Q1 2023 Net Income and AFFO Per Diluted Share
Increased 8% and 10% Year-Over-Year, Respectively
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 first quarter ended March 31, 2023.
First Quarter 2023
Financial Results
- Generated total revenues of approximately $76.1 million in the
quarter, representing an 18% increase from the prior year’s
quarter.
- Recorded net income attributable to common stockholders of
approximately $40.8 million for the quarter, or $1.43 per diluted
share.
- Recorded adjusted funds from operations (AFFO) of approximately
$63.4 million, or $2.25 per diluted share, increases of 18% and 10%
from the prior year’s quarter, respectively.
- Paid a quarterly dividend of $1.80 per common share on April
14, 2023 to stockholders of record as of March 31, 2023 (an AFFO
payout ratio of 80%), equal to an annualized dividend of $7.20 per
share. The common stock dividends declared for the twelve months
ended March 31, 2023 of $7.15 per common share represent an
increase of $1.00, or 16%, over dividends declared for the twelve
months ended March 31, 2022.
Three Months Ended March
31,
(Per diluted share)
2023
2022
$ Change
% Change
Net income attributable to common
stockholders
$1.43
$1.32
$0.11
8.3%
Normalized FFO
$2.06
$1.86
$0.20
10.8%
AFFO
$2.25
$2.04
$0.21
10.3%
Investments / Dispositions / Leasing
- Acquired an industrial property in Ohio for $20.1 million that
is expected to comprise 157,000 square feet upon completion of
development and executed a long-term lease with Battle Green
Holdings, LLC (Battle Green), pursuant to which IIP agreed to
provide reimbursement of up to $21.9 million for completion of the
development, with IIP’s total investment in the property expected
to be $42.0 million. At the time of closing, the majority of the
exterior buildout was completed, including roof, framing and
exterior walls, and work on mechanical, electrical and plumbing
systems was progressing. Battle Green is expected to complete
construction of the two-story industrial facility, consisting of
completion of the building shell and interior buildout of
cultivation and production rooms, as well as mechanical,
fertigation, electrical and plumbing systems.
- Acquired a 58,000 square foot operational cannabis cultivation
facility in Pennsylvania in a long-term sale-leaseback transaction
with a subsidiary of TILT Holdings Inc. for a purchase price of
$15.0 million (excluding transaction costs).
- Amended IIP’s leases with Ascend Wellness Holdings Inc. in New
Jersey, PharmaCann Inc. in New York and Goodness Growth Holdings
Inc. in New York to provide an additional $15.0 million, $15.0
million and $4.0 million for funding of qualifying real estate
infrastructure improvements at those properties, respectively,
representing an aggregate of $34.0 million, with corresponding
adjustments to base rent at each property. In addition, IIP added
cross-default provisions to all leases with each tenant.
- Sold a portfolio of four properties in California previously
leased to affiliates of Medical Investor Holdings, LLC (Vertical)
for $16.2 million (excluding transaction costs), which includes a
five-year secured seller financing with the buyer of the property
for $16.1 million that is interest only and payable monthly.
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 98%
for the three months ended March 31, 2023.
- Rent collection percentage for the quarter includes
approximately $1.1 million of security deposits applied in
connection with previously disclosed amendments with Holistic
Industries Inc. at a California property and a Michigan property,
pursuant to which 100% of base rent at the two properties will be
paid through application of security deposits until September 30,
2023, with pro rata payback of those security deposits over twelve
months starting in January 2024.
- Rent collection percentage for the quarter also includes
approximately $3.1 million of security deposits applied in
connection with non-payment of rent by certain tenants, as
previously disclosed (two affiliates of SH Parent, Inc. (Parallel)
for a Texas property and a Pennsylvania property, and Green Peak
Industries, Inc. for one property in Michigan). As of March 31,
2023, all security deposits for these properties were fully
applied.
- Contractual rent not collected totaled approximately $1.6
million (approximately $1.1 million relating to defaulted tenants
Parallel and Green Peak for rent in excess of IIP’s security
deposits and approximately $470,000 for rent prior to the sale of
the Vertical portfolio).
Balance Sheet Statistics (as of March 31, 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 secured debt.
- 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 the Company’s 5.50% Unsecured Senior Notes due 2026).
Property Portfolio Statistics (as of March 31, 2023)
- 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.
- 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
- 63795 19th Avenue in Palm Springs, California
- Leah Avenue in San Marcos, Texas
- Davis Highway in Windsor, Michigan
- Operating portfolio:
- 100% leased (triple-net).
- Weighted-average remaining lease term: 15.1 years.
- Total invested / committed capital per square foot: $275.
- 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.
- 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.
Leadership Update
In March, IIP announced that Catherine Hastings was promoted to
a newly created role of Chief Operating Officer and Ben Regin was
promoted to a newly created role of Chief Investment Officer. In
addition, IIP announced the hiring of David Smith as Chief
Financial Officer.
Financial Results
For the three months ended March 31, 2023, IIP generated total
revenues of approximately $76.1 million, compared to approximately
$64.5 million for the same period in 2022, an increase of 18%. The
increase was driven primarily by 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 March 31, 2023 also included approximately $4.2
million of security deposits applied for payment of rent for IIP’s
leases with Green Peak, Parallel and Holistic. Total revenues for
the three months ended March 31, 2023 and 2022 included
approximately $5.2 million and $1.9 million, respectively, of
tenant reimbursements for property insurance premiums and property
taxes.
For the three months ended March 31, 2023, IIP recorded net
income attributable to common stockholders of approximately $40.8
million, or $1.43 per diluted share; funds from operations (FFO)
(diluted) of approximately $57.5 million, or $2.04 per diluted
share; normalized FFO (Normalized FFO) of approximately $58.1
million, or $2.06 per diluted share; and AFFO of approximately
$63.4 million, or $2.25 per diluted share.
IIP paid a quarterly dividend of $1.80 per common share on April
14, 2023 to stockholders of record as of March 31, 2023, equal to
an annualized dividend of $7.20 per share. 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 March 31, 2023, of $7.15 per common share represent an
increase of $1.00, or 16%, over dividends declared for the twelve
months ended March 31, 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
IIP will conduct a conference call and webcast at 10:00 a.m.
Pacific Time (1:00 p.m. Eastern Time) on Tuesday, May 9, 2023 to
discuss IIP’s financial results and operations for the first
quarter ended March 31, 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 Tuesday, May 9,
2023 until 12:00 p.m. Pacific Time on Tuesday, May 16, 2023, by
calling 1-877-344-7529 (domestic), 855-669-9658 (Canada) or
1-412-317-0088 (international) and using access code 6731756.
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)
March 31,
December 31,
Assets
2023
2022
Real estate, at cost:
Land
$
142,524
$
139,953
Buildings and improvements
2,054,859
2,010,628
Construction in progress
108,464
54,106
Total real estate, at cost
2,305,847
2,204,687
Less accumulated depreciation
(153,170
)
(138,405
)
Net real estate held for investment
2,152,677
2,066,282
Construction loan receivable
18,407
18,021
Cash and cash equivalents
37,654
87,122
Restricted cash
1,450
1,450
Investments
163,969
200,935
Right of use office lease asset
1,645
1,739
In-place lease intangible assets, net
8,890
9,105
Other assets, net
28,544
30,182
Total assets
$
2,413,236
$
2,414,836
Liabilities and stockholders’
equity
Exchangeable Senior Notes, net
$
4,406
$
6,380
Notes due 2026, net
295,441
295,115
Building improvements and construction
funding payable
31,088
29,376
Accounts payable and accrued expenses
11,391
10,615
Dividends payable
51,063
50,840
Rent received in advance and tenant
security deposits
58,663
58,716
Other liabilities
3,037
1,901
Total liabilities
455,089
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 March 31, 2023
and December 31, 2022
14,009
14,009
Common stock, par value $0.001 per share,
50,000,000 shares authorized: 28,034,999 and 27,972,830 shares
issued and outstanding at March 31, 2023 and December 31, 2022,
respectively
28
28
Additional paid-in capital
2,071,473
2,065,248
Dividends in excess of earnings
(127,363
)
(117,392
)
Total stockholders’ equity
1,958,147
1,961,893
Total liabilities and stockholders’
equity
$
2,413,236
$
2,414,836
INNOVATIVE INDUSTRIAL
PROPERTIES, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
For the Three Months Ended
March 31, 2023 and 2022
(Unaudited)
(In thousands, except share and
per share amounts)
For the Three Months
Ended
March 31,
2023
2022
Revenues:
Rental (including tenant
reimbursements)
$
75,529
$
64,114
Other
538
390
Total revenues
76,067
64,504
Expenses:
Property expenses
5,623
1,982
General and administrative expense
10,373
8,777
Depreciation and amortization expense
16,714
13,868
Total expenses
32,710
24,627
Income from operations
43,357
39,877
Interest and other income
2,233
57
Interest expense
(4,520
)
(4,766
)
Gain (loss) on exchange of Exchangeable
Senior Notes
22
(118
)
Net income
41,092
35,050
Preferred stock dividends
(338
)
(338
)
Net income attributable to common
stockholders
$
40,754
$
34,712
Net income attributable to common
stockholders per share:
Basic
$
1.45
$
1.35
Diluted
$
1.43
$
1.32
Weighted-average shares outstanding:
Basic
27,949,747
25,620,253
Diluted
28,223,698
26,340,224
INNOVATIVE INDUSTRIAL
PROPERTIES, INC.
CONDENSED CONSOLIDATED FFO,
NORMALIZED FFO AND AFFO
For the Three Months Ended
March 31, 2023 and 2022
(Unaudited)
(In thousands, except share and
per share amounts)
For the Three Months
Ended
March 31,
2023
2022
Net income attributable to common
stockholders
$
40,754
$
34,712
Real estate depreciation and
amortization
16,714
13,868
FFO attributable to common stockholders
(basic)
57,468
48,580
Cash and non-cash interest expense on
Exchangeable Senior Notes
69
334
FFO attributable to common stockholders
(diluted)
57,537
48,914
Litigation-related expense
546
—
(Gain) loss on exchange of Exchangeable
Senior Notes
(22
)
118
Normalized FFO attributable to common
stockholders (diluted)
58,061
49,032
Interest income on seller-financed
note(1)
134
—
Stock-based compensation
4,829
4,379
Non-cash interest expense
326
307
Above-market lease amortization
23
23
AFFO attributable to common stockholders
(diluted)
$
63,373
$
53,741
FFO per common share – diluted
$
2.04
$
1.86
Normalized FFO per common share –
diluted
$
2.06
$
1.86
AFFO per common share – diluted
$
2.25
$
2.04
Weighted-average common shares outstanding
– basic
27,949,747
25,620,253
Restricted stock and RSUs
171,741
110,457
PSUs
—
102,333
Dilutive effect of Exchangeable Senior
Notes
102,210
507,181
Weighted-average common shares outstanding
– diluted
28,223,698
26,340,224
________
(1)
Amount reflects the non-refundable
interest paid 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 previously leased to affiliates
of Vertical, which is recognized as a deposit liability and is
included in other liabilities in our condensed consolidated balance
sheet as of March 31, 2023, as the transaction did not qualify for
recognition as a completed sale.
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.
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, as defined by
NAREIT, 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, 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 months ended March 31, 2023, the performance share
units (“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 March 31, 2023. For the
three months ended March 31, 2022, 102,333 shares issuable upon
vesting of the PSUs were dilutive, as the performance thresholds
for vesting of these PSUs were met as measured as of March 31,
2022.
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.
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version on businesswire.com: https://www.businesswire.com/news/home/20230508005641/en/
David Smith Chief Financial Officer Innovative Industrial
Properties, Inc. (858) 997-3332
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