Innovative Industrial Properties Reports Third Quarter 2018 Results

Quarterly Dividend Increased 40%, Driven by Strong Revenue and
AFFO Growth

SAN DIEGO–(BUSINESS WIRE)–Innovative Industrial Properties, Inc. (NYSE: IIPR) (the “Company”), the
leading provider of creative capital solutions to the medical-use
cannabis industry, announced today results for the quarter ended
September 30, 2018, the seventh full quarter since the Company commenced
real estate operations and completed its initial public offering in
December 2016.

Third Quarter 2018 Highlights

Financial Results and Financing Activity

  • The Company generated total revenues of approximately $3.9 million in
    the quarter, representing an increase of more than 150% from the prior
    year.
  • The Company recorded net income attributable to common stockholders of
    approximately $1.5 million for the quarter, or $0.21 per diluted
    share, and adjusted funds from operations (“AFFO”) of approximately
    $2.6 million, or $0.38 per diluted share. AFFO for the quarter
    represented an increase of more than 250% from the prior year.
  • The Company paid its sixth consecutive quarterly dividend of $0.35 per
    share on October 15, 2018 to stockholders of record as of September
    28, 2018, representing a 40% increase over the Company’s second
    quarter 2018 dividend.
  • Subsequent to the end of the quarter, the Company completed an
    underwritten public offering of 2,990,000 shares of common stock,
    including the exercise in full of the underwriters’ option to purchase
    an additional 390,000 shares, resulting in net proceeds of
    approximately $113.9 million.

Acquisitions

  • In July 2018, the Company acquired a 55,000 square foot cannabis
    cultivation and processing facility in a sale-leaseback transaction
    with Holistic Industries, Inc. (“Holistic”) in Massachusetts for
    $12.75 million (excluding transaction costs).
  • In August 2018, the Company acquired a property in Michigan and
    entered into a long-term lease with Green Peak Industries, LLC (“GPI”)
    for an industrial facility that is expected to comprise approximately
    56,000 square feet upon completion of development, with the Company’s
    total investment in the acquisition and development of the property
    expected to be $13 million (excluding transaction costs).
  • Subsequent to the end of the quarter, in October 2018, the Company
    acquired a 58,000 square foot cannabis cultivation facility in
    Colorado and entered into a long-term lease with The Green Solution,
    LLC (“TGS”) for $11.25 million (excluding transaction costs).

Portfolio Update and Acquisition Activity

Portfolio Update

As of November 7, 2018, the Company owned ten properties located in
Arizona, Colorado, Maryland, Massachusetts, Michigan, Minnesota, New
York and Pennsylvania, totaling approximately 952,000 rentable square
feet (including approximately 114,000 rentable square feet under
development), which were 100% leased with a weighted-average remaining
lease term of approximately 14.7 years. As of November 7, 2018, the
Company had invested approximately $121.5 million in the aggregate
(excluding transaction costs) and had committed an additional
approximately $15.9 million to reimburse certain tenants and sellers for
completion of construction and tenant improvements at the Company’s
properties. The Company’s average current yield on invested capital is
approximately 15.4% for these ten properties, calculated as (a) the sum
of the current base rents, supplemental rent (with respect to the lease
with PharmaCann LLC at one of the Company’s New York properties) and
property management fees (after the expiration of the base rent
abatement period for the PharmaCann Massachusetts property), divided by
(b) the Company’s aggregate investment in these properties (excluding
transaction costs and including aggregate potential development funding
and tenant reimbursements of approximately $15.9 million).

Acquisition Activity

On July 12, 2018, the Company acquired a property in Massachusetts for
$12.75 million (excluding transaction costs) in a sale-leaseback
transaction, and entered into a triple-net lease for the entire property
with Holistic for continued operation as a cannabis cultivation and
processing facility comprising approximately 55,000 square feet of
industrial space.

On August 2, 2018, the Company acquired a property in Michigan under
development and expected to comprise approximately 56,000 square feet of
industrial space upon completion. The initial purchase price for the
property was approximately $5.5 million, and the seller is responsible
for completing certain development milestones, for which the seller is
expected to be reimbursed approximately $5.3 million (the “Additional
Purchase Price”). GPI, the tenant at the property, is also expected to
complete tenant improvements for the building, for which the Company has
agreed to provide reimbursement of up to $2.2 million (the “TI
Allowance”). Assuming full payment for each step of the development, the
Company’s total investment in the property will be $13 million.
Concurrent with the closing of the purchase, the Company entered into a
long-term, triple-net lease agreement with GPI, which intends to use the
facility for medical-use cannabis cultivation and processing upon
completion of development.

On October 30, 2018, the Company acquired an approximately 58,000 square
foot industrial property in Colorado for $11.25 million (excluding
transaction costs) and entered into a long-term, triple-net lease with
TGS for continued operation as a cannabis cultivation facility.

Financial Results

The Company generated total revenues of approximately $3.9 million and
$10.0 million for the three and nine months ended September 30, 2018,
respectively, and total revenues of approximately $1.6 million and $4.1
million for the three and nine months ended September 30, 2017,
respectively. The increases in both periods were due to the Company’s
acquisition of new properties and the annual escalation of base rent for
two of the Company’s leases. Base rent under the lease with the
PharmaCann subsidiary for one of the Massachusetts properties is abated
until November 30, 2018, and base rent under the lease with GPI at the
Michigan property was deferred until November 2, 2018.

For the three months ended September 30, 2018, the Company recorded net
income and net income per diluted share of $1.5 million and $0.21,
respectively; funds from operations (“FFO”) and FFO per diluted share of
$2.2 million and $0.32, respectively; and AFFO and AFFO per diluted
share of $2.6 million and $0.38, respectively. For the three months
ended September 30, 2017, the Company recorded net income and net income
per diluted share of $334,000 and $0.09, respectively; FFO and FFO per
diluted share of $551,000 and $0.16, respectively; and AFFO and AFFO per
diluted share of $724,000 and $0.21, respectively.

For the nine months ended September 30, 2018, the Company recorded net
income and net income per diluted share of $3.3 million and $0.49,
respectively; FFO and FFO per diluted share of $5.0 million and $0.77,
respectively; and AFFO and AFFO per diluted share of $6.1 million and
$0.93, respectively. For the nine months ended September 30, 2017, the
Company recorded a net loss and net loss per basic and diluted share of
($679,000) and ($0.21), respectively; FFO and FFO per basic and diluted
share of ($126,000) and ($0.04), respectively; and AFFO and AFFO per
diluted share of $1.5 million and $0.44, 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. A complete reconciliation containing adjustments
from GAAP net income / (loss) available 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 third quarter 2018 earnings results, but
does expect to conduct a conference call to discuss its fourth quarter
and full-year 2018 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 industrial 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 the Company 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 the Company “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.
The Company 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)

 
Assets

September 30,
2018

 

December 31,
2017

Real estate, at cost:
Land $ 17,812 $ 11,514
Buildings and improvements 78,049 51,315
Tenant improvements 10,829 5,901
Construction in progress   4,678      
Total real estate, at cost 111,368 68,730
Less accumulated depreciation   (2,657 )   (942 )
Net real estate held for investment 108,711 67,788
Cash and cash equivalents 53,019 11,758
Short-term investments, net 3,983
Other assets, net   499     482  
Total assets $ 166,212   $ 80,028  
Liabilities and stockholders’ equity
Accounts payable and accrued expenses $ 1,179 $ 1,082
Tenant improvements and construction payable 4,341
Dividends payable 2,713 1,198
Offering cost liability 21 41
Rents received in advance and tenant security deposits   6,868     4,158  
Total liabilities   15,122     6,479  
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 September 30, 2018 and December 31, 2017
14,009 14,009
Common stock, par value $0.001 per share, 50,000,000 shares
authorized: 6,785,800 and 3,501,147 shares issued and outstanding at
September 30, 2018 and December 31, 2017, respectively
7 4
Additional paid-in capital 137,219 64,000
Accumulated deficit   (145 )   (4,464 )
Total stockholders’ equity   151,090     73,549  
Total liabilities and stockholders’ equity $ 166,212   $ 80,028  
 
     

INNOVATIVE INDUSTRIAL PROPERTIES, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2018 and 2017

(Unaudited)

(In thousands, except share and per share amounts)

 
 

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2018       2017 2018       2017  
Revenues:
Rental $ 3,716 $ 1,495 $ 9,639 $ 4,074
Tenant reimbursements   210     64   365     64  
Total revenues   3,926     1,559   10,004     4,138  
Expenses:
Property expenses 210 64 365 64
General and administrative expense

1,442

983

4,393

4,204

Severance expense 113
Depreciation expense   703     217   1,715     553  
Total expenses   2,355     1,264   6,473     4,934  
Income / (loss) from operations

1,571

295

3,531

(796

)

Interest and other income   261     39   788     117  
Net income / (loss) 1,832 334 4,319 (679 )
Preferred stock dividend   (338 )     (1,014 )    
Net income / (loss) attributable to common stockholders $

1,494

 

$

334

$

3,305

 

$

(679

)

Net income / (loss) attributable to common stockholders per share:
Basic $ 0.22   $ 0.09 $ 0.50   $ (0.21 )
Diluted $ 0.21   $ 0.09 $ 0.49   $ (0.21 )
Weighted average shares outstanding:
Basic 6,636,638 3,392,508 6,388,058 3,369,308
Diluted 6,785,800 3,392,508 6,534,300 3,369,308
Dividends declared per common share $

0.35

$

0.15

$

0.85

$

0.30

 
     

INNOVATIVE INDUSTRIAL PROPERTIES, INC.

 

CONDENSED CONSOLIDATED FFO AND AFFO

For the Three and Nine Months Ended September 30, 2018 and 2017

(Unaudited)

(In thousands, except share and per share amounts)

 

The table below is a reconciliation of net income / (loss) to FFO
and AFFO for the three and nine months ended September 30, 2018
and 2017.

 

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2018     2017 2018     2017  
Net income / (loss) attributable to common stockholders $

1,494

$

334

$

3,305

$

(679

)

Real estate depreciation   703   217   1,715   553  
FFO available to common stockholders

2,197

551

5,020

(126

)

Stock-based compensation 386 173 1,079 1,548
Severance expense         113  
AFFO available to common stockholders $

2,583

$

724

$

6,099

$

1,535

 
FFO per share — basic $ 0.33 $ 0.16 $ 0.79 $ (0.04 )
FFO per share — diluted $ 0.32 $ 0.16 $ 0.77 $ (0.04 )
AFFO per share — basic $ 0.39 $ 0.21 $ 0.95 $ 0.46  
AFFO per share — diluted $ 0.38 $ 0.21 $ 0.93 $ 0.44  
Weighted average shares outstanding — basic

6,636,638

3,392,508

6,388,058

3,369,308

Weighted average shares outstanding — diluted

6,785,800

3,501,147

6,534,300

3,509,166

 

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 (loss), computed in
accordance with accounting principles generally accepted in the United
States (“GAAP”), excluding gains (or losses) from sales of property,
plus depreciation and amortization related to real estate properties,
and after adjustments for unconsolidated partnerships and joint
ventures.”

Management believes that net income (loss), 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
the Company’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. Management believes that by excluding the effect
of depreciation, FFO and FFO per share can facilitate comparisons of
operating performance between periods. The Company 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 by 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.

Management believes that AFFO and AFFO per share are also appropriate
supplemental measures of a REIT’s operating performance. The Company
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 severance expense.

The Company’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 (loss) (computed in accordance with GAAP) as an indicator of the
Company’s financial performance or to cash flow from operating
activities (computed in accordance with GAAP) as an indicator of the
Company’s liquidity, nor is it indicative of funds available to fund the
Company’s cash needs, including the Company’s ability to pay dividends
or make distributions. FFO and AFFO should be considered only as
supplements to net income (loss) computed in accordance with GAAP as
measures of operations.

Contacts

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

leverton

I have been involved with publishing and marketing for the past 32 years. My passion is helping people share their voice. I am able to do this through two important venues: One, with Area-Info.net where people can share everything from opinions to events to news. It is your choice! What do you want to share? Two, through a new program called America's Real Deal I am involved with to help business owners get their voice heard.I schedule speaking engagements with community groups and business groups to share my passion about the importance of "sharing your voice".Contact me directly at lee@leeeverton.coom for scheduling information.