IIPR - Earnings call transcript Q3 2024 | Innovative Industrial Properties, Inc.

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Operator

Good day, and welcome to the Innovative Industrial Properties Third Quarter 2024 Earnings Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Brian Wolfe, General Counsel. Please go ahead.

Brian Wolfe

Thank you for joining the call. Regin, Gold, David Paul Catherine Smith, Operating and Alan Chief President Hastings, are Officer; Officer; Officer. Executive Chief Ben today Executive Smithers, Chairman; and Chief Presenting Investment Chief Financial Officer;

a and risks, with the we materially to XX-K the Private today's reports call of the uncertainties results important the Please Securities documents Act the during actual differ variety meaning Litigation refer I'd statements statements Forms cause identify safe due to the and XXXX, deemed other conference to in everyone the forward-looking Reform may remind factors. from risk statements. Before filed by could that contained actual begin, harbor factors and on differ made of forward-looking most to be results company may within XX-Q, like which of of specifically that SEC, recent the those

update as otherwise. new any obligated not revise forward-looking or are future whether statements, information, to We of result events publicly a or

addition, In normalized FFO. we adjusted non-GAAP certain and FFO as discuss information, will such financial FFO, today's on call,

information filed find the yesterday in well You issued most our earnings this GAAP SEC. financial can reconciliations measure with directly our in as as with release together the X-K comparable to

Alan. the hand call now I'll over Alan? to

Alan Gold

discussed in quarters, overall our performed. had revenues you, total share. Thank industry a in of We portfolio us now, in for tenants quarter solid number pleased Brian, the we of this years quarter detail $XX.X with has regulated for crosswinds past earnings have $X.XX of million you XXXX been we third and to light all that experiencing are AFFO morning call. and joining how have cannabis thanks In third on our and generated the we which a per where in

part based prior we new properties needs and rents to operate, under development, completed. we addition commence be preleased to executed construction full noted requisite obtaining of that without As these the leases expect XXXX tenants where year-to-date, on results approvals achieved for which in impact in these calls, certain we on the to to in

updates Ben and here. provide further Catherine progress will on our further

On be our Maryland closing partners, highly evaluation transaction to a opportunities, with our tenant of on we of last follow-on MCP the investment selective one month. front, continue in in

course, companies most I Of generally. have capital we to what is think of continue real amongst one estate the positions resilient

Our liquidity fully just to expanding that enhanced quarter liquidity total additional continuing $XXX credit further our introducing week, funding million to banks by we as line all ample powder million exceeded strategic with the last new development position two commitments us available revolving of and end, dry for syndicate. and remaining provide and investments $XX.X of

in no to until debt sheets We maturities well detail the have rate position. on as our to REIT XXXX. May total industry debt variable one continue XX% lowest debt results at gross quarter capital the and of assets, for will the no and David balance levered more financial provide

developments. as From a of to results a program additional there's recent we the election about digest and fair talk regulatory perspective, amount most state cycle the

X the on X. rescheduling potential to Schedule progress continued Schedule cannabis addition from In the to of

I Paul? will dynamics. to market thoughts now developments regulatory Paul turn and the on election to discuss results call our over

Paul Smithers

Alan. Thanks,

would supported history where note off, cannabis U.S. presidential results, in to first and regard election is have First presidential with reform. congressional the cycle the we this election both that candidates

remain federal reform note, Republican, that the indicate continuing at cannabis for as has optimistic that and of Senate and level Donald electoral that [ on strong While and of Republican bipartisan received as front. skewing necessary well we Trump a is election growing the course, presidential tentative support the results house votes, ] the the

states current level safe the expected banking the reform forward narrow rights September on encouraging, for federal programs. results with and Presumed and supporting cannabis regulated path the a passing are reform in state-authorized cannabis term, at federal President-elect on on meaningful does hold. operating the also assuming remarks our focus That in Trump's companies cannabis recent near in said, for view

results, their South XX% cycle, to ballots receive failed pass on North Amendment states adult-use use the Looking Dakota voting the had received Florida, to programs Donald In cannabis voters, and at Both adult-use Florida, from support legalization support Dakota from Dakota previous X adult-use majority including to and Dakota support it Nebraska. state for referendums. cannabis, their North cannabis matters voter failed the despite requisite and election X Trump. South medical legalize for in while also

of Finally, Nebraska approved reflecting, of residence. shown again, support with support, for large majority the cannabis a more cannabis program medical-use polls in adoption the Nebraska voters than X/X medical

Assuming Minnesota, it the has some program with the been that for of XXXX, adopted Nebraska of the signature thereafter. access of will majority adult-use Office rejected, the time challenges in cannabis adult-use first the but ballot Cannabis are overwhelming coming, the Management finalize commencing have operations medical-use ongoing regarding of shortly join in legal for to expects program. rules a quarter expectation states And state's quite

the in XXXX. DEA's X continues the Schedule matter, hearing tens likely to X closely was from postponed on of public. on in the be from comments rescheduling a the hearing to watching recently early the factoring and Visibility progress we murky, Regarding to of which thousands received administrative will, on course, December the Schedule rescheduling of X, administrative be cannabis from date

cautiously will forward that progress. continue to remain make we optimistic rescheduling Nonetheless,

markets, see historically continue unchecked markets the cost all to on market, illicit to licensed more untaxed, steps we with compete inflationary pressure we Looking cannabis to consumers have conscious. to dynamics, pressures and since unregulated and programs financial incremental especially while additional general having see positive toward the state the continued combat made online coming do efforts market the illicit more

the X% of size And recently of industry. mere sense billion a California to give certain estimated estimated illicit it is in a the amounts eradication difficult total illicit the million magnitude To is states, year-to-date, market. illicit announced the that while authorities California $XXX of alone that the market seizures illicit of measure, over to of cannabis a or $XX the while market of

seeing some that civil localities New more That additional provided last priorities powered progress and In meaningful penalties tax for legislation operators. authorities. of increased said, we certain enforcement year, states to example, in license passed and have and York, cannabis pursuant against shifted illicit and are to on sales enforcement

M&A strengthening adult-use in which seen XXXX. which license believe illicit has actions potentially continues private be York we the are is we of signs MSO the secured From evidenced to to New challenged, regulated billion markets QX refinancing for market, tenant of and on perspective, a $XXX recently capital more in of seeing the our of activity million closing exceed enforcement pace while a industry sales uptick also in significant by placement in in have a a in contributed senior the notes to market, regulated $X due raising XXXX. on Ascent's debt cannabis most

Of discuss in closely coming to for following execution coming our to like MSOs plans a leasing investment in few course, of have over in we are now the maturities of years, developments debt the of XXXX. with number year-to-date. to and activity that those Ben? maturities monitoring Ben call and QX I'd turn and bulk refinancing the

Ben Regin

Paul. Thanks,

we as made year, selectively in properties, as vacant progress prior new on over the on assets. in of Year-to-date, retenanted capital on million calls covering new have investments our investment execution our good of million. close re-leasing both $XX we've this invested As four noted well we've opportunities just and $XX

processing a tenant million As cannabis in our a press on facility release with and long-term of lease existing in partners. $X.X we noted Maryland acquisition MCP, our yesterday, of a closed executed we one

continue an We active pipeline a basis. to on forward and investments on across markets look executing evaluating new disciplined to selective very track opportunities

perform despite from we where majority noted security partial we the the of market while has our continued forefront, from Tilt for Within tenants the Emerald headwinds release in in as well yesterday, and payments these our collected deposits rent we to portfolio, rent vast press three October. Growth, applied --

ForeFront processing a relating year their development As primarily issues local result of X delivery in delays in cultivation utility. over Illinois, as has well prior from calls, noted the to power we of facility and the experienced of of large-scale in

complete during We are and year. quarter this facility to of see pleased the first operational the

QX, their qualified cannabis delay property this and Massachusetts successfully to to previously flows. that in Temescal cash leased Also to understandably regained another a in Wellness we of impactful bring possession in However, operator was to we'll expected asset. looking be

turn over With that, I'll it to Catherine? Catherine.

Catherine Hastings

and California, the completed of feet operational. Thanks, Ohio, our XXX,XXX tenants. many square development square this ground-up year-to-date now completion foot XXX,XXX Ben. XXXX on cultivation development York, projects Summit Perez which tenants Michigan, projects. We've the leased New in Road Illinois, strong during remaining Green's square completing X is in closing made our in the nearing foot foot which progress project ground-up for We've XXX,XXX of expansion ForeFront's XXX,XXX building development operational XXX% or are in now out foot in XX,XXX our on square in quarter, square in build-out Battle development year,

the are to remaining are assets facilities to We bringing are see success pleased on redevelopment. complete that focused our and under these

Regarding our portfolio.

properties, we As operating redevelopment. term XX leased properties these a weighted portfolio, across of in XX remaining development which XXX,XXX with are XXX quarter owned comprising rentable million of or X XX.X% average of XXX square including XXX September XX, Of feet at our square end states, feet properties was included lease years.

two was one assets quarter XX-acre Texas. end, of properties of XXX,XXX of three space in square land the under the pre-leased parcel warehouse consist Bernardino Of in and remaining redevelopment, feet at and a San development,

annualized XX% diversified base of representing Our portfolio XX% continues of our more and rent our to representing be no tenant state more no one annualized than with rent. well than base

invested in have XX% to largest operators David. multistate to relationships committed square of and replacement total and believe we below our our operating over of company significantly $XXX the And and that, portfolio The foot it tenants. some leased operators, With with turn XX% cost. experienced David? capital leased remains I'll per industry. comprised across We portfolio public operating to most equates of which amount the with

David Smith

Thank you, Catherine.

million $XX.X generated total million Since quarter, a for second of properties the due not due a to XXXX, as and For in same not the third were reclassification of. of million the total to contractually the that we interest due collected possession revenue took back million but loss period X, for during fees revenues, decrease revenues and January the $X $X.X compared in was in of The primarily during $X.X two of property $XX.X quarter million of as to we XXXX, sales-type XXXX. rent quarter leases in management quarter. recognized rent leases received

primarily The year, $X.X and $X.X for this leases new the and contractual additional a a in quarter of entered partially termination relating property as due contractual offset were management rent improvement Revenues property also XXXX. leases decrease second rent existing since to sequentially million the fee into escalations, versus in fees the properties to increase Los lease for million our of amendments Angeles. primarily by at was Esperanza a allowances sale disposition result to down the earned in quarter of quarter onetime of second June

$X.X press owed included our for deposits As applied we third quarter and last million $X.X remainder our due for also noted security of rent results rent totaling we security in deposits of the of for night, October. release ForeFront million contractually payment applied

for monitoring $XX.X a $X.XX primarily closely with per well of in quarter. quarter the third per X% the this of ForeFront's onetime second or was Temis construction million a during quarter loan a share, Gol expect ForeFront secured by second AFFO rent in $X.XX at lease or are million versus and is collection the XXXX, on contractually termination the interest driven share, the progress, Massachusetts what received payments quarter do below We quarter. point, for decrease for and fourth third $X

between tenant's as a are prior state noted to to to transitions, calls, of some to to this may on of for re-leasing new there additional differ rent needed approvals we meaningfully allow stabilization and our regulatory while long-term -- properties certain expect these be operations. our local ramping abatement requirements for level activity at assets rent negotiated the completed we've and As contribute achieved is earnings we the year timeline the

are in X seeing receiving with Harvest on X project, rent Loom we both said, for to next cultivation facility and operation for approvals months. front ramp of space the in the being expected our the Park completion continued with to Michigan That this up progress of Summit

million our we Since sheets most REIT have one on and only gross the balance billion. conservative in $XXX quarter $X.X of the continued industry, in maintained of that XXXX, this debt IPO with of assets

debt Our debt assets XXx. a low gross was and to a ratio was XX% service our strong coverage

sheet balance run strong a liquidity. conservative We expect to to business continue and with the maintain

four with quarter of than is higher investments which comprised quarter we our banks And third and to this million. total of $XXX revolving bringing credit we line of second expanded credit, short-term by cash, our liquidity, slightly Regarding added week, facility. revolving $XX.X the under another over is just finished million and our in to availability total it and liquidity, two the capacity

revolver is which stands capacity now $XX.X undrawn today. as all at of on our total Our of million,

year are from banking We size our that the increasing the a nearly revolver appreciate since ago we have support pleased relationships. of tripled this and

dialogue We are continuing their our the interest joining with to credit banks facility overall have numerous continue to in to regarding capacity. increase

of in Series $X.X our net under proceeds. A the ATM our program Finally, stock in million totaling we opportunistically preferred third issued shares quarter,

a stock the with shares our quarter entered noted we to program saw time, we flexibility provide demand our from preferred for basis second and time As on of preferred issuance ATM common new the previously, we're Series we to the in additional and during A excited of in stock the stock into of forward quarter. offering a

demonstrate we to are positioned our industry continued where we pleased with leverage lowest with Overall, to many have access and are as the markets. balance capital remains REIT we in amongst the sheet strong

turn to I'll Alan. that, Alan? back With it

Alan Gold

note Thanks, of accomplished following by closing. light the David. regulated like the in and in what the has team faced especially of of challenges enduring proud I'm to I'd industry. cannabis some our year-to-date,

be property maximizing portfolio in value the stockholders. We laser-focused our to continue of of benefit on for our each the

where execute see liquidity the our see additional overall investments for as risk-adjusted and to I continue exceptionally from to And we exceptional on well potential returns. company positioned capitalization perspectives

always, As of you, as owners continued thank long-term your company, support. for our

And open up Operator, open it to questions. you with the that, could I'd like to questions. up please call for

Operator

from comes Catherwood question first Tom BTIG. The Instructions] with [Operator

Unknown Analyst

for with In usually Paul. partial some the just challenges the or of Alan amendments by worked paid that time or and starting amendment ahead rent you did paying work out the Or looking out short-term kind Maybe lease doing with QX, they stop tenants did faced past, you've operating that no they or of for in you to blue? come tenants declined? of

Alan Gold

So worked, how and continue what all we well, know are we are are understanding sure tenants going. to of have their that and making work first, on our we -- things businesses with they doing

are going we on with So our of aware tenants. what's

So that's #X.

as for work Illinois. experiencing the power we've through with unusual very want we or done amicable they work when ForeFront to with able two, and shareholders unforeseen Number issues, to and ourselves, such that been themselves. with our we've tenants with I in them are issue addition in positive think And what our a resolution issue and come to to

So then Paul? what do. we And that's

Paul Smithers

Yes.

do Tom, a think, And these to seen with past. how path paying in on you've we've issues situation. each I we take dealt the different

We some is So something COVID, if it's situation tenant. I it, that saw during describe we chain unusual, of supply issues. a with this that work

stops don't to paying see a the if hand, just paying back that take path was it them the very tenant the scans even, of get a the past and restart situation and and regaining possession aggressive rent, for rent other we property. to on reasonable seen we've But is in a the as we

So dependent there's paths take, the really it's two on we and that situation.

Unknown Analyst

what grow of to think less would out decisions. What scenario just experienced before with Appreciate potential it. risk operators. having operators to to -- do is addressable kind a were scale go limited maybe quarter, those operators thoughts. rescheduling once on curve of almost Got making acquisitions more waiting happen to the wait-and-see going market the a see then the how further portfolio And any for in election it for without waiting us like sounded mode, investment with where with acquisitions. over the acquisitions high-quality worries and your than cultivation thought you is Last

Alan Gold

the of because mean I industry a presumption to your political thoughts. talk pipeline weighing pipeline. turn some election, we're a installed think the it kind of on have, or perhaps something all that a over outcome many do that I where mean, can people's is, of is I before I think, sudden that's that, we I Ben still about But strong to we

But the industry it's for around time, around sales to has definitely are industry -- time. be And period And period for X% of revenue a this going to and is not going increase growing. it's year-over-year, expected been long of anywhere. a the

Our growers largest are looking opportunistic of constantly ways their at expanding businesses. of

about believe industry talk significant we've optimistic to continued mean think about you we growth that think that interest pipeline. there be resurgence with I been of Or a And Ben, addition of in the in in advent at rescheduling going the XXXX, positive outcome of to I our sales. a pipeline we to our continued from what all? want cautiously is the is

looking that very We've and... at the seen we've uncertainties given been transactions very, carefully

Ben Regin

Tom, to with again, just To the in through north reiterate, in industry to growth is, in a XXXX very we're see Alan execute highlight the about But quality disciplined the CAGR continuing and basis. was happy what pipeline talking overall. and we're of we're and selective of that XXXX X% the will very expecting seeing we what the those in a on We're on industry. transactions,

William Catherwood

the sticking took early, North me, then back one I And Adams, the know that market can, incremental Massachusetts, if space? investment building And that needed you for the get any in it. Got I outlook Ben, with for is asset for but you what last to backfilling is it's ready?

Catherine Hastings

that. back just We that took can XX. September I handle facility Tom,

we've that assets and re-tenanted. is we've general the fully cannabis is said, have same you seen on And believe process. cultivation facility. facility it we built we in that should like that built-out out early very the So reusability other But a processing the

Operator

Piper comes from question with Goldfarb Sandler. next the And Alexander

Alexander Goldfarb

the on X-parter One of one it issue the with investment quarter. credit. an an made is properties, sounds the Maybe additional in there question and was forefront credit. you tenant have second in Tom's on guys the in continuing A tenant four They just only like properties.

more lease So a just the on get properties. want understanding all maybe bit across on X it to was

of implied order investment then of them properties not on them comfort for on the it one issue and just more to all properties. them. quarter, four power last in giving of some one, more So the on maybe a pay color But

my it And tenant to there a be that then whack ago, -- years be or regarding I used there'd my mole was other word, issue is tenants, a to -- get one. talk sort this the where -- will of two we used another a will words, resolved,

want just a in I a So works, necessarily the business bad of how that few going just tenants It's the therefore, to business. this to surfacing. if few fact, that isn't maybe is, not understand same, but a that always And be part are thing. there's the always

Alan Gold

certainly, ever would We the operating ideal -- guys leased there mean, be we -- I if and you a we would that tenants not bad have But be have environment. get did for Well, boring would of is to kind love any XXX% that. fully situation. -- it

to questions about. been would've You talk us to ask --

us gives to really this opportunities So obviously...

Alexander Goldfarb

excitement. the appreciate we No,

Alan Gold

look, and and industry -- need has ups expand retrench. every downs But sector that every and over real estate tenants has to has

all been The risk so adjusted the no lower different for very paid is high what we're much is we -- of difference rate a believe And risk return profile. -- a we've very than others.

our that a disparity in that, we Ben period long to to lease very the... I'll With turn average capitalize time, to length favor. over on about a have and weighted for that paid we've And it long of talk to continue

Ben Regin

we in far We Illinois with there there. ForeFront. on flow. just question to that the leases by have had round which Sure. investment an the make construction on individual cash was overall to wanted four mean delays do in touch Alex, and on understandably significant did construction, facility ForeFront, largest, impact I the but is I an your out

feel individually, for X market. described, and That look U.S. situations very asset maximize very the the And markets value which about we these Illinois, positive Paul at of top of confident and our We we is the Illinois as to in is the of portfolio, one we're feel issues. in resolution each these looking future in

Alexander Goldfarb

one Is still it what defaulted, the So asset just other were that's three that saying? was the that -- you I paying. hear

Ben Regin

talk into parent leases. I on language to given each just we of going we have size -- going and asset, is have very once our tenant we up to cross-default is with generally, running, this the We and company what to guarantees is meaningful going do again, to should business XXXX. at look that their this think fully overall, on This our just be those. produce all overall

a like once the it's We boost fully Illinois market. operational. to is their that be business really tremendous what to think Illinois deal going in We building

Alexander Goldfarb

guy since of the if to that. is or there And and thing? buys the Or a reflecting maybe their three need everyone read-through whether or -- that states it's legal. worked a good Is Okay. we've is cannabis it that and trend not while Paul, just has on how know I the a ballot don't that? maybe in other states been legalizing a then, seen defeats, it from had scheme is are maybe -- they start tax they've just is don't that's people

trying Just three why defeats wins. a long string versus understand these had we of to

Paul Smithers

let a me Well, it little. up Sure. chop

Coast always a with tremendous with had such starting been the XX If and Colorado. West And those Dakota, call last fruit. that's Dakotas, years, with South momentum we've you you the challenge. North look low-hanging a might And at the starting in

getting big challenging. But be the Dakotas, it's challenge. a positive. Nebraska always of obviously, Now legal XX that challenge, be passed that's to medical, states, the might we the issue Florida. to a it's now going get but in a part this With there

DeSantis Governor very And there ton spent XX% Florida aggressive. and got opposition was money a got and of approval,

a the are disappointed, in industry XX%. in always be of hit means think to was no But to out by I the while we lot going Florida. are a that challenge So us

the I ballot. it's expect think and X see lesson, years a it learning I to on again in

the revenue that's I type that, get to and beautifully most jobs look just that I think and a of were ki*ler, I if states have question. don't -- public. And a momentum tax battles your performing already to the tougher the part that been mentioned, now at because as as easier and the lot a a get not for little are I for of there would generating

very see canvases about to obviously continue very supports increasingly We're bipartisan that's cannabis. as see He's we the regard really a encouraged He we're to Donald issue. happy a And very election. state's and think becoming Overall, cannabis record safe President issue. good as banking supporting on a We rescheduling. the with Trump to development. he looks at rights

expect We no those to continue. don't see We reason for to positions. change that them

we're could safe what with for the think So Senate. term banking. to we new happy the We're level. in happen about very next excited departure, We in Mitch Republican see life Senate the have at the very McConnell's federal

think we rescheduling. that does And increase control, as the Republican house safe if banking that chances in for remains well as

a you So going that. to kind ask but question results, the knew of election about -- I dovetailed into were in

of it got with for very you. industry. happy results So what ahead the election I means and We're the

Operator

concludes any This our question-and-answer like back to for Gold to I would conference turn closing the remarks. Alan over session.

Alan Gold

their you, know quarter, thank and all and activity for continued call. shareholders to team finish the strong lot support. in and With was can thank really want and that, work, joining. we thank great you for I thank Well, I the their very the there of you. for Thank the a

Operator

today's attending The presentation. conference has Thank for concluded. you now

now disconnect. may You

Innovative Industrial Properties (IIPR) 7 Nov 242024 Q3 Earnings call transcript