Investments and Portfolio Performance Drive
Q2 Y-O-Y Growth of 101% in Total Revenues, 124% in Net Income and
104% in AFFO
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 quarter ended June 30, 2021.
Second Quarter 2021 and Subsequent Events Highlights
Financial Results and Financing Activity
- Generated total revenues of approximately $48.9 million in the
quarter, representing a 101% increase from the prior year’s second
quarter.
- Recorded net income attributable to common stockholders of
approximately $29.0 million for the quarter, or $1.17 per diluted
share, and adjusted funds from operations (AFFO) of approximately
$43.0 million, or $1.64 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
(the Exchangeable Senior Notes) for shares of common stock).
- Paid a quarterly dividend of $1.40 per share on July 15, 2021
to common stockholders of record as of June 30, 2021, representing
an approximately 32% increase over the second quarter 2020’s
dividend.
- Obtained an investment grade rating from a national rating
agency and closed on a $300.0 million private placement of 5.50%
unsecured senior notes due May 2026 (the Unsecured Senior
Notes).
Investment Activity
- From April 1, 2021 through today, made five acquisitions for
properties located in Illinois, Massachusetts, Michigan and
Pennsylvania; and executed three lease amendments to provide
additional tenant improvements at properties located in Florida and
Pennsylvania.
- In these transactions, established new tenant relationships
with Sozo Companies, Inc. and Temescal Wellness of Massachusetts,
LLC, while expanding existing relationships with 4Front Ventures
Corp., Green Peak Industries LLC (Skymint), Harvest Health &
Recreation Inc., Jushi Holdings Inc. and Parallel.
Balance Sheet Highlights (at June 30, 2021)
- Approximately $156.3 million in cash and cash equivalents and
approximately $649.4 million in short-term investments, totaling
approximately $805.7 million.
- 21% debt to total gross assets, with approximately $2.1 billion
in total gross assets and no secured debt.
Portfolio Update and Investment 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 April 1, 2021 through today
(dollars in thousands):
State
Closing Date
Rentable Sq. Ft.(1)
Purchase Price(2)
Additional Investment
Total Investment
Pennsylvania
April 1, 2021
40,000
N/A
30,000
30,000
(3)
Michigan
April 16, 2021
175,000
15,550
14,450
30,000
(4)
Pennsylvania
May 13, 2021
239,000
41,750
26,000
67,750
(5)
Michigan
May 14, 2021
85,000
10,250
5,750
16,000
(6)
Massachusetts
May 26, 2021
70,000
3,100
15,000
18,100
(7)
Florida
June 8, 2021
N/A
N/A
8,000
8,000
(8)
Florida
June 18, 2021
N/A
N/A
7,100
7,100
(9)
Illinois
August 3, 2021
250,000
6,500
43,750
50,250
(10)
Totals
859,000
$
77,150
$
150,050
$
227,200
____________
(1)
Includes expected rentable square feet at
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 $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.
(4)
The tenant is expected to complete tenant
improvements at the property, for which IIP agreed to provide
reimbursement of up to approximately $14.4 million.
(5)
The tenant is expected to complete tenant
improvements at the property, for which IIP agreed to provide
reimbursement of up to $26.0 million.
(6)
The tenant is expected to complete tenant
improvements at the property, for which IIP agreed to provide
reimbursement of up to approximately $5.7 million.
(7)
The tenant is expected to complete tenant
improvements at the property, for which IIP agreed to provide
reimbursement of up to $15.0 million.
(8)
The amount relates to a lease amendment
which increased the tenant improvement allowance under a lease at
one of IIP’s Florida properties by $8.0 million to a total of $16.2
million, and also resulted in a corresponding adjustment to the
base rent for the lease at the property.
(9)
The amount relates to a lease amendment
which increased the tenant improvement allowance under a lease at
one of IIP’s Florida properties by $7.1 million to a total of
approximately $17.9 million, and also resulted in a corresponding
adjustment to the base rent for the lease at the property.
(10)
The tenant is expected to construct
approximately 250,000 square feet of industrial space at the
property, for which IIP agreed to provide reimbursement of up to
approximately $43.8 million.
In addition, on June 25, 2021, IIP closed on a construction loan
with a developer for the construction of a regulated cannabis
cultivation and processing facility in California. IIP is expected
to lend up to $18.5 million to the developer for the construction
of an approximately 102,000 square foot building. Following
completion of development of the property, IIP has an option to
purchase the property, and may execute a negotiated lease with an
affiliate of the developer or with another third party, if IIP
determines to exercise its purchase option. The developer is
required to complete construction by June 2022, subject to
extension in certain circumstances, and the maturity date for the
construction loan is December 25, 2022, with interest payable at
maturity.
As of August 4, 2021, IIP owned 73 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 6.8 million rentable square
feet (including approximately 2.4 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 August 4, 2021, IIP had invested approximately $1.3 billion
across its portfolio and had committed an additional approximately
$358.3 million to reimburse certain tenants and sellers for
completion of construction and tenant improvements at IIP’s
properties, excluding the $18.5 million construction loan from IIP
to a developer for the development of a regulated cannabis
cultivation and processing facility in California.
Financing Activity
In May 2021, IIP, through its operating partnership subsidiary
(the Operating Partnership), obtained an investment grade rating
from a national rating agency and subsequently issued $300 million
aggregate principal amount of the Unsecured Senior Notes in a
private placement. The Unsecured Senior Notes are the Operating
Partnership’s general unsecured and unsubordinated obligations, are
fully and unconditionally guaranteed by IIP and the Operating
Partnership’s subsidiaries, and rank equally in right of payment
with all of the Operating Partnership’s existing and future senior
unsecured indebtedness, including its Exchangeable Senior Notes.
The Unsecured Senior Notes are governed by an indenture, which
includes certain covenants.
The sale of the Unsecured Senior Notes generated net proceeds of
approximately $293 million, after deducting the initial purchasers’
discounts and commissions and offering expenses. The Unsecured
Senior Notes bear interest at 5.50% per annum, payable
semi-annually in arrears on May 15 and November 15 of each year,
until the maturity date of May 25, 2026. IIP intends to use the net
proceeds from the offering to invest in specialized industrial real
estate assets that support the regulated cannabis industry that are
consistent with its investment strategy, and for general corporate
purposes.
Financial Results
IIP generated total revenues of approximately $48.9 million for
the three months ended June 30, 2021, compared to approximately
$24.3 million for the same period in 2020, an increase of 101%. 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 June
30, 2021 included $625,000 in stipulated rent paid by the
receivership at IIP’s Los Angeles, California property relating to
rent owed by the receivership in 2020 (the receivership concluded
and IIP re-leased the property in January 2021 to a subsidiary of
Holistic Industries, Inc.). Total revenues for the three months
ended June 30, 2020 included the drawdown of part of the security
deposits totaling approximately $743,000 at certain properties
leased by three tenants as part of the temporary rent deferral
programs put in place last year at the onset of the COVID-19
pandemic. As of June 30, 2021, approximately $1.3 million of the
deferred rents, property management fees and security deposits have
been repaid. The remaining total balance of approximately $1.2
million is scheduled for pro rata monthly payments and to be repaid
in full by December 2021.
IIP generated total revenues of approximately $91.8 million for
the six months ended June 30, 2021, compared to approximately $45.5
million for the same period in 2020, an increase of 102%. 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. Total revenues for the six months ended June
30, 2020 also included approximately $422,000 of tenant
reimbursements, rent collected and associated lease penalties
through the drawdown of the security deposit at IIP’s Los Angeles,
California property, where the tenant was in receivership and
defaulted on its lease obligations, and the drawdown of part of the
security deposits totaling approximately $940,000 at certain
properties as part of the temporary rent deferral programs with the
three tenants described above.
For the three months ended June 30, 2021, IIP recorded net
income attributable to common stockholders and net income
attributable to common stockholders per diluted share of
approximately $29.0 million and $1.17, respectively; funds from
operations (“FFO”) (diluted) and FFO per diluted share of
approximately $40.7 million and $1.56, respectively; and AFFO and
AFFO per diluted share of approximately $43.0 million and $1.64,
respectively.
For the six months ended June 30, 2021, IIP recorded net income
attributable to common stockholders and net income attributable to
common stockholders per diluted share of approximately $54.6
million and $2.22, respectively; FFO (diluted) and FFO per diluted
share of approximately $77.0 million and $2.94, respectively; and
AFFO and AFFO per diluted share of approximately $81.4 million and
$3.11, respectively.
For the three and six months ended June 30, 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 was added back to FFO, and the total
diluted weighted-average common shares outstanding increased by
2,182,691 shares for both periods, which were the potentially
issuable shares as if the Exchangeable Senior Notes were exchanged
at the beginning of the respective periods. These adjustments
applied only for the three and six months ended June 30, 2021. The
Exchangeable Senior Notes were anti-dilutive for purposes of
calculating earnings per diluted share for the three and six months
ended June 30, 2020, and as such, were treated as anti-dilutive for
purposes of calculating FFO, AFFO and FFO and AFFO per diluted
share for those periods.
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 conduct a conference
call and webcast at 10:00 a.m. Pacific Time (1:00 p.m. Eastern
Time) on Thursday, August 5, 2021 to discuss IIP’s financial
results and operations for the second quarter ended June 30, 2021.
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 Thursday, August
5, 2021 until 12:00 p.m. Pacific Time on Thursday, August 12, 2021,
by calling 1-877-344-7529 (domestic), 855-669-9658 (Canada) or
1-412-317-0088 (international) and using access code 10158821.
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)
June 30,
December 31,
Assets
2021
2020
Real estate, at cost:
Land
$
91,659
$
75,660
Buildings and improvements
763,266
644,932
Tenant improvements
476,974
339,647
Construction in progress
3,835
—
Total real estate, at cost
1,335,734
1,060,239
Less accumulated depreciation
(58,875
)
(40,195
)
Net real estate held for investment
1,276,859
1,020,044
Construction loan
6,000
—
Cash and cash equivalents
156,314
126,006
Investments
649,352
619,275
Right of use office lease asset
866
980
Other assets, net
1,457
1,776
Total assets
$
2,090,848
$
1,768,081
Liabilities and stockholders’
equity
Exchangeable senior notes, net
$
137,749
$
136,693
Unsecured senior notes, net
293,438
—
Tenant improvements and construction
funding payable
60,670
36,500
Accounts payable and accrued expenses
4,865
4,641
Dividends payable
33,922
30,065
Other liabilities
3,191
1,057
Rent received in advance and tenant
security deposits
41,846
34,153
Total liabilities
575,681
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 June 30, 2021
and December 31, 2020
14,009
14,009
Common stock, par value $0.001 per share,
50,000,000 shares authorized: 23,928,304 and 23,936,928 shares
issued and outstanding at June 30, 2021 and December 31, 2020,
respectively
24
24
Additional paid-in capital
1,559,908
1,559,059
Dividends in excess of earnings
(58,774
)
(48,120
)
Total stockholders’ equity
1,515,167
1,524,972
Total liabilities and stockholders’
equity
$
2,090,848
$
1,768,081
INNOVATIVE INDUSTRIAL
PROPERTIES, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
For the Three and Six Months
Ended June 30, 2021 and 2020
(Unaudited)
(In thousands, except share and
per share amounts)
For the Three Months
Ended
For the Six Months
Ended
June 30,
June 30,
2021
2020
2021
2020
Revenues:
Rental (including tenant
reimbursements)
$
48,867
$
24,346
$
91,752
$
45,476
Total revenues
48,867
24,346
91,752
45,476
Expenses:
Property expenses
482
414
1,252
1,014
General and administrative expense
5,604
3,010
11,204
6,356
Depreciation expense
9,841
6,746
18,680
11,653
Total expenses
15,927
10,170
31,136
19,023
Income from operations
32,940
14,176
60,616
26,453
Interest and other income
91
989
215
2,433
Interest expense
(3,692
)
(1,855
)
(5,565
)
(3,704
)
Net income
29,339
13,310
55,266
25,182
Preferred stock dividends
(338
)
(338
)
(676
)
(676
)
Net income attributable to common
stockholders
$
29,001
$
12,972
$
54,590
$
24,506
Net income attributable to common
stockholders per share:
Basic
$
1.21
$
0.73
$
2.27
$
1.46
Diluted
$
1.17
$
0.73
$
2.22
$
1.45
Weighted-average shares outstanding:
Basic
23,889,761
17,530,721
23,889,580
16,657,509
Diluted
26,168,682
17,644,829
26,166,494
16,771,460
INNOVATIVE INDUSTRIAL
PROPERTIES, INC.
CONDENSED CONSOLIDATED FFO AND
AFFO
For the Three and Six Months
Ended June 30, 2021 and 2020
(Unaudited)
(In thousands, except share and
per share amounts)
For the Three Months
Ended
For the Six Months
Ended
June 30,
June 30,
2021
2020
2021
2020
Net income attributable to common
stockholders
$
29,001
$
12,972
$
54,590
$
24,506
Real estate depreciation
9,841
6,746
18,680
11,653
FFO attributable to common stockholders
(basic)
38,842
19,718
73,270
36,159
Cash and non-cash interest expense on
Exchangeable Senior Notes
1,879
—
3,752
—
FFO attributable to common stockholders
(diluted)
40,721
19,718
77,022
36,159
Stock-based compensation
2,132
822
4,232
1,647
Non-cash interest expense
118
507
118
1,008
AFFO attributable to common
stockholders
$
42,971
$
21,047
$
81,372
$
38,814
FFO per common share – basic
$
1.63
$
1.12
$
3.07
$
2.17
FFO per common share – diluted
$
1.56
$
1.12
$
2.94
$
2.16
AFFO per common share – basic
$
1.74
$
1.20
$
3.29
$
2.33
AFFO per common share – diluted
$
1.64
$
1.19
$
3.11
$
2.31
Weighted average common shares outstanding
– basic
23,889,761
17,530,721
23,889,580
16,657,509
Restricted stock and RSUs
96,230
114,108
94,223
113,951
Dilutive effect of Exchangeable Senior
Notes
2,182,691
—
2,182,691
—
Weighted average common shares outstanding
– diluted
26,168,682
17,644,829
26,166,494
16,771,460
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 and six months ended June 30, 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 was added back to FFO, and the total
diluted weighted-average common shares outstanding increased by
2,182,691 shares for both periods, which were the potentially
issuable shares as if the Exchangeable Senior Notes were exchanged
at the beginning of the respective periods. These adjustments
applied only for the three and six months ended June 30, 2021. The
Exchangeable Senior Notes were anti-dilutive for purposes of
calculating earnings per diluted share for the three and six months
ended June 30, 2020, and as such, were treated as anti-dilutive for
purposes of calculating FFO, AFFO and FFO and AFFO per diluted
share for the three and six months ended June 30, 2020.
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210804006089/en/
Catherine Hastings Chief Financial Officer Innovative Industrial
Properties, Inc. (858) 997-3332
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