Innovative Industrial Properties Reports First Quarter 2021 Results

SAN DIEGO–(BUSINESS WIRE)–Innovative Industrial Properties, Inc. (IIP), 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 first quarter ended March 31, 2021.

First Quarter 2021 and Year-to-Date Highlights

Financial Results

  • Generated total revenues of approximately $42.9 million in the quarter, representing a 103% increase from the prior year’s first quarter.
  • Recorded net income attributable to common stockholders of approximately $25.6 million for the quarter, or $1.05 per diluted share, and adjusted funds from operations (“AFFO”) of approximately $38.4 million, or $1.47 per diluted share (Note: AFFO per diluted share for the period includes the dilutive impact of the assumed full exchange of IIP’s $143.75 million of exchangeable senior notes for shares of common stock).
  • Paid a quarterly dividend of $1.32 per share on April 15, 2021 to common stockholders of record as of March 31, 2021, representing a 32% increase over the first quarter 2020’s dividend and an approximately 6% increase over the fourth quarter 2020 dividend.

Investment and Leasing Activity

  • From January 1, 2021 through today, made four acquisitions (including three new properties and additional land expansion at an existing property) for properties located in California, Florida, Michigan and Texas; and executed three lease amendments to provide additional tenant improvements at properties located in Michigan, New York and Pennsylvania.
  • In January 2021, executed a new long-term lease with Holistic Industries Inc. (Holistic) for IIP’s Los Angeles, California property, bringing IIP’s property portfolio to 100% leased.
  • In these transactions, established a new tenant relationship with Harvest Health & Recreation Inc., while expanding existing relationships with Green Peak Industries, LLC (Skymint), Holistic, Jushi Holdings Inc., Kings Garden Inc., LivWell Holdings, Inc., Parallel and PharmaCann Inc.

Balance Sheet Highlights (at March 31, 2021)

  • Approximately $122.1 million in cash and cash equivalents and approximately $539.3 million in short-term investments, totaling approximately $661.4 million.
  • No debt, other than approximately $143.75 million of 3.75% exchangeable senior notes maturing in 2024 (the Exchangeable Senior Notes), representing a fixed cash interest obligation of approximately $5.4 million annually, or approximately $1.3 million quarterly.
  • 7.8% debt to total gross assets, with over $1.8 billion in total gross assets.

Portfolio Update and Acquisition Activity

Portfolio Update

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, 2021 through May 5, 2021 (dollars in thousands):

State

 

Closing Date

 

Rentable
Sq. Ft.(1)

 

Purchase
Price(2)

 

Additional
Investment

 

Total
Investment

 

California

 

January 7, 2021

 

 

N/A

 

$

N/A

 

$

11,000

 

$

11,000

(3)

Florida

 

January 22, 2021

  

295,000

  

23,800

  

10,750

  

34,550

(4)

California

 

February 5, 2021

 

 

180,000

 

 

1,350

 

 

51,375

 

 

52,725

(5)

Michigan

 

February 16, 2021

  

N/A

  

N/A

 

 

6,895

 

 

6,895

(6)

New York

 

February 26, 2021

 

 

N/A

 

 

N/A

 

 

2,500

 

 

2,500

(7)

Texas

 

March 10, 2021

  

63,000

  

3,400

 

 

24,000

 

 

27,400

(8)

Pennsylvania

 

April 1, 2021

  

40,000

  

N/A

 

 

30,000

 

 

30,000

(9)

Michigan

 

April 16, 2021

 

 

175,000

 

 

15,550

 

 

14,450

 

 

30,000

(10)

 

 

Totals

 

 

753,000

 

$

44,100

 

$

150,970

 

$

195,070

 

_______________

(1)

 

Includes expected rentable square feet at completion of construction for certain properties.

(2)

 

Excludes transaction costs.

(3)

 

The amount relates to a new lease executed at IIP’s Los Angeles, California property, which provides for a tenant improvement allowance of up to $11.0 million.

(4)

 

The tenant is expected to complete tenant improvements at the property, for which IIP agreed to provide reimbursement of up to approximately $10.8 million.

(5)

 

The amounts relate to the acquisition of additional land adjacent to an existing property and a lease amendment which provided a tenant improvement allowance and resulted in a corresponding adjustment to the base rent for the lease at the property. The tenant is expected to complete construction of two new buildings at the property comprising approximately 180,000 square feet in the aggregate, for which IIP agreed to provide reimbursement of up to approximately $51.4 million.

(6)

 

The amount relates to a lease amendment which increased the tenant improvement allowance under a lease at one of IIP’s Michigan properties by approximately $6.9 million to a total of approximately $29.9 million, and also resulted in a corresponding adjustment to the base rent for the lease at the property.

(7)

 

The amount relates to amendments to IIP’s lease and development agreement which increased construction funding at one of IIP’s New York properties by $2.5 million to a total of $33.5 million, and also resulted in a corresponding adjustment to the base rent for the lease at the property.

(8)

 

The tenant is expected to construct three buildings at the property, for which IIP agreed to provide reimbursement of up to $24.0 million.

(9)

 

The amount relates to a lease amendment which increased the tenant improvement allowance under a lease at one of IIP’s Pennsylvania properties by $30.0 million to a total of approximately $40.0 million, and also resulted in a corresponding adjustment to the base rent for the lease at the property. With this additional tenant improvement allowance, the tenant is expected to expand the facility by approximately 40,000 square feet and complete the buildout of the existing 89,000 square foot building.

(10)

 

The tenant is expected to complete tenant improvements at the property, for which IIP agreed to provide reimbursement of up to approximately $14.5 million.

As of May 5, 2021, IIP owned 69 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Texas, Virginia and Washington, representing a total of approximately 6.2 million rentable square feet (including approximately 2.3 million rentable square feet under development/redevelopment), which were 100% leased with a weighted-average remaining lease term of approximately 16.7 years. As of May 5, 2021, IIP had invested approximately $1.2 billion across its portfolio and had committed an additional approximately $339.5 million to reimburse certain tenants and sellers for completion of construction and tenant improvements at IIP’s properties.

Capital Markets Activity

IIP did not conduct any capital raising activities during the year-to-date through May 5, 2021 and had approximately $231.7 million in shares of common stock available for issuance under the ATM Program.

Financial Results

IIP generated total revenues of approximately $42.9 million for the three months ended March 31, 2021, compared to approximately $21.1 million for the same period in 2020, an increase of 103%. The increase was driven primarily by the acquisition and leasing of new properties, additional tenant improvement allowances and construction funding at existing properties resulting in adjustments to base rent, and contractual rental escalations at certain properties.

For the three months ended March 31, 2021, IIP recorded net income attributable to common stockholders and net income attributable to common stockholders per diluted share of approximately $25.6 million and $1.05, respectively; funds from operations (“FFO”) (diluted) and FFO per diluted share of approximately $36.3 million and $1.39, respectively; and AFFO and AFFO per diluted share of approximately $38.4 million and $1.47, respectively. In the first quarter 2021, FFO (diluted), AFFO and 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, resulting in the “add-back” to FFO (diluted) from net income of approximately $1.9 million in cash and non-cash interest expense, and the addition of approximately 2.2 million shares to IIP’s total diluted share count for the quarter. The Exchangeable Senior Notes were anti-dilutive for purposes of calculating earnings per diluted share for the first quarter 2020, and as such, treated as anti-dilutive for purposes of calculating FFO, AFFO and FFO and AFFO per diluted share for that period.

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 and AFFO and definitions of terms are included at the end of this release.

Teleconference and Webcast

Innovative Industrial Properties, Inc. will not be conducting a conference call to discuss its first quarter 2021 earnings results, but does expect to conduct a conference call to discuss its second quarter 2021 earnings results. IIP’s current policy is generally to conduct earnings conference calls two times per year, for its second quarter earnings results and fourth quarter and full-year earnings results.

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 medical-use 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

 

2021

 

 

2020

 

Real estate, at cost:

 

 

 

 

 

 

Land

 

$

79,991

 

 

$

75,660

 

Buildings and improvements

 

 

691,529

 

 

 

644,932

 

Tenant improvements

 

 

408,610

 

 

 

339,647

 

Construction in progress

 

 

2,433

 

 

 

 

Total real estate, at cost

 

 

1,182,563

 

 

 

1,060,239

 

Less accumulated depreciation

 

 

(49,033

)

 

 

(40,195

)

Net real estate held for investment

 

 

1,133,530

 

 

 

1,020,044

 

Cash and cash equivalents

 

 

122,133

 

 

 

126,006

 

Investments

 

 

539,323

 

 

 

619,275

 

Right of use office lease asset

 

 

922

 

 

 

980

 

Other assets, net

 

 

2,022

 

 

 

1,776

 

Total assets

 

$

1,797,930

 

 

$

1,768,081

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Exchangeable senior notes, net

 

$

137,218

 

 

$

136,693

 

Tenant improvements and construction funding payable

 

 

66,074

 

 

 

36,500

 

Accounts payable and accrued expenses

 

 

2,358

 

 

 

4,641

 

Dividends payable

 

 

31,998

 

 

 

30,065

 

Office lease liability

 

 

998

 

 

 

1,057

 

Rent received in advance and tenant security deposits

 

 

41,666

 

 

 

34,153

 

Total liabilities

 

 

280,312

 

 

 

243,109

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2021 and December 31, 2020

 

 

14,009

 

 

 

14,009

 

Common stock, par value $0.001 per share, 50,000,000 shares authorized: 23,926,317 and 23,936,928 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

24

 

 

 

24

 

Additional paid-in capital

 

 

1,557,776

 

 

 

1,559,059

 

Dividends in excess of earnings

 

 

(54,191

)

 

 

(48,120

)

Total stockholders’ equity

 

 

1,517,618

 

 

 

1,524,972

 

Total liabilities and stockholders’ equity

 

$

1,797,930

 

 

$

1,768,081

 

INNOVATIVE INDUSTRIAL PROPERTIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

(In thousands, except share and per share amounts)

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

Revenues:

 

 

 

 

 

 

 

Rental (including tenant reimbursements)

 

$

42,885

 

 

$

21,130

 

 

Total revenues

 

 

42,885

 

 

 

21,130

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

Property expenses

 

 

770

 

 

 

600

 

 

General and administrative expense

 

 

5,600

 

 

 

3,346

 

 

Depreciation expense

 

 

8,839

 

 

 

4,907

 

 

Total expenses

 

 

15,209

 

 

 

8,853

 

 

Income from operations

 

 

27,676

 

 

 

12,277

 

 

Interest and other income

 

 

124

 

 

 

1,444

 

 

Interest expense

 

 

(1,873

)

 

 

(1,849

)

 

Net income

 

 

25,927

 

 

 

11,872

 

 

Preferred stock dividends

 

 

(338

)

 

 

(338

)

 

Net income attributable to common stockholders

 

$

25,589

 

 

$

11,534

 

 

Net income attributable to common stockholders per share:

 

 

 

 

 

 

 

Basic

 

$

1.07

 

 

$

0.72

 

 

Diluted

 

$

1.05

 

 

$

0.72

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

23,889,398

 

 

 

15,784,296

 

 

Diluted

 

 

26,152,551

 

 

 

15,898,091

 

 

INNOVATIVE INDUSTRIAL PROPERTIES, INC.

CONDENSED CONSOLIDATED FFO AND AFFO

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

2020

 

Net income attributable to common stockholders

 

$

25,589

 

$

11,534

 

Real estate depreciation

 

 

8,839

 

 

4,907

 

FFO attributable to common stockholders (basic)

 

 

34,428

 

 

16,441

 

Cash and non-cash interest expense

 

 

1,873

 

 

 

FFO attributable to common stockholders (diluted)

 

 

36,301

 

 

16,441

 

Stock-based compensation

 

 

2,101

 

 

825

 

Non-cash interest expense

 

 

 

 

501

 

AFFO attributable to common stockholders

 

$

38,402

 

$

17,767

 

FFO per common share – basic

 

$

1.44

 

$

1.04

 

FFO per common share – diluted

 

$

1.39

 

$

1.03

 

AFFO per common share – basic

 

$

1.55

 

$

1.13

 

AFFO per common share – diluted

 

$

1.47

 

$

1.12

 

Weighted average common shares outstanding – basic

 

 

23,889,398

 

 

15,784,296

 

Restricted stock and restricted stock units

 

 

92,194

 

 

113,795

 

Dilutive effect of Exchangeable Senior Notes

 

 

2,170,959

 

 

 

Weighted average common shares outstanding – diluted

 

 

26,152,551

 

 

15,898,091

 

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 important 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. FFO and FFO per share are used by management to evaluate the REIT’s operating performance and these measures are the predominant measures used by the REIT industry and industry analysts to evaluate REITs. For these reasons, management has deemed it appropriate to disclose and discuss FFO and FFO per share.

Management believes that AFFO and AFFO per share are also appropriate supplemental measures of a REIT’s operating performance. IIP calculates AFFO by adding to FFO certain non-cash and infrequent or unpredictable expenses which may impact comparability, consisting of non-cash stock-based compensation expense and non-cash interest expense generally.

For the three months ended March 31, 2021, FFO (diluted), AFFO and 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. As a result, for purposes of calculating FFO (diluted), cash and non-cash interest expense of the Exchangeable Senior Notes totaling approximately $1.9 million was added back to FFO (diluted), and the total diluted weighted-average common shares outstanding increased by 2,170,959 shares for the period, which were the potentially issuable shares as if the Exchangeable Senior Notes were exchanged at the beginning of the period. These adjustments applied only for the three months ended March 31, 2021. The Exchangeable Senior Notes were anti-dilutive for purposes of calculating earnings per diluted share for the first quarter 2020, and as such, were treated as anti-dilutive for purposes of calculating FFO, AFFO and FFO and AFFO per diluted share for that period.

IIP’s computation of FFO and AFFO may differ from the methodology for calculating FFO and AFFO utilized by other equity REITs and, accordingly, may not be comparable to such REITs. Further, FFO and AFFO do not represent cash flow available for management’s discretionary use. 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 and AFFO should be considered only as supplements to net income computed in accordance with GAAP as measures of IIP’s operations.

Contacts

Catherine Hastings
Chief Financial Officer
Innovative Industrial Properties, Inc.
(858) 997-3332

 

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