SAN DIEGO — Innovative Industrial Properties Inc. (IIP), the first real estate company on the New York Stock Exchange focused on the regulated U.S. cannabis industry, reported results for the third quarter ended September 30, 2024.
Financial Results, Dividend and Capital Raising Activity
Generated total revenues of $76.5 million and net income attributable to common stockholders of $39.7 million, or $1.37 per share (all per share amounts are reported on a diluted basis unless otherwise noted).
Recorded adjusted funds from operations (AFFO) and normalized funds from operations (Normalized FFO) of $64.3 million and $57.8 million, respectively.
Paid a quarterly dividend of $1.90 per common share on October 15, 2024 to stockholders of record as of September 30, 2024 (an AFFO payout ratio of 84%), representing an annualized dividend of $7.60 per common share.
Sold 402,673 shares of Series A Preferred Stock under IIP’s “at-the-market” equity offering program for $9.6 million in net proceeds.
Subsequent to quarter end, upsized IIP’s revolving credit facility to $87.5 million, which remains undrawn as of today.
Portfolio: New Investment, Development and Pipeline
Subsequent to quarter end, acquired a Maryland property comprising 23,000 square feet of industrial space for $5.6 million and executed a long-term lease for the entire property with a subsidiary of Maryland Cultivation and Processing, L.L.C. (MCP) for use as a regulated cannabis processing facility.
Completed development of the remaining 104,000 square feet of cultivation space at IIP’s fully leased Davis Highway, Michigan property, having previously completed development of 97,000 square feet for cannabis processing.
Balance Sheet Highlights (at Sept. 30, 2024)
- 11% debt to total gross assets, with $2.6 billion in total gross assets.
- Total liquidity was $222.4 million as of September 30, 2024, consisting of cash and cash equivalents and short-term investments (each as reported in IIP’s condensed consolidated balance sheet as of September 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 Sept. 30, 2024)
Total property portfolio comprises 108 properties across 19 states, with 9.0 million RSF (including 618,000 RSF under development / redevelopment), consisting of:
- Operating portfolio: 105 properties, representing 8.5 million RSF.
- Under development / redevelopment portfolio consists of three properties expected to comprise 491,000 RSF at completion, of which 236,000 RSF 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 three properties in the development / redevelopment portfolio are as follows:
- 63795 19th Avenue in Palm Springs, California (pre-leased)
- Inland Center Drive in San Bernardino, California
- Leah Avenue in San Marcos, Texas
Operating portfolio
- 95.7% leased (triple-net).
- Weighted-average remaining lease term: 14.0 years.
- Total invested / committed capital per square foot: $281.
- 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 17% 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.
Financial Results
For the three months ended September 30, 2024, IIP generated total revenues of $76.5 million, compared to $77.8 million for the same period in 2023, a decrease of 1.7%. The decrease was primarily due to (i) a $3.0 million decline in contractual rent and property management fees received during the three months ended September 30, 2024 related to properties that IIP regained possession of since June 2023; (ii) a decline of $1.3 million due to rent received but not recognized in rental revenues resulting from the re-classifications of two sales-type leases starting January 1, 2024; and (iii) $1.3 million of contractually due rent and property management fees that were not collected during the three months ended September 30, 2024. This decline was partially offset by a $4.6 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 June 2023.
For the three months ended September 30, 2024, IIP applied $1.4 million of security deposits for payment of rent on properties leased to 4Front Ventures Corp. (four properties), TILT Holdings Inc. (one property), and Emerald Growth Holdings LLC (one property). For the three months ended September 30, 2023, IIP applied of $2.2 million of security deposits for payment of rent. IIP terminated the lease with Temescal Wellness of Massachusetts Holdings, LLC and regained possession of the property previously occupied by that tenant on September 30, 2024.
Subsequent to September 30, 2024, IIP applied $0.9 million in security deposits for the properties leased to 4Front, TILT and Emerald Growth for the payment of rent owing in October 2024, and, including those security deposits applied, collected $1.4 million of the total contractually due rent and interest of $2.2 million owing for the month of October for 4Front, Emerald Growth, TILT and a loan secured by a California property portfolio for which IIP is the lender.
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 September 30, 2024, IIP recorded net income attributable to common stockholders of $39.7 million, or $1.37 per share; funds from operations (FFO) of $57.6 million, or $2.02 per share; Normalized FFO of $57.8 million, or $2.02 per share; and AFFO of $64.3 million, or $2.25 per share.
For the nine months ended September 30, 2024, IIP recorded net income attributable to common stockholders of approximately $120.4 million, or $4.16 per share; FFO of approximately $172.5 million, or $6.04 per share; Normalized FFO of approximately $173.1 million, or $6.06 per share; and AFFO of approximately $192.8 million, or $6.75 per share.
IIP paid a quarterly dividend of $1.90 per common share on October 15, 2024 to stockholders of record as of September 30, 2024, representing an annualized dividend of $7.60 per common share and an AFFO payout ratio of 84% (calculated by dividing the common stock dividend declared per share by IIP’s AFFO per common share for the third 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.
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.
