Innovative Industrial Properties Reports Fourth Quarter and Full-Year 2023 Results
FY 2023 Net Income and AFFO Per Share Increased 5% and 7% over 2022, Respectively
Full Year 2023
-
Generated total revenues of approximately
$309.5 million , representing an increase of 12% over 2022. -
Recorded net income attributable to common stockholders of approximately
$164.2 million , or$5.77 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) and normalized funds from operations (Normalized FFO) of approximately
$256.5 million and$234.1 million , increases of 10% and 9% over 2022, respectively. -
Declared dividends to common stockholders totaling
$7.22 per share, increasing IIP’s common stock dividends declared each year since its inception in 2016. -
Committed up to approximately
$119.5 million (excluding transaction costs) for the payment of purchase prices and funding of qualifying building infrastructure improvements for two property acquisitions, lease amendments for three properties, two new leases in the existing portfolio and an additional commitment under a construction loan where IIP is lender. -
Sold a portfolio of properties in March located in
California for$16.2 million (excluding transaction costs), which included secured seller financing with the buyer of the property for$16.1 million (interest only, payable monthly). - Published IIP’s third annual Sustainability Report, highlighting IIP’s commitment to sound environmental management, collaborative community engagement and corporate governance principles that align to the core values of the IIP team, and available on its corporate website at www.innovativeindustrialproperties.com.
- At year-end, IIP’s footprint comprised 108 properties totaling 8.9 million rentable square feet in 19 states.
|
Years Ended |
||||||
(Per share) |
2023 |
|
2022 |
|
$ Change |
|
% Change |
Net income attributable to common stockholders |
|
|
|
|
|
|
5% |
Normalized FFO |
|
|
|
|
|
|
7% |
AFFO |
|
|
|
|
|
|
7% |
Fourth Quarter 2023
Financial Results and Dividend
-
Generated total revenues of approximately
$79.2 million in the quarter, representing a 12% 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. -
Recorded AFFO of approximately
$64.3 million , or$2.28 per share, each increases of 8% from the prior year’s quarter, respectively. -
Paid a quarterly dividend of
$1.82 per common share onJanuary 12, 2024 to stockholders of record as ofDecember 29, 2023 .
|
Three Months Ended |
||||||
(Per share) |
2023 |
|
2022 |
|
$ Change |
|
% Change |
Net income attributable to common stockholders |
|
|
|
|
( |
|
(1%) |
Normalized FFO |
|
|
|
|
|
|
6% |
AFFO |
|
|
|
|
|
|
8% |
Financing Activity
-
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). -
Issued shares of common stock under IIP’s “at-the-market” offering program (ATM Program) for net proceeds of approximately
$9.6 million .
Portfolio – Leasing and New Commitments
-
Executed a new lease for the property located at
9410 Davis Highway inDimondale, Michigan , which is under redevelopment as a regulated cannabis cultivation and processing facility and was previously leased toGreen Peak Industries, Inc. (Green Peak). -
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 .
Portfolio – 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 100% for the fourth quarter.
-
Rent collected for the quarter includes approximately
$0.8 million of security deposits applied for the payment of rent in connection with an amendment with 4Front Ventures Corp. (4Front) at one of IIP’sIllinois properties, and approximately$0.7 million of$1.7 million collected inDecember 2023 from a subsidiary ofSH Parent, Inc. (Parallel) pursuant to a consent judgment awarded in IIP’s favor and applied to rent due from Parallel forOctober 2023 at one of IIP’sPennsylvania properties (Parallel vacated that property onOctober 31, 2023 ).
-
Rent collected for the quarter includes approximately
Year-to-Date 2024
Portfolio – Leasing and New Commitments
-
Amended IIP’s lease and development agreement with
PharmaCann Inc. at one of IIP’sNew York properties to increase the improvement allowance by$16.0 million , adjust base rent accordingly and extend the lease term. -
Executed a new lease with a tenant at one of IIP’s retail properties in
Michigan that was previously leased to Green Peak. -
Executed a non-binding letter of intent with
Lume Cannabis Co. to lease IIP’s property located at10070 Harvest Park inDimondale, Michigan , which is currently occupied by the receiver for Green Peak and expected to be returned to IIP onMarch 1, 2024 .
Financing Activity
-
Amended Loan Agreement to upsize the Revolving Credit Facility to
$45.0 million . -
Exchanged approximately
$4.3 million principal amount of IIP’s 3.75% Exchangeable Senior Notes due 2024 (the Exchangeable Senior Notes) for a combination of cash and shares of IIP common stock prior to maturity, and paid off the remaining$100,000 principal amount at maturity.
Portfolio – Rent Collection
-
Rent collection for IIP’s operating portfolio was 100% year-to-date through
February 2024 .
Balance Sheet Highlights (at
-
12% debt to total gross assets, with approximately
$2.6 billion in total gross assets. -
Total liquidity was approximately
$177.2 million as ofDecember 31, 2023 , consisting of cash and cash equivalents and short-term investments (each as reported in IIP’s consolidated balance sheet as ofDecember 31, 2023 ) and availability under the Revolving Credit Facility. -
No debt maturities until
May 2026 , other than$4.4 million principal amount of Exchangeable Senior Notes which was exchanged or paid off in full subsequent to year-end. - Debt service coverage ratio of 16.4x (calculated in accordance with IIP’s 5.50% Unsecured Senior Notes due 2026).
Property Portfolio Statistics (as of
-
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 8.2 million rentable square feet.
-
Under development / redevelopment portfolio contains five properties expected to comprise 715,000 rentable square feet at completion, of which 460,000 rentable square feet (64% of total) is pre-leased or under a non-binding letter of intent to lease, with the remainder comprised of one property totaling 192,000 square feet in
San Bernardino, California and twelve acres of land to be developed inSan Marcos, Texas . The five properties in the development / redevelopment portfolio are as follows:Perez Road inCathedral City, California (pre-leased)Davis Highway inDimondale, Michigan (pre-leased)63795 19th Avenue inPalm Springs, California (non-binding letter of intent to lease)Inland Center Drive inSan Bernardino, California Leah Avenue inSan Marcos, Texas
-
Operating portfolio:
- 95.8% leased (triple-net).
- Weighted-average remaining lease term: 14.6 years.
-
Total invested / committed capital per square foot:
$275 .
-
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 16% of annualized base rent.
- No state represents more than 15% of annualized base rent.
- Multi-state operators (MSOs) represent 90% 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
For the year ended
For the three months ended
For the year ended
IIP paid a quarterly dividend of
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
In
During the three months and year ended
Subsequent to year-end, IIP exchanged approximately
Supplemental Information
Supplemental financial information is available in the Investor Relations section of IIP’s website at www.innovativeindustrialproperties.com.
Teleconference and Webcast
About
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.
|
||||||||
CONSOLIDATED BALANCE SHEETS |
||||||||
(Unaudited) |
||||||||
(In thousands, except share and per share amounts) |
||||||||
|
|
|
|
|
|
|
||
|
|
|
|
|
||||
Assets |
|
2023 |
|
2022 |
||||
Real estate, at cost: |
|
|
|
|
|
|
||
Land |
|
$ |
142,524 |
|
|
$ |
139,953 |
|
Buildings and improvements |
|
|
2,108,218 |
|
|
|
2,010,628 |
|
Construction in progress |
|
|
117,773 |
|
|
|
54,106 |
|
Total real estate, at cost |
|
|
2,368,515 |
|
|
|
2,204,687 |
|
Less accumulated depreciation |
|
|
(202,692 |
) |
|
|
(138,405 |
) |
Net real estate held for investment |
|
|
2,165,823 |
|
|
|
2,066,282 |
|
Construction loan receivable |
|
|
22,000 |
|
|
|
18,021 |
|
Cash and cash equivalents |
|
|
140,249 |
|
|
|
87,122 |
|
Restricted cash |
|
|
1,450 |
|
|
|
1,450 |
|
Investments |
|
|
21,948 |
|
|
|
200,935 |
|
Right of use office lease asset |
|
|
1,355 |
|
|
|
1,739 |
|
In-place lease intangible assets, net |
|
|
8,245 |
|
|
|
9,105 |
|
Other assets, net |
|
|
30,020 |
|
|
|
30,182 |
|
Total assets |
|
$ |
2,391,090 |
|
|
$ |
2,414,836 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
||
Liabilities: |
|
|
|
|
|
|
||
Exchangeable Senior Notes, net |
|
$ |
4,431 |
|
|
$ |
6,380 |
|
Notes due 2026, net |
|
|
296,449 |
|
|
|
295,115 |
|
Building improvements and construction funding payable |
|
|
9,591 |
|
|
|
29,376 |
|
Accounts payable and accrued expenses |
|
|
11,406 |
|
|
|
10,615 |
|
Dividends payable |
|
|
51,827 |
|
|
|
50,840 |
|
Rent received in advance and tenant security deposits |
|
|
59,358 |
|
|
|
58,716 |
|
Other liabilities |
|
|
5,056 |
|
|
|
1,901 |
|
Total liabilities |
|
|
438,118 |
|
|
|
452,943 |
|
|
|
|
|
|
|
|
||
Stockholders’ equity: |
|
|
|
|
|
|
||
Preferred stock, par value |
|
|
14,009 |
|
|
|
14,009 |
|
Common stock, par value |
|
|
28 |
|
|
|
28 |
|
Additional paid-in capital |
|
|
2,095,789 |
|
|
|
2,065,248 |
|
Dividends in excess of earnings |
|
|
(156,854 |
) |
|
|
(117,392 |
) |
Total stockholders’ equity |
|
|
1,952,972 |
|
|
|
1,961,893 |
|
Total liabilities and stockholders’ equity |
|
$ |
2,391,090 |
|
|
$ |
2,414,836 |
|
|
||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME |
||||||||||||||||
For the Three Months and Years Ended |
||||||||||||||||
(Unaudited) |
||||||||||||||||
(In thousands, except share and per share amounts) |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
For the Three Months Ended |
|
For the Year Ended |
||||||||||||
|
|
|
|
|
||||||||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental (including tenant reimbursements) |
|
$ |
78,615 |
|
|
$ |
69,923 |
|
|
$ |
307,349 |
|
|
$ |
274,377 |
|
Other |
|
|
541 |
|
|
|
538 |
|
|
|
2,157 |
|
|
|
1,982 |
|
Total revenues |
|
|
79,156 |
|
|
|
70,461 |
|
|
|
309,506 |
|
|
|
276,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property expenses |
|
|
7,193 |
|
|
|
3,288 |
|
|
|
24,893 |
|
|
|
10,520 |
|
General and administrative expense |
|
|
10,908 |
|
|
|
10,232 |
|
|
|
42,832 |
|
|
|
38,520 |
|
Depreciation and amortization expense |
|
|
17,098 |
|
|
|
16,302 |
|
|
|
67,194 |
|
|
|
61,303 |
|
Total expenses |
|
|
35,199 |
|
|
|
29,822 |
|
|
|
134,919 |
|
|
|
110,343 |
|
Gain on sale of real estate |
|
|
— |
|
|
|
3,601 |
|
|
|
— |
|
|
|
3,601 |
|
Income from operations |
|
|
43,957 |
|
|
|
44,240 |
|
|
|
174,587 |
|
|
|
169,617 |
|
Interest and other income |
|
|
1,821 |
|
|
|
1,784 |
|
|
|
8,446 |
|
|
|
3,195 |
|
Interest expense |
|
|
(4,145 |
) |
|
|
(4,518 |
) |
|
|
(17,467 |
) |
|
|
(18,301 |
) |
Gain (loss) on exchange of Exchangeable Senior Notes |
|
|
— |
|
|
|
— |
|
|
|
22 |
|
|
|
(125 |
) |
Net income |
|
|
41,633 |
|
|
|
41,506 |
|
|
|
165,588 |
|
|
|
154,386 |
|
Preferred stock dividends |
|
|
(338 |
) |
|
|
(338 |
) |
|
|
(1,352 |
) |
|
|
(1,352 |
) |
Net income attributable to common stockholders |
|
$ |
41,295 |
|
|
$ |
41,168 |
|
|
$ |
164,236 |
|
|
$ |
153,034 |
|
Net income attributable to common stockholders per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
1.46 |
|
|
$ |
1.47 |
|
|
$ |
5.82 |
|
|
$ |
5.57 |
|
Diluted |
|
$ |
1.45 |
|
|
$ |
1.46 |
|
|
$ |
5.77 |
|
|
$ |
5.52 |
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
27,996,393 |
|
|
|
27,938,804 |
|
|
|
27,977,807 |
|
|
|
27,345,047 |
|
Diluted |
|
|
28,279,834 |
|
|
|
28,160,261 |
|
|
|
28,255,797 |
|
|
27,663,169 |
|
|
||||||||||||||||
CONSOLIDATED FFO, NORMALIZED FFO AND AFFO |
||||||||||||||||
For the Three Months and Years Ended |
||||||||||||||||
(Unaudited) |
||||||||||||||||
(In thousands, except share and per share amounts) |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
For the Three Months Ended |
|
For the Year Ended |
||||||||||||
|
|
|
|
|
||||||||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Net income attributable to common stockholders |
|
$ |
41,295 |
|
$ |
41,168 |
|
|
$ |
164,236 |
|
|
$ |
153,034 |
|
|
Real estate depreciation and amortization |
|
|
17,098 |
|
|
|
16,302 |
|
|
|
67,194 |
|
|
|
61,303 |
|
Gain on sale of real estate |
|
|
— |
|
|
|
(3,601 |
) |
|
|
— |
|
|
|
(3,601 |
) |
FFO attributable to common stockholders (basic) |
|
|
58,393 |
|
|
|
53,869 |
|
|
|
231,430 |
|
|
|
210,736 |
|
Cash and non-cash interest expense on Exchangeable Senior Notes |
|
|
50 |
|
|
|
72 |
|
|
|
219 |
|
|
|
546 |
|
FFO attributable to common stockholders (diluted) |
|
|
58,443 |
|
|
|
53,941 |
|
|
|
231,649 |
|
|
|
211,282 |
|
Financing expense |
|
|
— |
|
|
|
249 |
|
|
|
— |
|
|
|
367 |
|
Litigation-related expense |
|
|
152 |
|
|
|
779 |
|
|
|
2,480 |
|
|
|
3,010 |
|
Loss (gain) on exchange of Exchangeable Senior Notes |
|
|
— |
|
|
|
— |
|
|
|
(22 |
) |
|
|
125 |
|
Normalized FFO attributable to common stockholders (diluted) |
|
|
58,595 |
|
|
|
54,969 |
|
|
|
234,107 |
|
|
|
214,784 |
|
Interest income on seller-financed note(1) |
|
|
403 |
|
|
|
— |
|
|
|
1,342 |
|
|
|
— |
|
Stock-based compensation |
|
|
4,934 |
|
|
|
4,312 |
|
|
|
19,581 |
|
|
|
17,507 |
|
Non-cash interest expense |
|
|
383 |
|
|
|
321 |
|
|
|
1,375 |
|
|
|
1,255 |
|
Above-market lease amortization |
|
|
23 |
|
|
|
23 |
|
|
|
92 |
|
|
|
91 |
|
AFFO attributable to common stockholders (diluted) |
|
$ |
64,338 |
|
|
$ |
59,625 |
|
|
$ |
256,497 |
|
|
$ |
233,637 |
|
FFO per common share – diluted |
|
$ |
2.07 |
|
|
$ |
1.92 |
|
|
$ |
8.20 |
|
|
$ |
7.64 |
|
Normalized FFO per common share – diluted |
|
$ |
2.07 |
|
|
$ |
1.95 |
|
|
$ |
8.29 |
|
|
$ |
7.76 |
|
AFFO per common share – diluted |
|
$ |
2.28 |
|
|
$ |
2.12 |
|
|
$ |
9.08 |
|
|
$ |
8.45 |
|
Weighted average common shares outstanding – basic |
|
|
27,996,393 |
|
|
|
27,938,804 |
|
|
|
27,977,807 |
|
|
|
27,345,047 |
|
Restricted stock and RSUs |
|
|
206,667 |
|
|
|
117,831 |
|
|
|
196,821 |
|
|
|
116,046 |
|
Dilutive effect of Exchangeable Senior Notes |
|
|
76,774 |
|
|
|
103,626 |
|
|
|
81,169 |
|
|
|
202,076 |
|
Weighted average common shares outstanding – diluted |
|
|
28,279,834 |
|
|
|
28,160,261 |
|
|
|
28,255,797 |
|
|
|
27,663,169 |
|
____________ |
||
(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 |
FFO and FFO per share are operating performance measures adopted by the
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 all periods presented, as the performance thresholds for vesting of the performance share units were not met as measured as of the respective dates, they were excluded from the calculation of weighted average common shares outstanding – diluted.
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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Chief Financial Officer
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