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, 2023.
Second Quarter 2023
Financial Results
- Generated total revenues of approximately $76.5 million in the quarter, representing an 8% increase from the prior year’s quarter.
- Recorded net income attributable to common stockholders of approximately $40.9 million for the quarter, or $1.44 per diluted share.
- Recorded adjusted fund from operations (AFFO) of approximately $64.0 million, or $2.26 per diluted share, increases of 6% and 5% from the prior year’s quarter, respectively.
- Paid a quarterly dividend of $1.80 per common share on July 14, 2023 to stockholders of record as of June 30, 2023. The common stock dividends declared for the twelve months ended June 30, 2023 of $7.20 per common share represent an increase of $0.70, or 11%, over dividends declared for the twelve months ended June 30, 2022.
Three Months Ended June 30, | |||||||
(Per diluted share) | 2023 | 2022 | $ Change | % Change | |||
Net income attributable to common stockholders | $1.44 | $1.42 | $0.02 | 1.4% | |||
Normalized FFO | $2.07 | $1.98 | $0.09 | 4.5% | |||
AFFO | $2.26 | $2.15 | $0.11 | 5.1% | |||
Rent Collection
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Rent collection for IIP’s operating portfolio (calculated as base rent and property management fees collected as a percentage of contractually due base rent and property management fees) was 97% for the three months ended June 30, 2023.
- Rent collected for the quarter includes approximately $1.5 million of security deposits applied in connection with previously disclosed amendments with Holistic Industries Inc. (Holistic) at a California property and a Michigan property and Temescal Wellness of Massachusetts, LLC (Temescal) at a Massachusetts property, with pro rata payback of these security deposits to be made over twelve-month periods.
- Rent not collected for the quarter totaled approximately $2.1 million, primarily relating to a previously disclosed, defaulted tenant SH Parent, Inc. (Parallel) at one of IIP’s properties in Pennsylvania.
New Lease
- Executed a new lease with a tenant at IIP’s Perez Road property in Cathedral City, California, which was previously leased to Kings Garden Inc. and is currently under development.
Balance Sheet Highlights (at June 30, 2023)
- 12% debt to total gross assets, with approximately $2.6 billion in total gross assets.
- Total quarterly fixed cash interest obligation of approximately $4.2 million.
- No debt maturities until May 2026, other than $4.4 million principal amount of 3.75% Exchangeable Senior Notes in 2024.
- Debt service coverage ratio of 16.0x (calculated in accordance with IIP’s 5.50% Unsecured Senior Notes due 2026).
Property Portfolio Statistics (as of June 30, 2023)
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Total property portfolio comprises 108 properties across 19 states, with approximately 8.9 million rentable square feet (including approximately 1.6 million rentable square feet under development / redevelopment), consisting of:
- Operating portfolio: 103 properties, representing approximately 8.1 million rentable square feet.
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Under development / redevelopment (five properties expected to comprise 715,000 rentable square feet at completion):
- Inland Center Drive in San Bernardino, California
- Perez Road in Cathedral City, California (pre-leased)
- 63795 19th Avenue in Palm Springs, California
- Leah Avenue in San Marcos, Texas
- Davis Highway in Windsor, Michigan
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Operating portfolio:
- 99.9% leased (triple-net).
- Weighted-average remaining lease term: 14.9 years.
- Total invested / committed capital per square foot: $275.
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By invested / committed capital:
- No tenant represents more than 14% of the total portfolio.
- No state represents more than 17% of the total portfolio.
- Multi-state operators (MSOs) represent 89% of the operating portfolio, excluding vacancies.
- Public company operators represent 58% of the operating portfolio.
- Industrial (cultivation and/or processing), retail (dispensing) and combined industrial/retail represents 91%, 3% and 6% of operating portfolio, respectively.
Financial Results
For the three months ended June 30, 2023, IIP generated total revenues of approximately $76.5 million, compared to approximately $70.5 million for the same period in 2022, an increase of 8%. The increase was driven primarily by activity in prior periods for the acquisition and leasing of new properties, additional building infrastructure allowances provided to tenants at certain properties that resulted in increases to base rent, tenant reimbursements and contractual rental escalations at certain properties. As described above, rental revenues for the three months ended June 30, 2023 also included approximately $1.5 million of security deposits applied for payment of rent for IIP’s leases with Holistic and Temescal. Total revenues for the three months ended June 30, 2023 and 2022 included approximately $5.4 million and $2.5 million, respectively, of tenant reimbursements for property insurance premiums and property taxes.
For the three months ended June 30, 2023, IIP recorded net income attributable to common stockholders of approximately $40.9 million, or $1.44 per diluted share; funds from operations (FFO) (diluted) of approximately $57.7 million, or $2.04 per diluted share; normalized FFO (Normalized FFO) of approximately $58.4 million, or $2.07 per diluted share; and AFFO of approximately $64.0 million, or $2.26 per diluted share.
For the six months ended June 30, 2023, IIP recorded net income attributable to common stockholders of approximately $81.7 million, or $2.87 per diluted share; funds from operations (FFO) (diluted) of approximately $115.2 million, or $4.08 per diluted share; normalized FFO (Normalized FFO) of approximately $116.4 million, or $4.12 per diluted share; and AFFO of approximately $127.4 million, or $4.51 per diluted share.
IIP paid a quarterly dividend of $1.80 per common share on July 14, 2023 to stockholders of record as of June 30, 2023. IIP’s AFFO payout ratio was 80% (calculated by dividing the common stock dividend declared per share by IIP’s AFFO per common share – diluted for the quarter). The common stock dividends declared for the twelve months ended June 30, 2023 of $7.20 per common share represent an increase of $0.70, or 11%, over dividends declared for the twelve months ended June 30, 2022.
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 the 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 Thursday, August 3, 2023 to discuss IIP’s financial results and operations for the second quarter ended June 30, 2023. 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 Thursday, August 3, 2023 until 12:00 p.m. Pacific Time on Thursday, August 10, 2023, by calling 1-877-344-7529 (domestic), 855-669-9658 (Canada) or 1-412-317-0088 (international) and using access code 3091204.
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 | 2023 | 2022 | ||||||
Real estate, at cost: | ||||||||
Land | $ | 142,524 | $ | 139,953 | ||||
Buildings and improvements | 2,081,731 | 2,010,628 | ||||||
Construction in progress | 117,413 | 54,106 | ||||||
Total real estate, at cost | 2,341,668 | 2,204,687 | ||||||
Less accumulated depreciation | (169,658 | ) | (138,405 | ) | ||||
Net real estate held for investment | 2,172,010 | 2,066,282 | ||||||
Construction loan receivable | 20,917 | 18,021 | ||||||
Cash and cash equivalents | 92,602 | 87,122 | ||||||
Restricted cash | 1,450 | 1,450 | ||||||
Investments | 72,726 | 200,935 | ||||||
Right of use office lease asset | 1,550 | 1,739 | ||||||
In-place lease intangible assets, net | 8,675 | 9,105 | ||||||
Other assets, net | 26,325 | 30,182 | ||||||
Total assets | $ | 2,396,255 | $ | 2,414,836 | ||||
Liabilities and stockholders’ equity | ||||||||
Exchangeable senior notes, net | $ | 4,414 | $ | 6,380 | ||||
Notes due 2026, net | 295,772 | 295,115 | ||||||
Building improvements and construction funding payable | 21,479 | 29,376 | ||||||
Accounts payable and accrued expenses | 8,440 | 10,615 | ||||||
Dividends payable | 51,080 | 50,840 | ||||||
Rent received in advance and tenant security deposits | 58,482 | 58,716 | ||||||
Other liabilities | 3,368 | 1,901 | ||||||
Total liabilities | 443,035 | 452,943 | ||||||
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, 2023 and December 31, 2022 | 14,009 | 14,009 | ||||||
Common stock, par value $0.001 per share, 50,000,000 shares authorized: 28,040,054 and 27,972,830 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | 28 | 28 | ||||||
Additional paid-in capital | 2,076,357 | 2,065,248 | ||||||
Dividends in excess of earnings | (137,174 | ) | (117,392 | ) | ||||
Total stockholders’ equity | 1,953,220 | 1,961,893 | ||||||
Total liabilities and stockholders’ equity | $ | 2,396,255 | $ | 2,414,836 | ||||
INNOVATIVE INDUSTRIAL PROPERTIES, INC. | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited) (In thousands, except share and per share amounts) | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues: | ||||||||||||||||
Rental (including tenant reimbursements) | $ | 75,919 | $ | 69,995 | $ | 151,448 | $ | 134,109 | ||||||||
Other | 538 | 516 | 1,076 | 906 | ||||||||||||
Total revenues | 76,457 | 70,511 | 152,524 | 135,015 | ||||||||||||
Expenses: | ||||||||||||||||
Property expenses | 5,759 | 2,427 | 11,382 | 4,409 | ||||||||||||
General and administrative expense | 10,570 | 8,707 | 20,943 | 17,484 | ||||||||||||
Depreciation and amortization expense | 16,704 | 15,233 | 33,418 | 29,101 | ||||||||||||
Total expenses | 33,033 | 26,367 | 65,743 | 50,994 | ||||||||||||
Income from operations | 43,424 | 44,144 | 86,781 | 84,021 | ||||||||||||
Interest and other income | 2,317 | 581 | 4,550 | 638 | ||||||||||||
Interest expense | (4,472 | ) | (4,504 | ) | (8,992 | ) | (9,270 | ) | ||||||||
(Loss) gain on exchange of Exchangeable Senior Notes | — | (7 | ) | 22 | (125 | ) | ||||||||||
Net income | 41,269 | 40,214 | 82,361 | 75,264 | ||||||||||||
Preferred stock dividends | (338 | ) | (338 | ) | (676 | ) | (676 | ) | ||||||||
Net income attributable to common stockholders | $ | 40,931 | ||||||||||||||
