SAN DIEGO — 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 third quarter ended September 30, 2023.
Third Quarter 2023 and Subsequent Events
Financial Results
Generated total revenues of approximately $77.8 million in the quarter, representing a 10% increase from the prior year’s quarter.
Recorded net income attributable to common stockholders of approximately $41.3 million for the quarter, or $1.45 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) of approximately $64.8 million, or $2.29 per share, increases of 7.8% and 7.5% from the prior year’s quarter, respectively.
Paid a quarterly dividend of $1.80 per common share on October 13, 2023 to stockholders of record as of September 29, 2023. The common stock dividends declared for the twelve months ended September 30, 2023 of $7.20 per common share represent an increase of $0.40, or 6%, over dividends declared for the twelve months ended September 30, 2022.
Rent Collection
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 September 30, 2023.
Rent collected for the quarter includes approximately $2.2 million of security deposits applied in connection with previously disclosed amendments with Holistic Industries Inc. (Holistic) at a California property and a Michigan property, Temescal Wellness of Massachusetts, LLC (Temescal) at a Massachusetts property and 4Front Ventures Corp. (4Front) at an Illinois property, with pro rata payback of these security deposits to be made over twelve-month periods.
Rent not collected for the quarter totaled approximately $2.2 million, primarily relating to a previously disclosed, defaulted tenant SH Parent, Inc. (Parallel) at one of IIP’s properties in Pennsylvania.
Revolving Credit Facility
Subsequent to quarter end, entered into a loan and security agreement (the “Loan Agreement”) with a federally regulated commercial bank, which matures on October 23, 2026 and provides $30.0 million in aggregate commitments for secured revolving loans (the “Revolving Credit Facility”).
Lease Amendment
Subsequent to quarter end, entered into a lease amendment with a subsidiary of Goodness Growth Holdings, Inc. at one of IIP’s New York properties, to, among other things, increase base rent and increase the improvement allowance under the lease by $14.0 million to a total of approximately $67.4 million, approximately $12.0 million of which relates to construction work previously completed at the facility and the remaining approximately $2.0 million of which relates to work expected to be completed in the next three months.
Balance Sheet Highlights (at September 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 16.2x (calculated in accordance with IIP’s 5.50% Unsecured Senior Notes due 2026).
Sustainability Report
Published IIP’s third annual Sustainability Report, highlighting IIP’s commitment to sound environmental management, collaborative community engagement and strong corporate governance principles that align to the core values of the IIP team, and available on its corporate website at www.innovativeindustrialproperties.com.
Property Portfolio Statistics (as of September 30, 2023)
Total property portfolio comprises 108 properties across 19 states, with approximately 8.9 million rentable square feet (including approximately 1.4 million rentable square feet under development / redevelopment), consisting of:
Operating portfolio: 103 properties, representing approximately 8.1 million rentable square feet.
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
Operating portfolio:
- 98.5% leased (triple-net).
- Weighted-average remaining lease term: 14.9 years.
- Total invested / committed capital per square foot: $274.
By annualized base rent:
- No tenant represents more than 16% of annualized base rent.
- No state represents more than 15% of annualized base rent.
- Multi-state operators (MSOs) represent 90% annualized base rent.
- Public company operators represent 62% of annualized base rent.
- Industrial (cultivation and/or processing), retail (dispensing) and combined industrial/retail represent 91%, 3% and 6% of operating portfolio, respectively.
Financial Results
For the three months ended September 30, 2023, IIP generated total revenues of approximately $77.8 million, compared to approximately $70.9 million for the same period in 2022, an increase of 10%. The increase was primarily driven by an increase in tenant reimbursements versus the prior period, as well as 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 and contractual rental escalations at certain properties. Total revenues for the three months ended September 30, 2023 and 2022 included approximately $6.2 million and $2.7 million, respectively, of tenant reimbursements for property insurance premiums and property taxes. As described above, rental revenues for the three months ended September 30, 2023 also included approximately $2.2 million of security deposits applied for payment of rent for certain leases with Holistic, Temescal and 4Front. In addition, total rental revenues for the three months ended September 30, 2023 included stipulated rent paid by Kings Garden of $1.7 million through September 20, 2023 for the four remaining properties it previously occupied and for which IIP subsequently regained possession in late September 2023.
For the three months ended September 30, 2023, IIP recorded net income attributable to common stockholders of approximately $41.3 million, or $1.45 per share; funds from operations (FFO) of approximately $58.0 million, or $2.05 per share; normalized FFO (Normalized FFO) of approximately $59.1 million, or $2.09 per share; and AFFO of approximately $64.8 million, or $2.29 per share.
For the nine months ended September 30, 2023, IIP recorded net income attributable to common stockholders of approximately $122.9 million, or $4.32 per share; funds from operations (FFO) of approximately $173.2 million, or $6.13 per share; normalized FFO (Normalized FFO) of approximately $175.5 million, or $6.21 per share; and AFFO of approximately $192.2 million, or $6.80 per share.
IIP paid a quarterly dividend of $1.80 per common share on October 13, 2023 to stockholders of record as of September 29, 2023. IIP’s AFFO payout ratio was 79% (calculated by dividing the common stock dividend declared per share by IIP’s AFFO per common share for the quarter). The common stock dividends declared for the twelve months ended September 30, 2023 of $7.20 per common share represent an increase of $0.40, or 6%, over dividends declared for the twelve months ended September 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.
Financing Activity
On October 23, 2023, IIP Operating Partnership, LP, IIP’s operating partnership subsidiary (the “Operating Partnership”), entered into a Loan Agreement with a federally regulated commercial bank, as lender and as agent for lenders that become party thereto from time to time. The Loan Agreement matures on October 23, 2026, and provides $30.0 million in aggregate commitments for a Revolving Credit Facility, the availability of which is based on a borrowing base consisting of real properties owned by subsidiaries (the “Subsidiary Guarantors”) of the Operating Partnership that satisfy eligibility criteria set forth in the Loan Agreement. The obligations of the Operating Partnership under the Loan Agreement are guaranteed by IIP and the Subsidiary Guarantors, and are secured by (i) operating accounts of the Operating Partnership into which lease payments under the real property included in the borrowing base are paid, (ii) the equity interest of the Subsidiary Guarantors, (iii) the real estate included in the borrowing base and the leases and rents thereunder, and (iv) all personal property of the Subsidiary Guarantors. Borrowings under the Loan Agreement bear interest at a variable rate based on the greater of the prime rate and an applicable margin based on deposits with the participating bank(s) and a stipulated interest rate. The Loan Agreement is subject to certain liquidity and operating covenants and includes customary representations and warranties, affirmative and negative covenants and events of default. The Loan Agreement also allows the Operating Partnership, subject to the satisfaction of certain conditions, to request additional revolving incremental loan commitments up to a specified amount.
Supplemental Information
Supplemental financial information is available in the Investor Relations section of IIP’s website at www.innovativeindustrialproperties.com.
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.
