which
remains undrawn as of today.
- Terminated prior “at-the-market” equity offering program and
entered into a new program (the “ATM Program”) for sales from time
to time of shares of common stock, including on a forward basis,
and 9.00% Series A Cumulative Redeemable Preferred Stock, $0.001
par value per share (the “Series A Preferred Stock”) of up to an
aggregate offering price of $500.0 million. As of today, IIP had
not sold any shares of common stock or Series A Preferred Stock
under the ATM Program, including on a forward basis.
Portfolio – New Investments and Leasing
- Acquired a 16 acre property in Florida comprising 145,000
square feet of industrial space for $13.0 million ($90 per square
foot) and executed a long-term lease for the entire property with a
subsidiary of AYR Wellness Inc., pursuant to which IIP agreed to
provide up to $30.0 million in funding for the redevelopment of one
building comprising 98,000 square feet for expected use as a
regulated cannabis cultivation facility upon completion.
- Executed two lease amendments to fund additional improvements
totaling $6.1 million, including:
- $4.5 million at one of IIP’s Ohio properties leased to Battle
Green Holdings LLC, which also included an increase to base rent;
and
- $1.6 million at one of IIP’s Illinois properties leased to
4Front Ventures Corp., which also included an increase to base
rent, an increase in annual base rent escalations for the remainder
of the lease term and an extension of the lease term.
- Executed new lease1 with a subsidiary of Gold Flora Corporation
(“Gold Flora”) at IIP’s property located at 19533 McLane Street in
Palm Springs, California.
- Executed new lease with Lume Cannabis Company at IIP’s property
located at 10070 Harvest Park in Dimondale, Michigan.
Portfolio – Property Disposition
- Sold a property located in Los Angeles, California for $9.1
million (excluding closing costs) which was previously leased to
Holistic Industries Inc. (Holistic), and concurrently received a
$3.9 million disposition-contingent lease termination fee from
Holistic, in addition to Holistic’s reimbursement for IIP’s closing
costs incurred in connection with the sale. The total consideration
of $13.0 million exceeded IIP’s net carrying value of the property
as of March 31, 2024.
Balance Sheet Highlights (at June 30, 2024)
- 11% debt to total gross assets, with $2.6 billion in total
gross assets.
- Total liquidity was $210.9 million as of June 30, 2024,
consisting of cash and cash equivalents and short-term investments
(each as reported in IIP’s condensed consolidated balance sheet as
of June 30, 2024) and availability under IIP’s revolving credit
facility.
- No debt maturities until May 2026.
- Debt service coverage ratio of 17.0x (calculated in accordance
with IIP’s 5.50% Unsecured Senior Notes due 2026).
Property Portfolio Statistics (as of June 30, 2024)
- Total property portfolio comprises 108 properties across 19
states, with 9.0 million RSF (including 722,000 RSF under
development / redevelopment), consisting of:
- Operating portfolio: 104 properties, representing 8.3 million
RSF.
- Under development / redevelopment portfolio consists of four
properties expected to comprise 692,000 RSF at completion, of which
437,000 RSF (63% of total) is pre-leased, with the remainder
comprised of one property totaling 192,000 RSF in San Bernardino,
California and twelve acres of land to be developed in San Marcos,
Texas. The four properties in the development / redevelopment
portfolio are as follows:
- Davis Highway in Dimondale, Michigan (pre-leased)
- 63795 19th Avenue in Palm Springs, California (pre-leased)
- Inland Center Drive in San Bernardino, California
- Leah Avenue in San Marcos, Texas
- Operating portfolio:
- 95.6% leased (triple-net).
- Weighted-average remaining lease term: 14.4 years.
- Total invested / committed capital per square foot: $279.
- By annualized base rent (excluding non-cannabis tenants that
comprise less than 1% of annualized base rent in the aggregate):
- No tenant represents more than 18% of annualized base
rent.
- No state represents more than 15% of annualized base rent.
- Multi-state operators (MSOs) represent 91% of annualized base
rent.
- Public company operators represent 62% of annualized base
rent.
- Industrial (cultivation and/or processing), retail (dispensing)
and combined industrial/retail represent 92%, 2% and 6% of the
operating portfolio, respectively.
________________________________ 1 The commencement date under
the Gold Flora lease is conditioned upon, among other things, Gold
Flora’s receipt of approvals to conduct cannabis operations by the
requisite state and local authorities, and subject to temporary
rent abatement during phase-in of tenant operations.
Financial Results
For the three months ended June 30, 2024, IIP generated total
revenues of $79.8 million, compared to $76.5 million for the same
period in 2023, an increase of 4%. The increase was primarily due
to (a) a $3.9 million disposition-contingent lease termination fee
paid to IIP concurrently with the sale of IIP’s Los Angeles,
California property; and (b) a $3.6 million increase to contractual
rent and property management fees, which was primarily driven by
contractual rent escalations, amendments to leases for additional
improvement allowances at existing properties that resulted in
adjustments to rent and new leases entered into since March 31,
2023. The increase was partially offset by a $2.9 million decline
in contractual rent and property management fees received during
the three months ended June 30, 2024 related to properties that IIP
took back possession of since March 2023, and a decrease as a
result of $1.3 million in rent received but not recognized in total
revenues due to a re-classification of two sales-type leases
starting January 1, 2024.
Interest income for the three months ended June 30, 2024
increased by $1.7 million to $4.0 million, compared to $2.3 million
for the three months ended June 30, 2023. The increase was
primarily due to cash interest received on IIP’s secured
construction loan for a property in California where IIP is the
lender (including a loan maturity extension fee paid to IIP of $0.3
million during the three months ended June 30, 2024 to extend the
maturity date of the construction loan to December 31, 2024).
While IIP has re-leased several properties taken back since
March 2023, rent commencement on certain of those properties is
contingent on the tenants obtaining the requisite approvals to
operate, and temporary rent abatements in certain instances as
tenants transition into the properties and commence operations. As
a result, IIP does not expect to recognize rental revenue from
those properties until that has occurred.
For the three months ended June 30, 2024, $0.6 million in
security deposits were applied for rent, of which $0.5 million was
replenished by a tenant in July. Rental revenue received for the
three months ended June 30, 2023 included the application of $1.5
million of security deposits for payment of rent.
For the three months ended June 30, 2024, IIP recorded net
income attributable to common stockholders of $41.7 million, or
$1.44 per share; funds from operations (FFO) of $58.7 million, or
$2.06 per share; Normalized FFO of $58.8 million, or $2.06 per
share; and AFFO of $65.5 million, or $2.29 per share.
For the six months ended June 30, 2024, IIP recorded net income
attributable to common stockholders of approximately $80.7 million,
or $2.79 per diluted share; FFO of approximately $114.9 million, or
$4.03 per diluted share; Normalized FFO of approximately $115.3
million, or $4.04 per diluted share; and AFFO of approximately
$128.5 million, or $4.50 per diluted share.
IIP paid a quarterly dividend of $1.90 per common share on July
15, 2024 to stockholders of record as of June 28, 2024,
representing a 4.4% increase over IIP’s first quarter 2024 dividend
of $1.82 per share of common stock. The dividend is equivalent to
an annualized dividend of $7.60 per common share and an AFFO payout
ratio of 83% (calculated by dividing the common stock dividend
declared per share by IIP’s AFFO per common share for the second
quarter).
FFO, Normalized FFO and AFFO are supplemental non-GAAP financial
measures used in the real estate industry to measure and compare
the operating performance of real estate companies. A complete
reconciliation containing adjustments from GAAP net income
attributable to common stockholders to FFO, Normalized FFO and AFFO
and definitions of terms are included at the end of this
release.
Supplemental Information
Supplemental financial information is available in the Investor
Relations section of IIP’s website at
www.innovativeindustrialproperties.com.
Teleconference and Webcast
Innovative Industrial Properties, Inc. will conduct a conference
call and webcast at 10:00 a.m. Pacific Time (1:00 p.m. Eastern
Time) on Tuesday, August 6, 2024 to discuss IIP’s financial results
and operations for the second quarter ended June 30, 2024. The call
will be open to all interested investors through a live audio
webcast at the Investor Relations section of IIP’s website at
www.innovativeindustrialproperties.com, or live by calling
1-877-328-5514 (domestic) or 1-412-902-6764 (international) and
asking to be joined to the Innovative Industrial Properties, Inc.
conference call. The complete webcast will be archived for 90 days
on IIP’s website. A telephone playback of the conference call will
also be available from 12:00 p.m. Pacific Time on Tuesday, August
6, 2024 until 12:00 p.m. Pacific Time on Tuesday, August 13, 2024,
by calling 1-877-344-7529 (domestic), 855-669-9658 (Canada) or
1-412-317-0088 (international) and using access code 3123064.
About Innovative Industrial Properties
Innovative Industrial Properties, Inc. is a self-advised
Maryland corporation focused on the acquisition, ownership and
management of specialized properties leased to experienced,
state-licensed operators for their regulated cannabis facilities.
Innovative Industrial Properties, Inc. has elected to be taxed as a
real estate investment trust, commencing with the year ended
December 31, 2017. Additional information is available at
www.innovativeindustrialproperties.com.
This press release contains statements that IIP believes to be
“forward-looking statements” within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
All statements other than historical facts are forward-looking
statements. When used in this press release, words such as IIP
“expects,” “intends,” “plans,” “estimates,” “anticipates,”
“believes” or “should” or the negative thereof or similar
terminology are generally intended to identify forward-looking
statements. Such forward-looking statements are subject to risks
and uncertainties that could cause actual results to differ
materially from those expressed in, or implied by, such statements.
Investors should not place undue reliance upon forward-looking
statements. IIP disclaims any obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
INNOVATIVE INDUSTRIAL
PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(In thousands, except share and
per share amounts)
June 30,
December 31,
Assets
2024
2023
Real estate, at cost:
Land
$
142,891
$
142,524
Buildings and improvements
2,161,261
2,108,218
Construction in progress
97,828
117,773
Total real estate, at cost
2,401,980
2,368,515
Less accumulated depreciation
(235,436
)
(202,692
)
Net real estate held for investment
2,166,544
2,165,823
Construction Loan receivable
22,000
22,000
Cash and cash equivalents
120,835
140,249
Restricted cash
—
1,450
Investments
40,111
21,948
Right of use office lease asset
1,154
1,355
In-place lease intangible assets, net
7,815
8,245
Other assets, net
25,716
30,020
Total assets
$
2,384,175
$
2,391,090
Liabilities and stockholders’
equity
Liabilities:
Exchangeable Senior Notes, net
$
—
$
4,431
Notes due 2026, net
297,146
296,449
Building improvements and construction
funding payable
7,367
9,591
Accounts payable and accrued expenses
8,912
11,406
Dividends payable
54,591
51,827
Rent received in advance and tenant
security deposits
58,805
59,358
Other liabilities
10,154
5,056
Total liabilities
436,975
438,118
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.001 per
share, 50,000,000 shares authorized: 9.00% Series A cumulative
redeemable preferred stock, $15,000 liquidation preference ($25.00
per share), 600,000 shares issued and outstanding at June 30, 2024
and December 31, 2023
14,009
14,009
Common stock, par value $0.001 per share,
50,000,000 shares authorized: 28,331,833 and 28,140,891 shares
issued and outstanding at June 30, 2024 and December 31, 2023,
respectively
28
28
Additional paid-in capital
2,115,482
2,095,789
Dividends in excess of earnings
(182,319
)
(156,854
)
Total stockholders’ equity
1,947,200
1,952,972
Total liabilities and stockholders’
equity
$
2,384,175
$
2,391,090
INNOVATIVE INDUSTRIAL
PROPERTIES, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
For the Three and Six Months
Ended June 30, 2024 and 2023
(Unaudited)
(In thousands, except share and
per share amounts)
For the Three Months
Ended
For the Six Months
Ended
June 30,
June 30,
2024
2023
2024
2023
Revenues:
Rental (including tenant
reimbursements)
$
79,253
$
75,919
$
154,167
$
151,448
Other
540
538
1,080
1,076
Total revenues
79,793
76,457
155,247
152,524
Expenses:
Property expenses
6,863
5,759
13,572
11,382
General and administrative expense
9,661
10,570
19,223
20,943
Depreciation and amortization expense
17,473
16,704
34,623
33,418
Total expenses
33,997
33,033
67,418
65,743
Gain (loss) on sale of real estate
(3,449
)
—
(3,449
)
—
Income from operations
42,347
43,424
84,380
86,781
Interest income
3,966
2,317
5,750
4,550
Interest expense
(4,320
)
(4,472
)
(8,709
)
(8,992
)
Gain (loss) on exchange of Exchangeable
Senior Notes
—
—
—
22
Net income
41,993
41,269
81,421
82,361
Preferred stock dividends
(338
)
(338
)
(676
)
(676
)
Net income attributable to common
stockholders
$
41,655
$
40,931
$
80,745
$
81,685
Net income attributable to common
stockholders per share:
Basic
$
1.45
$
1.45
$
2.82
$
2.89
Diluted
$
1.44
$
1.44
$
2.79
$
2.87
Weighted-average shares outstanding:
Basic
28,250,843
27,981,517
28,197,930
27,965,720
Diluted
28,572,138
28,257,239
28,527,419
28,239,841
INNOVATIVE INDUSTRIAL
PROPERTIES, INC.
FFO, NORMALIZED FFO AND
AFFO
For the Three and Six Months
Ended June 30, 2024 and 2023
(Unaudited)
(In thousands, except share and
per share amounts)
For the Three Months
Ended
For the Six Months
Ended
June 30,
June 30,
2024
2023
2024
2023
Net income attributable to common
stockholders
$
41,655
$
40,931
$
80,745
$
81,685
Real estate depreciation and
amortization
17,473
16,704
34,623
33,418
Disposition-contingent lease termination
fee, net of loss on sale of real estate(1)
(451
)
—
(451
)
—
FFO attributable to common stockholders
(basic)
58,677
57,635
114,917
115,103
Cash and non-cash interest expense on
Exchangeable Senior Notes
—
50
28
119
FFO attributable to common stockholders
(diluted)
58,677
57,685
114,945
115,222
Litigation-related expense
164
670
310
1,216
Loss (gain) on exchange of Exchangeable
Senior Notes
—
—
—
(22
)
Normalized FFO attributable to common
stockholders (diluted)
58,841
58,355
115,255
116,416
Interest income on seller-financed
note(2)
403
403
806
537
Deferred lease payments received on
sales-type leases(3)
1,462
—
2,918
—
Stock-based compensation
4,371
4,884
8,686
9,713
Non-cash interest expense
401
331
789
657
Above-market lease amortization
23
23
46
46
AFFO attributable to common stockholders
(diluted)
$
65,501
$
63,996
$
128,500
$
127,369
FFO per common share – diluted
$
2.06
$
2.04
$
4.03
$
4.08
Normalized FFO per common share –
diluted
$
2.06
$
2.07
$
4.04
$
4.12
AFFO per common share – diluted
$
2.29
$
2.26
$
4.50
$
4.51
Weighted average common shares outstanding
– basic
28,250,843
27,981,517
28,197,930
27,965,720
Restricted stock and RSUs
300,582
201,462
289,736
186,684
PSUs
20,713
—
20,713
—
Dilutive effect of Exchangeable Senior
Notes
—
74,260
19,040
87,437
Weighted average common shares outstanding
– diluted
28,572,138
28,257,239
28,527,419
28,239,841
_____________________________ (1)
Amount reflects the $3.9 million
disposition-contingent lease termination fee received concurrently
with the sale of IIP’s property in Los Angeles, California, net of
the loss on sale of the property of $3.4 million.
(2)
Amount reflects the non-refundable
interest received on the seller-financed note issued to IIP by the
buyer in connection with IIP’s disposition of a portfolio of four
properties in southern California, which is recognized as a deposit
liability and is included in other liabilities in IIP’s condensed
consolidated balance sheet as of June 30, 2024, as the transaction
did not qualify for recognition as a completed sale.
(3)
Amount reflects the non-refundable lease
payments received on two sales-type leases which are recognized as
a deposit liability starting on January 1, 2024, and is included in
other liabilities in IIP’s condensed consolidated balance sheet as
of June 30, 2024, as the transaction did not qualify for
recognition as a completed sale. Prior to the lease modifications
on January 1, 2024, which extended the initial lease terms, the
leases were classified as operating leases and the lease payments
received were recognized as rental revenue and therefore, included
in net income attributable to common stockholders.
FFO and FFO per share are operating performance measures adopted
by the National Association of Real Estate Investment Trusts, Inc.
(NAREIT). NAREIT defines FFO as the most commonly accepted and
reported measure of a REIT’s operating performance equal to net
income, computed in accordance with accounting principles generally
accepted in the United States (GAAP), excluding gains (or losses)
from sales of property, depreciation, amortization and impairment
related to real estate properties, and after adjustments for
unconsolidated partnerships and joint ventures. IIP also excludes
from FFO any disposition-contingent lease termination fee received
in connection with a property sale.
Management believes that net income, as defined by GAAP, is the
most appropriate earnings measurement. However, management believes
FFO and FFO per share to be supplemental measures of a REIT’s
performance because they provide an understanding of the operating
performance of IIP’s properties without giving effect to certain
significant non-cash items, primarily depreciation expense.
Historical cost accounting for real estate assets in accordance
with GAAP assumes that the value of real estate assets diminishes
predictably over time. However, real estate values instead have
historically risen or fallen with market conditions. IIP believes
that by excluding the effect of depreciation, FFO and FFO per share
can facilitate comparisons of operating performance between
periods. IIP reports FFO and FFO per share because these measures
are observed by management to also be the predominant measures used
by the REIT industry and industry analysts to evaluate REITs and
because FFO per share is consistently reported, discussed, and
compared by research analysts in their notes and publications about
REITs. For these reasons, management has deemed it appropriate to
disclose and discuss FFO and FFO per share.
IIP computes Normalized FFO by adjusting FFO to exclude certain
GAAP income and expense amounts that management believes are
infrequent and unusual in nature and/or not related to IIP’s core
real estate operations. Exclusion of these items from similar
FFO-type metrics is common within the equity REIT industry, and
management believes that presentation of Normalized FFO and
Normalized FFO per share provides investors with a metric to assist
in their evaluation of IIP’s operating performance across multiple
periods and in comparison to the operating performance of other
companies, because it removes the effect of unusual items that are
not expected to impact IIP’s operating performance on an ongoing
basis. Normalized FFO is used by management in evaluating the
performance of its core business operations. Items included in
calculating FFO that may be excluded in calculating Normalized FFO
include certain transaction-related gains, losses, income or
expense or other non-core amounts as they occur.
Management believes that AFFO and AFFO per share are also
appropriate supplemental measures of a REIT’s operating
performance. IIP calculates AFFO by adjusting Normalized FFO for
certain cash and non-cash items.
For all periods presented other than the three months ended June
30, 2024, FFO (diluted), Normalized FFO, AFFO and FFO, Normalized
FFO and AFFO per diluted share include the dilutive impact of the
assumed full exchange of the Exchangeable Senior Notes for shares
of common stock.
For the three and six months ended June 30, 2024, 20,713 shares
issuable upon vesting of the performance stock units (“PSUs”)
granted to certain employees were included in dilutive securities,
as the performance threshold for the vesting of these PSUs were met
as measured as of June 30, 2024. For the three and six months ended
June 30, 2023, the PSUs granted to certain employees were not
included in dilutive securities as the performance thresholds for
vesting of the PSUs were not met as measured as of June 30,
2023.
IIP’s computation of FFO, Normalized FFO and AFFO may differ
from the methodology for calculating FFO, Normalized FFO and AFFO
utilized by other equity REITs and, accordingly, may not be
comparable to such REITs. Further, FFO, Normalized FFO and AFFO do
not represent cash flow available for management’s discretionary
use. FFO, Normalized FFO and AFFO should not be considered as an
alternative to net income (computed in accordance with GAAP) as an
indicator of IIP’s financial performance or to cash flow from
operating activities (computed in accordance with GAAP) as an
indicator of IIP’s liquidity, nor is it indicative of funds
available to fund IIP’s cash needs, including IIP’s ability to pay
dividends or make distributions. FFO, Normalized FFO and AFFO
should be considered only as supplements to net income computed in
accordance with GAAP as measures of IIP’s operations.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240805761591/en/
David Smith Chief Financial Officer Innovative Industrial
Properties, Inc. (858) 997-3332
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