Innovative Industrial Properties First Quarter Results

IIP released financial results for the first quarter of 2020.

Innovative Industrial Properties Inc, the first and only real estate company on the New York Stock Exchange (NYSE: IIPR) focused on the medical-use U.S. cannabis industry, announced today results for the quarter ended March 31, 2020.

First Quarter 2020 and Year-to-Date Highlights

Financial Results and Financing Activity

  • IIP generated total revenues of approximately $21.1 million in the quarter, representing a 210% increase from the prior year's first quarter.
  • IIP recorded net income available to common stockholders of approximately $11.5 million for the quarter, or $0.72 per diluted share, and adjusted funds from operations (AFFO) of approximately $17.8 million, or $1.12 per diluted share. Net income available to common stockholders and AFFO increased by 249% and 236% from the prior year's first quarter, respectively.
  • IIP paid a quarterly dividend of $1.00 per share on April 15, 2020, to common stockholders of record as of March 31, 2020, representing an approximately 122% increase over the first quarter 2019's dividend.
  • In January, IIP completed an underwritten public offering of 3,412,969 shares of common stock, including the exercise in full of the underwriters' option to purchase an additional 445,170 shares, resulting in net proceeds of approximately $239.6 million.
  • In January, IIP issued shares of common stock for net proceeds of approximately $78.2 million under an "at-the-market" equity offering program.

We remain steadfast in our support of this industry and its bright long-term future and are working every day through this crisis with our tenant partners toward continuing to build a tremendous future forward of growth and strength for many years to come.Alan Gold, Executive Chairman of IIP

Investment Activity

  • From January 1, 2020, through today, IIP acquired nine properties, totalling approximately 1.1 million rentable square feet (including expected rentable square feet upon completion of properties under development), located in Colorado, Florida, Illinois, Massachusetts, Michigan, Ohio and Virginia.
  • These nine properties represented an aggregate investment by IIP of approximately $202.1 million (consisting of purchase prices and development/tenant reimbursement commitments, but excluding transaction costs).
  • In these transactions, IIP established a new tenant relationship with Parallel (the corporate parent company of Surterra Wellness), while expanding existing tenant relationships with Ascend Wellness Holdings, LLC, Cresco Labs Inc., Green Leaf Medical, LLC, Green Thumb Industries Inc. and LivWell Holdings, Inc.

Balance Sheet Highlights (at March 31, 2020)

  • Approximately $108.3 million in cash and cash equivalents and approximately $272.9 million in short-term investments, totalling approximately $381.2 million.
  • No debt, other than approximately $143.7 million of unsecured debt, consisting solely of 3.75% exchangeable senior notes maturing in 2024, representing a fixed cash interest obligation of approximately $5.4 million annually, or approximately $1.3 million quarterly.
  • 13% debt to total gross assets, with approximately $1.1 billion in total gross assets.

Rent Deferrals (as of May 6, 2020)

  • IIP has undertaken in-depth discussions with each of its tenants in March and April as they navigate this unprecedented pandemic.
  • In light of those discussions, IIP worked with three of its 21 tenants to provide temporary rent deferrals, structured to apply a portion of the security deposit IIP holds under each lease to pay April rent in full, defer rent for May and June in full, and provide for the pro-rata repayment of the security deposit and deferred rent over an 18 month time period starting July 1.
  • Pursuant to these amendments, a total of $743,000 of security deposits that IIP holds in cash were applied to the payment of rent for April; and a total of approximately $1.5 million in rent was deferred for May and June. The total of this amount, $2.3 million, represents approximately 3% of IIP's total revenues as reported for the three months ended March 31, 2020, annualized.

"One of the pillars of our business strategy has consistently been a conservative, flexible balance sheet, and we believe we are exceptionally well-positioned to not only weather this unprecedented health crisis and economic disruption but to continue to make real estate investments on a long-term basis with best-in-class tenant operators," said Alan Gold, Executive Chairman of IIP. " When we overcome this crisis through the collective ingenuity of our top medical professionals and researchers, the regulated cannabis industry will continue to thrive and be one of the top drivers of growth and good jobs across the country."

COVID-19 Regulatory Update

In the vast majority of states, state and local governmental authorities have recognized both medical-use and adult-use cannabis operations as "essential businesses" per state guidelines, allowing them to remain open and operational, extending as well to the supply chain of the regulated cannabis industry, including cultivation, processing, distribution and dispensary activities. State and local governmental authorities and regulated cannabis businesses have taken additional measures to ensure the safety and well-being of employees, patients and consumers, including but not limited to restrictions associated with social distancing requirements and additional levels of protection for medical cannabis patients with more vulnerability to health complications with COVID-19.

Portfolio Update and Acquisition Activity

IIP acquired the following properties and made the following additional funds available to tenants for improvements at IIP's properties during the period from January 1, 2020, through May 6, 2020 (dollars in thousands):

  1. Includes expected rentable square feet at the completion of construction for certain properties.
  2. Excludes transaction costs.
  3. The amount relates to a lease amendment which increased the tenant improvement allowance under a lease at one of IIP's Pennsylvania properties by $4.5 million to a total of approximately $8.3 million. As of May 6, 2020, we had funded $5.6 million of the tenant improvement allowance.
  4. The tenant is expected to complete tenant improvements at the property, for which IIP agreed to provide reimbursement of up to approximately $8.0 million. As of May 6, 2020, IIP funded approximately $6.4 million of the reimbursement.
  5. he amount relates to a lease amendment which increased the tenant improvement allowance under a lease at one of IIP's Arizona properties by $2.0 million to a total of $5.0 million. As of May 6, 2020, IIP had funded $5.0 million of the tenant improvement allowance.
  6. The tenant is expected to complete tenant improvements at the property, for which IIP agreed to provide reimbursement of up to approximately $1.9 million. As of May 6, 2020, IIP had funded none of the tenant improvement allowance.
  7. The amount relates to a lease amendment which increased the tenant improvement allowance under a lease at one of IIP's California properties by approximately $1.3 million to a total of approximately $6.0 million. As of May 6, 2020, IIP had funded approximately $6.0 million of the tenant improvement allowance.
  8. The tenant is expected to complete tenant improvements at the property, for which IIP agreed to provide reimbursement of up to $4.3 million. As of May 6, 2020, IIP had funded approximately $3.0 million of the tenant improvement allowance.
  9. The portfolio consists of two retail properties, with one property closing on February 19, 2020, and one property closing on February 21, 2020. The tenant is expected to complete tenant improvements at one of the properties, for which IIP agreed to provide reimbursement of up to $850,000. As of May 6, 2020, IIP had funded approximately $49,000 of the tenant improvement allowance.
  10. The amount relates to a lease amendment which increased the tenant improvement allowance under a lease at one of IIP's Pennsylvania properties by $6.0 million to a total of $16.0 million. As of May 6, 2020, IIP had funded approximately $9.5 million of the tenant improvement allowance.
  11. The amount relates to amendments to a lease and development agreement which increased the construction funding at one of IIP's Massachusetts properties by $4.0 million to a total of $27.5 million. IIP also cancelled the optional commitment to provide construction funding of $4.0 million for the tenant at one of IIP's Pennsylvania properties. As of May 6, 2020, IIP had funded approximately $26.0 million of the construction funding at the Massachusetts property.
  12. The amount relates to a lease amendment to provide a tenant improvement allowance under a lease at one of IIP's Maryland properties for $5.5 million. As of May 6, 2020, IIP had funded approximately $568,000 of the tenant improvement allowance.
  13. The tenant is expected to complete tenant improvements at the property, for which IIP agreed to provide reimbursement of up to $41.0 million. As of May 6, 2020, IIP had funded approximately $8.1 million of the tenant improvement allowance.
  14. The tenant is expected to complete tenant improvements at the property, for which IIP agreed to provide reimbursement of up to $8.2 million. As of May 6, 2020, IIP had funded none of the tenant improvement allowance.
  15. The tenant is expected to complete tenant improvements at the property, for which IIP agreed to provide reimbursement of up to approximately $22.3 million. As of May 6, 2020, IIP had funded none of the tenant improvement allowance.
  16. The amount relates to a lease amendment which increased the tenant improvement allowance under a lease at IIP's Minnesota property by approximately $1.1 million to a total of approximately $6.7 million. As of May 6, 2020, we had funded approximately $6.2 million of the tenant improvement allowance.
  17. The amount relates to a lease amendment which increased the tenant improvement allowance under a lease at one of IIP's New York properties by $360,000 to a total of approximately $3.4 million. As of May 6, 2020, we had funded approximately $3.0 million of the tenant improvement allowance.
  18. The tenant is expected to complete tenant improvements at the property, for which IIP agreed to provide reimbursement of up to $11.0 million. As of May 6, 2020, IIP had funded none of the tenant improvement allowance.

As of May 6, 2020, IIP owned 55 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, North Dakota, Ohio, Pennsylvania and Virginia, totalling approximately 4.1 million rentable square feet (including approximately 1.3 million rentable square feet under development/redevelopment), which were 99.1% leased (based on square footage) with a weighted-average remaining lease term of approximately 15.9 years. As of May 6, 2020, IIP had invested approximately $719.7 million in the aggregate (excluding transaction costs) and had committed an additional approximately $143.2 million to reimburse certain tenants and sellers for completion of construction and tenant improvements at IIP's properties. These statistics do not include up to approximately $10.7 million that may be funded in the future pursuant to IIP's lease with a tenant at one of IIP's Illinois properties, or approximately $23.8 million that may be funded in the future pursuant to IIP's lease with a tenant at one of IIP's Massachusetts properties, as the tenants at those properties may not elect to have IIP disburse those funds to them and pay IIP the corresponding base rent on those funds. These statistics also treat IIP's Los Angeles, California property as not leased, due to the tenant being in receivership and its ongoing default in its obligation to pay rent at that location.

Financing Activity

In January, IIP completed an underwritten public offering of 3,412,969 shares of common stock, including the exercise in full of the underwriters' option to purchase an additional 445,170 shares, resulting in net proceeds of approximately $239.6 million.

In January, IIP issued shares of common stock for net proceeds of approximately $78.2 million under an "at-the-market" equity offering program.

IIP expects to use the net proceeds from these offerings to invest in specialized industrial real estate assets that support the regulated medical-use cannabis cultivation and processing industry and for general corporate purposes.

Financial Results

IIP generated total revenues of approximately $21.1 million for the three months ended March 31, 2020, compared to approximately $6.8 million for the same period in 2019, an increase of 210%. The increase was driven primarily by the acquisition and leasing of new properties, in addition to contractual rental escalations at certain properties. Total revenues for the three months ended March 31, 2020, also included approximately $422,000 of tenant reimbursements, rent collected and associated lease penalties through the drawdown of the security deposit at our Los Angeles, California property, as a result of the tenant's ongoing lease default, and the drawdown of part of the security deposits totalling approximately $195,000 at certain properties in southern California leased to Vertical to pay part of the rent and associated lease penalties for March.

For the three months ended March 31, 2020, IIP recorded net income available to common stockholders and net income available to common stockholders per diluted share of approximately $11.5 million and $0.72, respectively; funds from operations and FFO per diluted share of approximately $16.4 million and $1.03, respectively; and AFFO and AFFO per diluted share of approximately $17.8 million and $1.12, respectively. First-quarter 2020 AFFO and AFFO per diluted share for the quarter increased by 236% and 107% from the prior-year period, respectively.

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.

Disclaimer: Past performance is not an indicator of future performance.

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Casey Peternell
Casey Peternell

Casey is a media and content creator with a keen eye for creativity. Casey is currently in the process of obtaining a double bachelors degree in Media & Communications and Business from Swinburne University in Melbourne.

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